Good morning and welcome to Sysco First Quarter Fiscal 2022 Conference Call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I will now like to turn the call over to Neil Russell, Senior Vice President of Corporate Affairs and Chief Communications Officer. Please go ahead.

Good morning, everyone, and welcome to Sysco's First Quarter Fiscal 2022 Earnings Call. On today's call we have, Kevin Hourican, our President and Chief Executive Officer, and Aaron Alt, our Chief Financial Officer. Before we begin, please note that statements made during this presentation, which state the Company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause the results to differ from those in the forward-looking statements is contained in the Company's SEC filings. This includes but is not limited to, risk factors contained in our annual report on Form 10-K for the year ended July 3, 2021 subsequent SEC filings and in the news release issued earlier this morning. A copy of these materials can be found in the investors section at sysco.com. non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our President and Chief Executive Officer, Kevin Hourican.

Thank you, Neil. Good morning, everyone, and thank you for joining our call. This morning, I will discuss Sysco's steadily improving financial results, I'll provide an update on our business transformation, and finally, I'll provide some color on the current state of our business environment. I'll then turn it over to Aaron, who will discuss the details of Sysco's first quarter financial results. Let's get started with our financial results displayed on Slide 4. Earlier this morning, Sysco reported first quarter fiscal 2022 results that were fueled by substantial top-line momentum that continues to exceed our expectations. Our top-line results sequentially increased each month of the quarter, despite the presence of the Delta variant, and have continued to improve into October. Our sequential improvement in sales and volume is a clear statement of our supply chain strength and our ability to win meaningful market share in this climate. We're pleased with the top-line results and our flow-through to the bottom line exceeded our expectations for the quarter. This strong start gives us confidence in reaffirming our guidance for the full year. Key headlines for the quarter include a growing top-line than improved sequentially throughout the quarter and continued growth through October as seen on the right side of Slide 4. Q1 represented another period of strong net new business wins for Sysco at both the national and local level. These customer wins will fuel our success in quarters in years to come. Customers are responding to Sysco's relative supply chain strength, our new purpose platform, and our improving capabilities driven by our recipe for growth strategy. All told, we delivered sales growth of 8.2% versus 2019. We outperformed our fiscal 2022 growth goal of 1.2 times the market in the first quarter, delivering the strongest growth versus the market in…

Thank you, Kevin, and good morning. Our strong first quarter of fiscal 2022 financial headlines are growing demand with sales exceeding one fiscal 2019 by 8.2%. A profitable quarter exceeding our plans with EBITDA comparable to pre-COVID 2019 levels. Aggressive investment by Sysco against hiring the snap back allowing Sysco to lead the industry in otherwise turbulent times. Purposeful investments in working capital to continue to lead in product availability. A strong return to profitability by our international business, and great progress against our balanced capital allocation strategy, including continued investments against the 5 pillars of our recipe for growth, an upgrade to Triple B of our investment-grade rating by S&P. The elimination of all debt covenant restrictions on our ability to repurchase shares or increased our dividend in the future, and a decision that we are announcing today, namely that we have satisfied our internal criteria to commence share repurchase. In the second quarter of fiscal 2022, we will begin our repurchase of up to $500 million of shares over the course of the fiscal year. During today's call, I'm going to cover the Income statement and cash flow for the quarter, and then I will close with some observations on our guidance for fiscal 2022. First quarter sales were $16.5 billion, an increase of 39.7% from the same quarter in fiscal 2021 and an 8.2% increase from the same quarter in fiscal 2019. In the U.S., sales for our largest segment, U.S. Food Service were up 46.5% versus the first quarter of fiscal 2021, and up 11.6% versus the same quarter in fiscal 2019. SYGMA was up 11.8% versus fiscal 2021, and up 5.1% versus the same quarter in fiscal 2019. You will recall that in SYGMA the increase in sales in the quarter is more modest because…

[Operator Instructions] The first question comes from the line of Mark Carden of UBS.

Good morning. Thanks a lot for taking my questions. It sounds like you've made some good progress on reaching your hiring targets, which is great to hear. One of your competitors recently noted that it started implementing some more base pay raises. Without necessarily commenting on that competitor, is this some alignment that we've been seeing in the broader environment? Could we be seeing some more structural pressures here? Thanks.

Morning, Mark, it's Kevin. I'll start with answering your question. This macro just where things are from. A staffing health perspective. They said in the prepared remarks; We've made a lot of progress in the quarter. We are definitely leading the industry from a health of staffing perspective and health of a supply chain, which is what's enabling us to win market share, and what I would say is that the situation steadily improved through the quarter. August, I would submit was probably our toughest spot of the calendar year from a staffing perspective as our volume was really recovering and our staffing needs were most significant. In September, 23 states opened up the government supplemental benefits were retired and we did see an increase in applicant flow. We actually weren't anticipating that because our base pay wages are well above the $15 per hour break even component. Our selectors get paid in the mid-20s, our drivers get paid in the mid-30s. We weren't expecting improvement tied to that, but we did experience an improvement in September tied to the retiring of those benefits. Most notably or even more importantly, we've gotten a lot better at recruiting, hiring, and training of our staff. We're really pleased with the efforts to digitize our marketing efforts tied to our open jobs. We've streamlined the hiring process, and as I mentioned in my prepared remarks, we conducted our first ever nationwide at every single states in the country hiring event and netted over a 1000 people joining our team in just 1 week alone, which will see a big progress for us. We're doing really well from a recruitment perspective. To answer your question specifically, as I said on my remarks, we have not had to resort to quote-unquote, meaningful base pay change. The vast majority of the expenses that we are putting forth are what we call transitory or two-way doors; you can go through, you can turn around, you can come back. So what does that mean? Hiring bonuses, retention bonuses, referral bonuses, advertising. We are spending money on places like Facebook to advertise the awareness in creation of visibility to these jobs. Aaron called out those expenditures will continue into Q2 and then we will have the opportunity to begin to taper some of those investments because they are transitory. We've had selected locations, a very small number of them that we did a wage review and needed to make some adjustments, but that was not meaningful or material for Sysco. Aaron wants to add something. [Indiscernible]

One quick add, which is as Kevin called out, the vast majority of our Q1 and ultimately Q2 snapback costs are transitory, and we have the opportunity to cover the rest through further productivity efforts that we already have underway.

Awesome. That's great. How do you guys think your fill rate currently compares to the broader industry? Presumably, you're still stronger than most, but any changes in the gap here? Thanks.

Mark, thanks for the follow-up. So we use external reporting and internal reporting through net promoter score to gauge our full rate and how it's trending. Ours has been improving over the last quarter, our merchant team has been working extremely hard for items that have what we call long-term out situations to find alternatives, find new suppliers, find alternative products that we can submit and suggest to our customers, provide those customers with suggestions on how to get those items cut into their menus, etc. Our team has worked harder than ever before on ensuring we can improve our rates. The answer to your question is yes, our performance is stronger than the industry, and yes, that gap widened in the quarter. We believe it's one of the components of our market share capture, but it's not the only reason. It's three reasons which are throughput capacity is higher because of the staffing health. Yes our fill rate is stronger. The third though, is our sales teams are just doing an extraordinarily good job of being out in the market, acquiring new customers and winning more share of wallet with existing customers.

All right, thanks so much and good luck.

Thanks Mark.

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

Hey, good morning. I may have missed something, but the local case growth on a 2-year basis versus '19 seem to decelerate more sequentially into the fiscal first quarter than the U.S. broadline trend even as you adjust for the tougher comparison. Wonder if we could discuss the dynamics you observed during the quarter where the local case momentum they had dragged a bit more? If I'm reading that right.

Our local business is performing really well, Alex. we're pleased with the progress that we're making. We continue to win new customers at the local level, partnering and supporting our existing local customers with menu expansion in the like. If it's a percent of total that you're referencing, We've had a lot of success winning net new business at the national level within the education sector and within the healthcare sector, and perhaps the percent of total component that you are seeing is actually fueled not because of deceleration in our local business. We accelerated our performance at the local level. It's the national sales and steamy business. We've just done extraordinarily well with winning new business and to be crystal clear, this isn't the guns or butter choice. One success at the national level does not hinder our ability over the long term to win at the local level. We're going to win at both national and local level, and again, our staffing, health and supply chain strength is what's enabling us to be able to do that.

That makes sense, and then if you could offer any color into the underlying trends in the various segments into October and just some thoughts on potential for that progress relative to '19 but moderate as we get into the holiday period. Just some tougher compares obviously, and in many ways can you get up against that?

Alex, thanks for the question. I'll start with the headline, which is as you saw on our chart, October was continuation of acceleration of our total performance. So each month of our Q1 accelerated in October continued that strength and that's despite the presence of the Delta variant during the quarter. So we're really pleased to be top-line, strong, compelling, continued growth fueled by a recovering market, but even more fueled by our market share capture. As I said in my prepared remarks, we're growing at more than 1.2 times the market, which is the highest rate of growth at Sysco in more than 5 years. The sectors that are still constrained versus '19, that's the language that I would use. Travel and hospitality for sure, food service management international, as I called out on my prepared remarks, and there's some softness in healthcare vis-a-vis long-term care tied to COVID, which is new starts or new bed patients, as they call them, are constrained. We're not concerned about health care for the long term. With the aging of America they call this over tsunami, we actually view healthcare as a growth opportunity for our Company for the longer term. We see the opposite of what you just said, Alex. We see our customers contacting us in the traveling industry, in business, in travel, and hospitality, excuse me, in business and industry sectors, gearing up for what they believe to be a January step-up in volume, and mostly that's driven by corporations that have been mostly working from home beginning the process of bringing their employees back to work in January. We do very well on that space partnering with food service management companies, and we're working right now to preposition inventory to be prepared from a staffing perspective. As far as rolling over tough comp compares for holiday season that that's not something we're concerned about. Aaron wants to say something. Aaron over to you.

I would just add, you should take great note of our announcement of our results for October and understand that we are accelerating across our portfolio and we have significant opportunity both in our fiscal Q2 and as Kevin called up particularly, into Q3 and Q4.

Great, thanks. Congrats.

Thanks, Alex.

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

Hi, good morning, guys. Kevin I wanted to just revisit one thing that's been talked about a little bit here, but I know you've talked about your fill rates beating competitors, but it does sound like generally there's still some headwind here related to sort of inventory or even labor. Is it possible to quantify what you think is being left on the table associated with that, and then that gets into the second part of my question, which is, is it also possible to talk about where some of the segments are running versus 2019? And I ask all this because your case volume is still modestly below '19 in the U.S. which is obviously understandable. But I'm curious as to what all of this is saying about where your case volume can be. Let's call it by the end of this fiscal year or so or early next year, when life is obviously hopefully a lot more normal. So any color that you could add there would be super helpful, I think.

Morning, Ed. Thank you for the questions. Kevin. I'll start with fill rates. My language that are used in prepared remarks is we're performing better than the industry average, and that is the most accurate descriptor of our performance. We are below our historical fill rate standards. We set a very high bar for ourselves on ship on time and ship in full, and we are below our historical standards. The why is our inbound fill rate from our suppliers to us is well below our historical standards. Our output to our customers is actually significantly higher than the inbound fill rate to Sysco, and the how and why behind that, is the work we do to find substitutes to bridge customers to alternative products, and that's what's creating the relative strength of Sysco versus others, is the good work our merchant teams are doing to find product substitutions. I think your question is more like, is there even more sales to be had for fill rates improve? I would say, yes. How long it will take for fill rate to improve is subject for debate. So what we're doing, because we want to take ownership of what we can directly control is to be even better at managing fill rate. So we're improving our website to provide dynamic visibility to out-of-stocks and provide suggestions at point-of-sale to the customer on things that can be bought alternatively, and our sales teams and merchandising teams, when we find ourselves as I mentioned earlier, in a situation of long-term outs are being very proactive, providing quick selling bulletins to our sales teams, digital marketing pushes to our customers, including emails on suggesting to them alternatives in the likes. It's a core strength of our Company. I meaningfully desire for the inbound fill rate to Sysco to improve are working very closely with our suppliers on that, and we think it will improve, but not quickly. It's going to be a sequential steady slow improvement in fill rate into our fiscal 2023. As it relates to volume in the second part of your question, what I would say is we expect that the end of our fiscal Q3 to be back to 2019 from a volume perspective and we have the segments that will be at that level in Q2 of this fiscal year. Within our existing fiscal year, we will be back to 2019 volume levels. I'm not going to break it down by sector, it's not something I'm prepared to do this morning. But go ahead, please back to you.

Yeah. I got it, and when you say fiscal Q3, is that total Company volume or is that U.S. per outlines volume?

Total Company. All Sysco combined at the end of our Q3 will be at 2019 volume levels.

Great, and then just a quick follow-up for Aaron, I guess. Can you provide any additional color on fiscal second quarter? Historically, you have a little bit of a seasonal step back versus Q1. Just kind of curious as if we're going to see that again here. I look at consensus number; it's not far off of what you just reported for Q2. Any incremental thoughts there?

I would offer 2 thoughts, which is we are enthusiastic about the continued positive trends we're seeing in the top line as we move into what historically pre-COVID may have been a seasonal period. But this year is like no other in that respect. But also then mitigated somewhat by the call out around the fact that we do continue to expect to invest heavily against snap back and the transformation in the second quarter. For us, we have confidence in the year. We have come to the long term, and we are quite excited about the progress the operational teams are making in service of fiscal '22 in Q1 and certainly in Q2.

Great. Thank you.

Thank you, Ed.

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

Hey, guys, let me start with you've had a nice pick up, your performance versus the industry since the second half of last or rather, I think you're probably up in 20 or 25?debt state?. Where is that coming from predominantly? New versus existing accounts, pieces per stop, lines per stop. What are the 1 or 2 biggest drivers in that acceleration in share gains?

Good morning, John. This is Kevin. The predominant reason for the market share capture is net new customers serve at Sysco both at the national and local level. So we're winning more new business than at any other point in time in Company history. The why breaks down to 2 pretty fundamentally basic things. First is the compensation model that we changed as you know, June of last year. We're now compensating our associates to be more prospecting versus cultivating, and that is paying dividends. So they drive the behaviors that we expect and we're seeing significant benefit in dividend from rewarding those associates for the good work they're doing in winning new business. The second reason is the supply chain health. We have customers almost on a daily basis, large and small coming to us, and asking for Sysco to take on their business. I won't name the State but we had a very large education customer come to us this week actually and say, we're not getting the support we need and can Sysco take on our business and we're finalizing the details of the contract which is why I'm not going to quote the where, but we expect that business to come on board by January 1. So that is a signal of our strength, the confidence that large and small customers have in our ability to ship on time in full, at rates greater than the market. Jon, specifically what competitors segment that's coming from, I think it's all the above. But stronger players with broader access to inventory, clearly performing well. Back to prove that point, we have more inventory on-hand at this moment in time than we did pre-COVID. So are there select product shortages? Yes. But we've been able to invest in inventory. We have more inventory on hand than pre-COVID and our staffing levels are where we need them to be but every time we bring on more people our demand increases and then we have to go hire even more people, which is proving that there's continued runway, this was Aaron's point a moment ago, on our ability to grow our topline. As we continue to make progress on our staffing in through put capacity. John, back to you for any follow-up.

Maybe second question, right? If you think about lookout to '24, '25, take a longer-term view, are you more confident in gross margin being better than it's been historically or that the cost structure of the business will be less in light of a lot of the macro dynamics we're seeing today. Which one of those 2 is more likely to drive higher long-term profit margins?

John, what we've articulated is we're really bullish on our EBIT margin expanding, that we will move that needle. I do not believe that that growth will come primarily from product margin expansion. It's going to come from continued disciplined expense optimization by taking structural cost out and investing in capabilities that drive the top line. So while the EBIT margin grows, as, A, the top line will be accelerating, B, we'll be taking structural cost out of the business, and those two levers in combination is what expands the EBIT margin. But sales growth and cost reductions; not for margin rate growth. Aaron, I'll toss to you for any additional comments. I would just add in supporting Kevin's point that I am also excited by elements of our merchandising in our supply chain transformation, that over time, as we work through this very inflationary period, should provide us with opportunities, and particular, I'm excited with work that is underway in connection with Sysco's private label, brands and other elements that will be supportive of our overall financial profile. To answer your question, while the short-term certainly were challenged or it's lower than we would have hoped from a gross margin perspective because of the impact inflation over the longer-term, the '24, 'the 25 [Indiscernible]

Thank you.

Thanks, John.

Your next question comes from the line of Nicole Miller of Piper Sandler.

Thank you. Good morning. First question is around the centralized pricing tool. So intuitively, I think about pricing power and price going up. But you have a lot of commentary about taking market share with the pricing tool, which makes me think about the value proposition of maybe not price down but neutral. So how do you balance that tension?

Nicole, it's a great question and you're right that my recent narrative of our pricing software has been about managing inflation. It's just because of the unprecedented environment that we're currently in, double-digit inflation is unique, and what the tools helping us in the current period is being very strategic and thoughtful about how to pass through that inflation in a responsible way, and being confident that when we make those decisions that they're executed well. We used to do that work manually through a large sales force, we can now do that through a strategic pricing office and when we make the decision it's executed immediately. Then we can monitor the impact of those decisions and update it on a daily basis if need be. So the reason for my narrative on inflation is just because of the environment we're in. For the longer term, the goal of the pricing project is to be a pricing system, excuse me, is to move to a strategic price optimization. I'm not going to name the category because I don't want to telegraph it, but we've got select categories where we are above-market from a pricing perspective, we make decent, very high-quality margins and we're going to run price optimization tests. If we lower slightly our prices in that category. Does the sales growth more than offset the margin dilution? With a pricing software, you can do test versus control geography-based tests to optimize for the right price and how I've described that work is the following. We will make investments in certain items that are key value items, KVIs, and we will raise prices nominally in the tail of the inventory SKU, which is less visible to the customers, which therefore results in flattish margin rates by growing top line as my term is, right unpriced at the item customer level, which allows us to win more market shares. That's the longer-term goal of the projects. However, this system has been extremely useful during this early part of our fiscal 2022 and how we manage inflation.

That's very helpful. Thank you. Second and final question, it's very helpful to understand the hiring and that some of that is coming back, but I am wondering about the underlying turnover thinking that could be a leading indicator. Could you speak to how turnover is trending, both like at the distribution facilities and for drivers as well.

Yeah, retention is extraordinarily important to our staffing health, and during the first quarter of this fiscal year, we were extremely focused on hiring because, again, the winning of the new business that we've been able to post over the last 2 years requires us to continue to increase our throughput capacity. We are spending an extensive amount of time on improving retention. Retention is lower than historical run rate averages, to answer your question, but it's getting better as we are putting even more focus on retention. The most important population for us is our driver population. I's a highly skilled job. It's our customer facing role, and one of the investments that we've made Aaron and I together is in a driver retention bonus. We paid it in Q1, we're going to pay it again in Q2 and that retention bonus for our drivers is working. It had a noticeable and visible positive impact on retention, and that's the type of investment that I referred to as a transitory type investment. We will do that investment for as long as it takes, but we do expect as we improve our overall staffing health, that the need for those types of investments will go down, and here's why, overtime rates are running very high currently at Sysco versus our historical standards. I called that out in my prepared remarks. Over time is actually the thing that drives our retention down. If we're spending or excuse me, providing our associates too much overtime daily. We're working extremely aggressively to boost our staffing troops, such that we can have overtime back to historical standards and that will improve retention. It also Improving the P&L because overtime rates are pretty punitive to the overall P&L, and I called that out in my prepared remarks where I said our second half of this fiscal year, we should expect to see improvements in overtime, reductions in some of the transitory expenses that I stated, which will help the P&L. Aaron, to you for any further comments?

I have nothing further to add.

Thank you, Nicole.

Thank you. Thanks.

The next question comes from the line of John Glass of Morgan Stanley.

Thanks very much. Just, first, back on gross margin. I understand your comments about gross margin, dollar s per case or gross margins per case or higher. Do you see demand restructuring that within certain categories that maybe factoring gross margin prices are too high. So your consumers or your customers are switching?

So far, no.

Thank you, and Kevin, you open the door on loyalty and I know you want to talk about it in the future, but how do you think about loyalty in this business? Is it akin to what a consumer loyalty program is or is this more nuance? Is it more about adding value-added services versus discount? How would loyalty work in this industry do you think, at a high level?

We've proven that a mom-and-pop independent restaurant operate similar to a consumer and retail, they decide based on value, they decide based on price, they decide based on services that you mentioned a moment ago. The value in the unlock of the loyalty program that we're building is making that customer specific what the offers are to them and making it indelibly clear to them the value that's being brought to them by Sysco. We're going to talk about more in the future because it's in pilot, as we speak, and we'd like to have actual factual results before we talk about things publicly. We're very pleased with the initial progress steps forward in our loyalty program. We are building the data and the plumbing from an IT perspective to execute against that effort nationwide and we are piloting it currently in select geographies and we will refine it, optimize it, iterated, but it will be similar to the types of loyalty programs that you're familiar with as a customer. The data is in the cloud, we're able to use machine learning to optimize against the data, and yes, there are value-added services that we will provide for those customers that are part of the program, that they will be able to take advantage of to improve their business results and outcome. So we're excited about it, we're bullish on it, and we'll talk more about it in future quarters.

Thank you.

The next question comes from the line of Lauren Silberman of Credit Suisse.

Thanks for the question. First on capital allocation, you announced plans to resume share repurchases and I think up to $500 million for the year. Can you just talk about your capital allocation priorities and how we should be thinking about the use of cash from here?

Sure, happy to do so. We are remaining loyal to the capital allocation strategy we called out at our Investor Day in May, which is our first focus is on driving the growth. Getting to the 1.2 and 1.5 times market growth, and so our first use of cash is to invest in the business either organically or inorganically, as you recently saw with Greco and a couple of the other small fields that Kevin called out. Once we've invested against the business for the business cases that are in front of us. We're also very focused on maintaining a strong balance sheet and the actions we took, particularly at the end of last year, it certainly facilitated that, and we're feeling good about the strong balance sheet that we have and the recent upgrade of the rating by S&P. We have continued opportunities to improve that, of course, given the interest levels we're carrying versus prior years. But we're feeling good about our capital allocation against our debt portfolio so far, and that leaves us with the return of capital shareholders. We increased our dividend as, as you heard me call out, we've now paid that twice, we'll touch it again during calendar 2022, and with the benefit of cash on-hand, we decided it was time to start returning capital to shareholders as well and our first step there is the announcement of the $500 million share repurchase beginning this quarter. So all in, very consistent with what we had telegraphed we were going to do at Investor Day and that's how we continue to manage the recipe for growth.

I think Aaron described it very well. I think the punch line is we're ahead of schedule on that activity, which is why Aaron updated our guidance on when we would begin to stock buyback to this quarter.

Great. Thanks, and if I could just do a follow-up on that transitory nature of the elevated costs. Can you talk about what gives you the confidence that OpEx expenses and some of those investments can taper in the back half of the year, is it primarily reflecting expectations that staffing levels are closer to target and then within those incremental investments, snapback or transformation that what do you see as more transitory versus permanent? Can you expand on any of your initiative?

Happy to. Let me give you some visibility to what's in our bucket of step back, and it is things like retention programs, hiring bonuses, sign-on bonuses, the incremental recruiting support for the massive hiring we're doing right now. The incremental marketing third party contractors we're bringing into help on a temporary basis relative to staffing. Those things are transitory onetime while Q1, Q2, but are not permanent cost structures. What's not in there for instance, is increased overtime costs. That's not one time, but we also have the opportunity to bring it down over time and are actively working that. So now you have a sense of what's in the bucket. Why do I have confidence that we can address it over time. It's two-fold, first is we got started early relative to cost-down efforts, and so to a degree we put some money in the bank, in advance of need, and that effort will continue as we carry forward. Second element, as you heard Kevin and I alluded to this earlier, the benefit of all the investment we're doing against our supply chain transformation is incremental productivity which helps us to manage the overall cost structure as we carry forward, and finally, if I can add one, which is just the nature of the categories I called out, they are by definition onetime or transitory.

Next question comes from the line of Jeffrey Bernstein of Barclays.

Great. Thank you very much. I have two questions. The first with the follow-on and it's been mentioned a few times, the sales momentum in the market share gains, which are ahead of the 1.2 times in the fiscal first quarter that you were targeting for the full year. It's harder, I guess to assess from the outside. So I'm just wondering, how do you arrive at success on that front? Maybe you can share what you believe the industry growth is. I know some of your peers large and even small often make similar claims to growing faster than the industry. Just trying to gauge how you're able to assess that maybe what the industry's growing relative to yours in the first quarter, if we should expect that type of commentary going forward on future quarterly calls?

Yeah, Jeff. The 1.2 statement is specifically tied to Technomic's data. We get that data from them once per quarter and that is a data point that I can only report upon once per quarter as a result of that. We can see on a weekly, monthly-basis our relative growth. We can generally see the markets relative growth through other sources of data, but once per quarter we get the legitimate data feed from Technomic and that is where that data comes from.

Understood, and then the follow-up is just on the pricing in the margin percentage down, but the dollar is up, which I guess is what's important here, and I know you mentioned the ability to pass along inflation to customers, which I think it has historically been the big benefit in the drawer for investors to food service distribution and obviously with inflation right now, even more attractive. Just wondering your confidence and the ability to continue to pass through. I think there was some mention of maybe not much pushback, but wondering where the pushback is accelerating or you'd expected it to accelerate if the inflation is going to remain in the double-digits or whether you're really confident in the ability to pass it on for however long the inflation lasts. Thank you.

Jeffrey, the punch line is we are confident that we can pass on the inflation. However, an editorial comment and then I'm going to provide some color comments. We don't think that double-digit inflation in perpetuity is good for the industry. It's not something we desire, it's not something we accept, and we're working very aggressively to push back on cost increases, find alternative suppliers, find alternative items that can lower the net landing cost for our customers, and we do believe that inflation will begin tapering. It's just going to take longer to begin tapering than what we originally expected back at the beginning of the year, which Aaron talked about accurately and clearly during his narrative. But with that said, we are not experiencing push back from our customers. The primary reason is end consumers aren't slowing down in their consumption of food away from home, in fact the opposite is true. We continue to see sequential improvement in our overall results tied to volume growth, and also obviously inflation at high levels, just to call out with their specificity. What we do with our customers, we have built a proprietary inflation tool calculator where we can take a inbound raw material to us that is significantly elevated from a cost perspective, and we can highlight for our customers what items on their menu are directly impacted by that inflationary item to then suggest to them that type of menu price changes that they should make, and that's what we mean with things like Value-Added Services, and I'm not talking about an obvious thing like meat and poultry, and talk about things like fats, shortenings, and oils are highly inflationary right now, and there are many different products on a menu that are impacted by particular raw ingredient costs increase. Our sales reps have been trained and equipped to be able to work with our end customers to educate them that this raw materials is increased. Here's our suggesting to you on what you can do with your menu price, and it's for that reason that our customers aren't pushing back to the degree that you might suspect externally because they view us as a partner and that's what we are. We're partnering with them to help them be successful and profitable and the good news for this industry is that the end consumer has remained robust and strong. Jeff, back to you for any further comments.

Very thorough. Thanks very much.

Okay. Thanks, Jeff. Have a good day.

Our last question comes from the line of Kelly Bania of BMO Capital.

Hi, good morning. Thanks for taking our questions. I just wanted to go back to the discussion of case volume, particularly versus 2019. Where exactly was that for the quarter, focusing on U.S. broadline, and within that, can you share any detail on the volume versus 19 for those core restaurant customers versus the non-restaurant hospitality business and industry segments?

Good morning Kelly, it's Aaron. We're getting into an area that we don't typically disclose at that level of detail. I guess what I would offer up to you is that as Kevin either alluded to or said out loud, we're not yet back to fiscal '19 levels within the enterprise or the U.S. business, but quickly approaching it, and as we get into the back-half of our year, starting in the U.S. or North America, then broadly beyond that. We do have confidence that the Enterprise will be returning to positive volume leverage across the portfolio. Now, there will be some mix of that. We're talking aggregated numbers. We're not calling out. We are one country, or one class of customer to that respect. But in aggregate, we have confidence with the volume trends based on what we've seen so far, what we saw in October, and how we expect this to carry out over the year.

This is Kevin, just to bolster. We're not breaking it down by segment. We've been clear which segments remain behind. We have Travel and Hospitality, Business and Industry as two notable examples that from a volume perspective, remain down versus 19 levels. The good news is there's obviously significant offsets in strength within our restaurant sector, specifically, independent local sector, which is our most profitable sector. So ultimately that's the ultimate positive strength here is that the restaurant in volume is the core strength at this point in time, and as Aaron said, the enterprise level will be at 19 levels by end of Q3.

Okay. That's helpful, and just wanted to also follow up on the comment that you've talked about for several quarters now with the 10% new local independent customers. Can you provide just an update on the penetration or share of wallet with these accounts and how that's progressing and the trajectory from here that you're expecting.

Yeah, thank you. John asked a question earlier, which are the primary drivers of the growth. Share of wallet has been steadily improving, but it has not been the primary source of the growth. The primary source of the growth has been net new customer wins, Kelly, over the last, let's call it, two years. I believe that we'll pivot in the future where the personalization work, pricing work we're doing, the work we're going to do on the loyalty program that I alluded to earlier. We will pivot to more of the growth coming from increased share of wallet, and mathematically, it's why we are confident that we will go from the 1.2 times market growth that we're currently delivering to the 1.5 times growth which will be the growth target we have for the third year of our 3-year strategy that we call the recipe for growth. So the percent contribution of the growth will pivot more towards share of wallet in the coming fiscal years.

Thank you.

Thanks, Kelly.

This concludes today's conference call. Thank you for participating. You may now disconnect.