Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the UNFI Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. And I would now like to turn the conference over to Steve Bloomquist, Vice President of Investor Relations. Steve, you may begin.

Good morning, everyone, and thank you for joining us on UNFI's Third Quarter Fiscal 2025 Earnings Conference Call. By now, you should have received a copy of the earnings release issued this morning. The press release and earnings presentation, which management will speak to, are available under the Investors section of the company's website at www.unfi.com. We've also included a supplemental disclosure filed in Microsoft Excel with key financial information. Joining me for today's call are Sandy Douglas, our Chief Executive Officer; and Matteo Tarditi, our President and Chief Financial Officer. Sandy and Matteo will provide a business update, after which we'll take your questions. Before we begin, I'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. These forward-looking statements include plans, expectations, estimates and projections that might involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. I'd like to point out that during today's call, management will refer to certain non-GAAP financial measures. Definitions and reconciliations to the most comparable GAAP financial measures are included in our press release and the end of our earnings presentation. I'd now ask you to turn to Slide 6 of our presentation, as I turn the call over to Sandy.

Thanks, Steve, and thank you, everyone, for joining us this morning. Before discussing our Q3 performance, I'd like to comment on the IT system security update we provided yesterday morning. As we disclosed yesterday, the company became aware of unauthorized activity on certain of our IT systems on June 5. We promptly activated our incident response plan, implemented containment measures and are working to assess, mitigate and remediate the incident with the assistance of third-party cybersecurity professionals. Pursuant to our business continuity plans, we have implemented workarounds for certain operations in order to continue servicing our customers where possible, and we're continuing to safely bring our systems back online and restore broad-based customer service as soon as possible. Our entire company is focused on serving our customers. Our core values of transparency and doing the right thing serve us well as we manage through this incident and our core principles of our daily operations. We believe we are managing the incident capably with a very strong team of inside and outside professionals, including specialized experts. We will continue to keep our customers, suppliers and associates regularly updated on our progress and next steps. Now let me turn to Q3's results. As you saw in this morning's earnings release, we achieved another solid quarter, driven by the strength of our customer base and disciplined execution of our multiyear strategic plan. Our results reflect sales growth above the industry benchmark and adjusted EBITDA growth that was meaningfully higher than our sales growth, leading to our highest adjusted EBITDA margin rate in 2 years. As part of our strategic plan, we expect to continue driving consistent annual margin expansion. This trajectory reflects our continued focus on creating value for customers and suppliers while also systematically improving processes, implementing technology to enhance customer service…

Thank you, Sandy, and good morning, everyone, and thanks again for joining our third quarter earnings call. As Sandy stated, our operating momentum, execution and performance have continued to accelerate as we completed the third quarter of fiscal 2025. Our confidence has grown with each passing quarter in executing our multiyear strategy and achieving our longer-term financial objectives. Today, I will provide additional insight into our third quarter results, including our sales and adjusted EBITDA growth, free cash flow generation, capital structure and outlook for this fiscal year. With that, let's review our Q3 results. Turning to Slide 8. Our third quarter sales grew by 7.5% or about $506 million to nearly $8.1 billion. Our gains in the quarter were led by our Wholesale Natural Products business, where sales increased by 12% compared to last year's third quarter, primarily reflecting higher sales and category penetration with existing customers. Our Wholesale Conventional Products business was up close to 3%, reflecting new business wins in new categories over the past 4 quarters. Across our Wholesale business, unit volumes were up about 4% compared to last year, which represented another quarter of sequential acceleration and a continuation of the favorable trends we have seen since the end of fiscal 2024. UNFI's volume again outperformed the key Nielsen industry benchmarks and reflects solid execution by our broad customer base. This outperformance also reflects our consistent new business wins as retailers continue to recognize the value of working with a well-scaled wholesale partner, able to provide the differentiated products and services to help them compete in a highly dynamic marketplace. During the quarter, new business additions of this nature accounted for about half of our volume growth. Inflation was about 1.5%, largely unchanged sequentially and about 0.5% lower than last year's third quarter. The remainder…

And we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Bill Kirk with ROTH Capital.

Just a clarification real quick. Are you reiterating the guidance on the non-GAAP elements or simply not updating them? I guess there could be a distinction between the 2, given the beat and given the comment that you would have raised otherwise. So is it not update the non-GAAP or reiterate the non-GAAP?

Yes. Bill, it's Sandy Douglas. Before Matteo answers your question, which he's going to do in the second, I want to just reiterate for everybody just a little bit of the details on our incident management protocol. Last Thursday, we noticed some unauthorized participants in our network and pursuant to our incident management protocol, we went into hyper analysis and awareness mode. By late afternoon on Friday, early evening, late afternoon, we saw enough data to suggest that we needed to shut our network completely down and go into hyper analysis mode, which we did, bringing in outside experts and again, pursuant to our protocols. Once we got to Monday morning, we let the markets know through filing 801 to make sure that we are being fully transparent about what was going on. And as we sit here today, we're 100 hours into the management of the situation, and we have 2 focus points. And this is really the whole company focus here, and that is to understand the situation and then to safely bring back our network when it's appropriate to do so, and then separately work with our customers and suppliers transparently to do everything that we can possibly do to help them manage through the short-term difficulty that the situation creates. I would further say that to us, the most important enduring matter here is how we take care of our customers and how we show up for them. And our focus has been on that for the last 100 hours, and that continues to be what we're working on with some progress. But Matteo, go ahead, want to answer his question, but I just wanted to create that context because that sort of sets the backdrop for how we looked at guidance coming into the call.

Thank you, Sandy. So we had a strong third quarter, and we had a strong performance year-to-date. We're up 5.5% in sales year-to- date. We're up 16.3% in EBITDA and generated more than $150 million of free cash flow. And our plan was to increase the guidance as we mentioned in the remarks. However, as you heard from Sandy, we are very focused on the restore of the systems and then the focus on the customers. And with that in mind, we left the guidance alone for now.

Okay. And as a follow-up, on Key Foods in the Northeast, the initial thesis was with them as an anchor customer, you could build a large facility with some extra capacity to add additional customers around it. So I guess, what kind of diverged from that plan? Was the Key Foods as the anchor was different than you thought it would be? Or the ability to add scale around Key Foods is maybe different than you thought it would be? What kind of happened there that kind of went against or away from your initial plan?

Sure, Bill. It's Sandy again. I think the broader strategic question, which we've been looking at as a part of our 3-year plan is around the country where are there opportunities to optimize our network based on either market or customer profitability. And then we've taken actions, as you know, to make adjustments to our DC footprint around the country. And that doesn't just involve closing DCs. But recently, as you know, we moved from New York to Manchester and increased our square footage in automation in the new Manchester distribution facility. Specifically to Key Food into the Allentown market, we simply found that the combination of operational factors post COVID impacts and the details of that agreement were very difficult. And in collaboration with Key Foods, we've determined with them that the best possible scenario for everyone, given the facts at hand and the likely scenarios that emerge was to exit the relationship in the market. And so we did so in an effort to optimize the results for them and for us, and it was a clear choice that emerged after careful consideration of all the options. Obviously, we had associates in that market. So we make those decisions very carefully.

Maybe to complement your answer, Sandy. So we recall for the third quarter, $24 million asset impairment charge and about $4 million in severance expense that have impacted our GAAP results. In the fourth quarter, we expect to record a $53 million contract termination fee that will be paid to Key Food over several months and over achievement of milestones and that will be recorded in the restructuring cost and will impact free cash flow. However, the net cash impact of the payment is materially lower because as we discontinue our operations at Allentown, we're going to get some upside from the working capital release as well as the benefit of the expense reduction. So we project the payback period of year or less.

Your next question comes from the line of Scott Mushkin with R5 Capital.

I'm sorry to hear what you're going through. So I guess, first off, I want to make sure I understand getting your network back online. Are you actually currently shipping to customers or no?

Yes, we are on a limited basis, and it depends on the technology platform. Some are further along on the recovery than others, but we are partnering with customers across the country and across our formats in various short-term modes to serve their needs as best as we possibly can and it's getting increasingly positive each day, but still work in progress.

Sandy, what do you think the percentage you normally ship? Is it like at 30% or is it over 50% or -- problem on it is people, where are these customers? And then if shelves are going to -- shelves you are going to start running there? Or where is everything?

Scott, the entire process is very fluid and ongoing. The way I would describe it is each day is better, and we're working in a very customized way by market and by customer to serve the capability that exists. And it's at this stage of highly partnering activity, but I wouldn't want to give percentages at this time because it's changing every day. But it's obviously the top priority of the company to serve our customers as best as we possibly can while we're working to, as rapidly and safely as possible, bring our systems back online.

Are you actively facilitating those customers working with other distributors so their sales are there? And also what's your fiscal and what's your monetary responsibility to those customers? And is there contractual issues where they could actually break contracts?

Yes. I think the focus right now, and I think the through line across the network is to help customers meet their needs in whatever way it can be done. And that, in some cases, involves help from other wholesalers. In other cases, it's a lot of very innovative work that our teams have done to help respond as best as our capabilities will allow. But I think the strategic point in the middle of it is how we work together with customers in a crisis in some ways, is a defining opportunity for us. And any way that we can help them meet their needs, we're doing. And nothing would be...

How about their ability to break contracts? Is there a breach?

From my perspective -- first of all, our contracts with our customers are highly varied. And as you know, they are confidential in specific. But our focus right now is less about that and more about meeting their needs today and I wouldn't be able to factually answer that question even if I was inclined to disclose it. The focus is making sure we serve the customers and have them be able to do whatever they need to do the best they can in this environment. And then in parallel, our focus is as quickly as possible to address the issues, ensure the systems are safe and bring them back up online. As you know, how companies manage situations like this are defining in terms of their relationships and we view it as that kind of moment. And we have been completely transparent and completely focused on our customers' outcomes from the start.

Then my final one is I know Marks & Spencers over in the U.K. has still got issues. So I mean this could be a multi-month process. Is that how we should look at it? And then a follow-up to my follow-ups is that if you look at the equity trading, it very much appears either someone knew this was going to happen. And is the SEC involved in that? And then I guess also, why did it take you guys so long to report it to the market?

Scott, let me, first of all, decline to speculate at all regarding regulatory authorities and the first part of your question, but let me remind you the time line. The company became aware of an unauthorized entrant in our technology on Thursday. Pursuant to our incident management routine, we began hyper analysis and awareness of diagnosing just how broad that situation was because, of course, in many cases, when you initially see that you may be inclined to think it's isolated. By late Friday afternoon, we made the decision to lock our systems down and we filed an 8-K on Monday morning before the market opens. So we -- there is no way that we could have communicated any faster and there was no trading that I will -- I don't know. There was no open markets between the time we locked our systems down by the time we...

I'm actually talking about before the attack. I mean, if you look at the equity, it was dropping.

Yes.

[indiscernible] your attorneys have quantified the SEC, I would.

I'm confident that we are engaged with all the authorities, including relative to the cyber event reporting all that we know to the FBI. Those are all part of our protocols that we follow strictly.

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

To start, I'm going to go with a little bit of a follow-up on Bill's question. For Key Food, it was originally expected to be a $1 billion annualized business. Is this essentially where it landed? And then I know you guys are pretty excited about landing the contract originally. Was this a situation unique to Key Food? Or does it make you really think at all how you approach larger contracts?

Mark, what I would say relative to the individual customer is that we don't really comment specifically. Obviously, we did today because of the size and scope and the history of the announcement and the connection to Allentown. But the broader question about our approach to overall contract underwriting and analysis, I would say that today, we have a very rigorous process that looks at all the factors that go into it because we pursue win-win agreements. And our customers deserve that and our customers do -- all our customers deserve that we don't have agreements where we're losing money because that hurts everybody. So the rigor that Matteo and his team working with our commercial leaders have put into that process is significant, and I've got a lot of confidence in it. I would also say that a whole lot, and particularly in the transportation side of the New York area changed in the COVID period. And so we made -- the decisions we made based on a very factual analysis of the current situation, and at the end of exploration of all options that we might have been able to pursue to turn that agreement into a positive one. And following all that, we chose to exit because it was the best decision for our shareholders, and I believe that Key Food made the same decision for the same reason for theirs.

Got it. That makes sense. And then as my follow-up, just on the cyber attack, how has the customer response been so far? And does it impact how you approach resources to both customer retention and new business acquisition in the near to intermediate term? And like essentially, does new business go more to the back burner temporarily? Or is it still be pretty balanced?

Yes, that's a great question. What I would say is -- and again, this is anecdotal in the midst of a crisis response with 30,000 customer rooftops. But the -- I have daily personal conversations with about 15 to 20 CEOs of our customers. And the conversations have been extremely constructive and collaborative. Our teams are working very hard for them to make sure that we help them get everything that we can to manage through. My own view is that until we reach a point of functional equilibrium and when we're -- our systems are safe and operating as they should, we have to focus on existing customers and meeting their needs with every ounce of our energy, and that's what we're doing. I would also caution everyone not to make assumptions about the length of the issue. And I don't -- and I mean that on both sides. One of the things that I have learned is to focus on the facts in front of you and generally not to speculate to serve the needs of the process and making sure that we are safe. We're diligent, we're thorough and at the same time, in parallel, work very hard to solve the operational opportunities in a given DC with given customers in the coming days. We're doing the same on the back end with our suppliers. And I believe over time, how companies and their customers work together in crisis have the opportunity at least to strengthen relationships, but we'll be talking about that after it's over.

[Operator Instructions] Your next question comes from John Heinbockel with Guggenheim.

So maybe for both of you guys. How -- I know you've been speeding up the rollout of Lean Six Sigma, right? You did 11 this quarter. How does the breach impact that, right? Do you basically -- whatever you've done in the fourth quarter, that's it, and it slows down temporarily? And then also, if you think about shrink, the shrink potentially go up in the short term because volume is down, product is going bad or too early to tell if that happens?

Thanks for the question. Let me give a quick recap of where we are in the early Lean journey. So we're focusing on 3 areas. The first one is decentralization for higher accountability and is there some of the comments or references that Sandy made on how the new wholesale product-oriented organization is performing or for instance, how the decentralized procurement organization is performing on reducing days on hand, while supporting a 7.5% growth rate. The second area is on Lean Daily Management and I'll get there in a second on your question on the breach. And that's where we now have 20 distribution centers out of roughly 50 applying Daily Management, and we see benefits across the safety, quality, delivery cost sequence. And then the last piece is waste management, which is where we have been able through a set of actions to take another 50 basis points of operating expenses out of sales. Specifically on your question, so throughput has been improving over the last several quarters. It's up 5% in the third quarter. There could be a few days of disruptions, as Sandy say, focusing on restoring our systems and meeting our customers' needs as much and more curative ways as we can. But the underlying momentum is strong. We are getting a lot of engagement from the DCs on applying Lean Daily Management. Sandy and I and the leadership teams were visiting Manchester last week, and we saw real-time examples of how these things are working. So we're encouraged by the progress speed bump related to these cyber incidents, but the underlying momentum is strong and will continue. And then relative to our shrink, obviously, as part of the 100 hours reaction plan and process, we have been using widely every single 1 of these 100 hours. We look at the prioritization of receipts and procurements and inventory and fresh because of the shrink dynamic was very high up on the list. So we're responding as quickly as we can in the more creative ways that we can. Again, without speculating, we're not putting days of recovery to our statements, but we're moving methodically and swiftly.

And maybe following up on that. So just where do you -- when you look longer term and the sort of the recurring benefit of Lean Six Sigma, so how does that sort of play out, do you think you get in every DC in year 1, you refine it. What do you think is the most important longer-term contributor there? And when you think about labor productivity, and I may have asked this to you before, do you think you can sustain, say, 3% to 5% labor productivity gains over many, many years as this gets refined or is that optimistic?

I think we can sustain it. Where we see the benefit is clearly continuing to improve the throughput as part of the Lean Daily Management, continuing to expand the reach into our distribution centers with the sequence of SQDC. And then we're excited about the fourth leg that we're going to add to our Lean journey, which is value stream mapping. And value stream mapping as a way to complement our CapEx investment is a way to complement the problem solving and making solutions more sustainable. So we expect to, again, methodically deploy VSM and start seeing sustainable benefits there.

Your next question comes from Leah Jordan with Goldman Sachs.

Just given the termination of your relationship with Key Foods, I wanted to see if you could just comment on how you're thinking about the conventional segment longer term? I understand you've been focused on streamlining your contracts to drive profitable growth. But as I see it, driving more volume through your network, should create some leverage benefits over the long term. So how do you balance this kind of streamlining to drive near-term profitable improvement versus making sure you don't cut too much to sustain growth longer term?

Leah, this is Sandy. That's an excellent question. Let me start at the sort of strategic segmentation that we did a year ago because I think sometimes labels constrain your thinking. We've identified a $90 billion addressable market that includes natural, organic, specialty, ethnic, really all retailers that are predominantly focused on a differentiation strategy, and we're designing UNFI's product services and programs for that customer base. We view that customer base, having done a lot of very disciplined and deep analysis to be a growth segment of the food industry going forward. And so with that design and that sort of target, we've assessed our business on a DC-by-DC basis to evaluate where we are going to see growth, where the profit opportunities exist from a service and program perspective. And ultimately, as that then goes down and works with individual customers, we've looked for ways to create win-wins. And we've had a lot of success on that. As you know, we had provided a year ago, a 3-year sales guide of flat. And this year, year-to-date, we're way ahead of that because of the success of the segmentation thinking and the work we've done with customers. In the case of Key Food and Allentown, it's a unique situation or a largely unique situation where the customer and the DC are inextricably linked. And in that case, there was no way that we could see based on all the work we've done that we could turn that situation into a profitable growth opportunity, and so we made the hard decision to close the DC, and we and Key Food mutually decided to end the relationship. Ultimately, the value gets driven by driving throughput and creating excellent returns against our capital, which tend to be DC driven, and we see opportunities to grow profitably against the $90 billion addressable segment. But we're in the process of making sure that we align and shape the customer efforts that we're putting into that target market and to the ability to drive profitable growth and significant amounts of free cash flow to deleverage our debt and drive economics for our shareholders.

That makes a lot of sense. And just for my follow-up, I wanted to dig into some of the drivers in the quarter a little bit. So putting the recent cyber incident aside, I mean, you still had a nice acceleration in your overall business with volume growth. I mean, and this is within the backdrop of macro uncertainty, low consumer sentiment. So I guess, what are you seeing on consumer behavior? Have there been any big shifts in which categories they're shopping and in channels and how much do you think just the shift towards more food at home has been a benefit for you this last quarter?

Sure. And I'll take a shot at this and invite Matteo to comment as well. I think the first distinction I draw is that the wholesale market is not exactly a mirror image of the retail market. We're in the B2B products and services business, and our growth is driven by the fact that retailers view us as being helpful to them in a various range of circumstances. And we work hard to be the provider that they look to, to help them grow their business, help them shift their strategy, help them move into new markets, a range of different situations, and our growth reflects that. Some of it short term, some of its long-term, but our sales and merchants are busy helping customers regardless of the situation, and we've seen really strong sales results as a part of that. Within the consumer, clearly, what you hear from retailers across the market is there's certainly stressed at the bottom end and increasing sort of weariness across the customer base. We're seeing really strong performance in the natural, organic and specialty area. But we're also seeing good performance in differentiated ethnic and some other really powerful and good retailers who are doing an excellent job. So it's going to continue to be -- we used the term dynamic in the script. We think it is. We're seeing lots of innovation. And finally, I'd remind you that we credited most of our growth to the quality of our customer base, which is really the truth. It is the biggest driver. We have great customers who are doing incredible things in the market. Matteo, any addition to traction there relative to that?

Thanks, Sandy. I would add a couple of insights on the business trends. So as you unpack the 7.5% growth, 400 basis points came from volume, which is the highest growth that we've seen since the volumes turn positive by the end of 2024. Inflation is stable at 1.5%, and then we picked up about 200 basis points from positive category weeks with higher dollars per case. When you think about natural and conventional dynamics, obviously, natural is growing at a faster pace at 12%. Conventional was up 3% and had slightly positive volumes. And then the last comment is building on some of the iteration that we had in the last call, even within natural when you exclude the new business and the largest customer, the underlying performance has grown from 2% in 1Q, 3% in 2Q, 4% in the third quarter. So we see momentum in the natural business at large.

Your next question comes from Edward Kelly with Wells Fargo.

Just a follow-up on the IT issue. Just curious, do you think there's anything about UNFI that made it more susceptible to this problem? And bigger picture sort of taking a step back, do you think it impacts at all how you're thinking about spending CapEx, technology, that type of stuff moving forward?

Ed, the instinctive answer is no... But let me answer the question more thoughtfully than that. We have, like a lot of companies, a significant investment in process around the cyber area. It's highly dynamic and rapidly growing and the threat actors out there are always looking for ways to innovate and find new ways to penetrate systems. And so whether it's our management routines, our Board oversight, risk management that tracks all the way up into our governance structure, we rigorously review and invest in this cyber infrastructure and capability in the company. We use multiple different external benchmarks to assess ourselves and really hold nothing back in this area. Having said that, we just got penetrated. So we will be continuing to look at every aspect of our defense, every aspect of how our tools are working and what may be necessary to bolster it going forward because it's clearly an area that requires a tremendous amount of focus from companies today and will continue. How that affects CapEx going forward? Ultimately, CapEx is a choice, and we have and will continue to prioritize cyber investment. But I don't think it changes the ultimate big picture for UNFI on capital. But I think a company needs to be both high capability and humble when it relates to cybersecurity. And this event is just a demonstrated example of why.

Okay. And just a follow-up. As we think about the mitigation efforts that you are taking at the moment, obviously, there's case volume impact associated with that, but what about from like a cost perspective in terms of like trying to run the business with some capacity at this point? Is that -- is there an added cost associated with doing that? Just curious, I mean, I know you don't have great visibility, but we're all thinking about how we should at least be modeling what's happened so far. I'm curious if any impact that be having on the cost side?

Sure. And again, what I would say on this one is we're 100 hours in. At this stage, we are taking action with 1 -- well, really 2 tracks of focus. The first is to address the cyber incident to make sure we understand it that we've taken actions to repair, improve and then get our systems safely online as fast as possible, and that's one track of work and we're putting the resources that are necessary, all of them to bring that to effect as soon as safely as possible. And then on the other side, we're using our resources and our tremendous team of sales and supply chain and procurement to work with suppliers and customers to make their situation as good as we possibly can. Will there be elevated costs as a result of both of those tracks? Yes. Of course, there will be. How much that will be? We don't know at this stage, but we believe we'll be able to manage it. But at this point, we're focused on those 2 tracks, and it's too early to try to quantify that.

Your next question comes from the line of Ben Wood with BMO Capital Markets.

This is Ben on behalf of Kelly Bania. Not to belabor the breach anymore. But just a question, going into it, where are you guys on the consolidation and updating of your IT systems? I know a lot of the last cycle of inflation you commented that you had a lot of systems that impacted your visibility into the business. So where were you in that process?

Ben, it's Matteo. So over the past couple of years, we have been focused on improving our systems and processes. And as I think about our $300 million CapEx guidance, we always allocate about 1/3 to safety and overall DC modernization, about 1/3 to technology improvements and then about 1/3 to automation. So within that envelope, we have invested in updating our systems and processes, and with that increasing capabilities. We continue to modernize our networks. Think about the recent release of the warehouse management systems, think about some of the inventory management applications that we released. And we continue to look at opportunities to methodically and with discipline consider an ERP. But we want to make sure that it's clear that the fact that we have closed some kind of technology deficit in the last of couple of years with a lot of system and process improvement is separate from what happened in the cyber attack.

Right. Understood. No, that's helpful. And then I just want to transition to talking a little bit about service levels. You guys have provided some good updates. But I'm curious for the DCs that are on your Lean Daily Management compared to the DCs that are not, how are service levels, customer retentions, new business wins tracking? And then on a related note to that, what about the DCs in the surrounding areas of some of the DCs that you've closed? How is customer retention and service levels they are going?

Ben, great question. Thank you. We see service levels improving and being able to benefit from immediate problem solving at the 20 DCs, where we have deployed Lean Daily Management. With that said, it doesn't mean that the other 30 or so don't focus on fee rates and service levels and delivery qualities. But the methodology of having teams huddling every morning around the safety quality, delivery cost dashboard, seeing the green or the red and being able to jump straight away to the red and acting problem solving is very, very powerful. So with that in mind, we've seen shrink benefits, service level benefits, delivery quality benefits. That's why we're encouraged about expanding the program to more and more distribution centers. And to your point, the adjacent DCs that don't have Lean Daily Management in place can also learn from the best practices of the others. So there is a formal method of rolling out the LDM, but there are also daily interactions and practice sharing that helps the overall network. Relative to the customer retention, when we issued a guidance about a year ago, the outlook, the 3-year guidance about a year ago and talk about flat revenues, we had just started the network optimization plans. And to date, we have closed 4 distribution centers. If you include the move of York into Manchester. And obviously, we announced Allentown this morning. And we could say that our ability to work with customers and find win-win path forward has been stronger than we were expecting at the inception of this program, and we are happy with that because as Sandy mentioned, our first goal when we see low performing distribution centers is to be able to find win-win solutions with our customers. And then if not, we need to take different actions.

Your final question comes from William Reuter with Bank of America.

I just -- I have 2 quick ones. So the first, in terms of the termination fee with Key Foods, did I hear correctly that, that was [ $53 million ]?

That is correct.

Okay. And then in terms of capital allocation, you've now sped up your expectation of when you're going to get to 2.5x leverage now by the end of fiscal year '26. How are you thinking about capital allocation when you get to that target? Do you think that you'll change towards more shareholder-friendly, either share repurchases, larger dividend? Or alternatively, do you think you might kind of reduce your leverage target going forward from that point?

It's a great question. So our focus is 100% on converting free cash flow into debt reduction for now. Within that the framework, we talked about investing $300 million in CapEx every year, about 1% of our top line. And again, the envelope is split 1/3 into safety and DC maintenance, 1/3 into technology and 1/3 into automation. And then every dollar goes to debt reduction. That is the focus and the mantra through the point of achieving 2.5 turns or less. I think at that point, we'll have a different conversation on where do we see the best shareholder returns. And to your point, the full portfolio of more targeted investments organically in certain areas, thinking about a different buyback policy is all going to be on the table. But for now, the one and only focus is to deleverage. And there is no mistake within the company.

And that concludes our question-and-answer session. And I will now turn the conference back over to Sandy Douglas for closing comments.

Thank you, operator. As you heard on today's call, we are focused on diligently managing through the cyber incident we announced yesterday morning to rapidly and safely restore our capabilities while helping our customers with short-term solutions wherever possible. While this may be a short-term incidence in the longer picture of our business, we see a defining character moment to show up for our customers in a way that reflects the challenges of the time and the character of the company that we want to be. Bigger picture, we continue to make solid progress towards implementing our multiyear strategy and delivering on our financial commitments, both in fiscal '25 and beyond. We again delivered strong sales, adjusted EBITDA and free cash flow growth compared to last year's third quarter. We continue to gather insights and develop plans for how we can deliver even more value for our customers and suppliers, knowing that the learnings from our past will be the drivers of success in our future. We're committed to getting better every day and have embraced lean management as a disciplined approach to becoming more efficient and effective. For our customers and [indiscernible] suppliers, especially now, we thank you for your continued partnership and the business we do together. For the UNFI associates listening today, our thanks to each of you for everything that you do for our business, our customers, our communities and each other. And for our shareholders, we thank you for the trust you continue to place in us. Thanks again for joining us this morning. I look forward to updating you this fall on our year-end call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.