Operator: Good day, and welcome to the PFG's Quarter One 2022 Earnings Conference Call. I would now like to turn the call over to Bill Marshall, Vice President of Investor Relations for PFG. Please go ahead, sir.

Bill Marshall: Thank you, and good morning. We're here with George Holm, PFG's CEO; and Jim Hope, PFG's CFO.

We issued a press release regarding our 2022 fiscal first quarter results this morning, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the same period in our 2021 fiscal first quarter. Additionally, occasionally during our call today, as noted, we are comparing results to the same period in our 2020 fiscal first quarter. The results discussed on this call will include GAAP and non-GAAP results for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release.

Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. Now, I'd like to turn the call over to George.

George Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today.

I'm excited to be able to share PFG's first quarter results and many of the important strategic actions our company is taking. We believe our business position is extremely strong, reflecting the hard work from all our associates and the dedication of our suppliers and customers. PFG is posting record levels of sales, all while delivering on our vision of distribution leadership by building upon our core business and executing strategic transactions. The actions we have taken over the past several years have transformed PFG from a traditional foodservice distributor to a multichannel, multiproduct specialty distribution company, expanding the boundaries of our industry's typical end market. The result is a more diverse business model that allows us to align our capabilities with the evolution of our customers and their consumers.

As you know, we closed the Core-Mark acquisition at the beginning of September and are excited to be able to welcome their associates to the PFG family of companies. We view the convenience channel as providing a major growth opportunity as these customers look to drive store traffic by providing better food and food service options. As one entity, PFG offers convenience operators the candy, snack and beverage expertise of Vistar paired with our foodservice leadership at Performance Foodservice, all under the umbrella of Core-Mark and Eby-Brown, two of the largest and most experienced convenience store distribution companies in North America. I will share more details on the integration efforts already underway as well as our strategic vision for the convenience business in a moment. But before we get into the details of the quarter, I think it's important to reflect on how far our company has come over the past 18 months.

As we entered calendar 2020, none of us could have predicted what was in store for our country, industry and company. At the time, PFG was generating about $23 billion in annual net sales. It would have been hard to envision where we would be today with a view toward doubling our sales and ultimately eclipsing $50 billion in revenue and $1 billion of adjusted EBITDA. We're not only a larger company, what we believe a stronger company with increasingly diverse revenue streams, providing growth opportunities that were not present just a few years ago. It goes without saying that we could not have made this progress without the commitment and support from every PFG associates as well as our customers and suppliers.

The partnerships we have forged and solidified that propelled our company to new heights. We will keep executing our vision, and with it, the possibility for sales and gross profit over the long term. The addition of Eby-Brown and Reinhart Foodservice were two of the transformative aspects of our journey. By adding Eby, we built the foundation of our convenience business, paving a way for the Core-Mark acquisition. With Reinhart, we added another bedrock foodservice distribution platform to our already strong broadline business.

Let's start with an update on Reinhart. We cannot be more pleased with the efforts and performance of this business. As we have shared with you since closing that deal, our integration has been owned or ahead of schedule since day one. This is a feat in and of itself. We were confident that the business results would follow in step with the goal of accelerating Reinhart's growth to be in line with legacy Performance Foodservice.

We are very pleased to share with you that we have achieved an important milestone towards that ambition. For the second consecutive quarter, Reinhart independent case volume growth outpaced our legacy foodservice business. Shortly after the close of Reinhart, we thought been a part of PFG. Now that the performances are aligned, we can say that Reinhart and Performance Foodservice are truly one business. This is obviously a strong testament to the efforts from both Reinhart and Performance Foodservice associates and work by our entire integration team.

This success story reinforces our confidence and excitement for Core-Mark. As I mentioned, we closed the Core-Mark transaction in early September, and one month of results are included in our fiscal 2022 first quarter numbers. More importantly, the integration is off to a fast start. A tremendous amount of work has been put in to bring these two great organizations together. We have already seen the strong camaraderie between Eby and Core-Mark.

Shortly after closing the deal, both companies participated in that an annual convenience store focused event. I was able to witness the collaboration between Eby and Core-Mark Associates firsthand. We believe that the ability of the two organizations to work together with a single focus is the key ingredient for successful M&A. As I described above, the settlement was present with Reinhart and Performance Foodservice. It is exciting to see a similar dynamic with our convenience efforts.

Our early success with Core-Mark has already extended into business wins. I am pleased to announce that we've converted an important legacy convenience customer over to our foodservice platform while also adding a different legacy foodservice customer's convenience business. It is obviously very early days where we are already seeing our convenience strategy play out as we had hoped it would. In the coming quarters, we will continue to share examples of our progress in this important strategic endeavor. Our efforts on the M&A front have added to our already strong base business, which continues to operate at a very high level.

Starting with our Foodservice segment, we continue to see top line growth far exceeding what we had anticipated just a few quarters ago. Our Foodservice segment sales surpassed $6.3 billion in the quarter, a 26% increase over the previous year. We continue to see a significant improvement in our mix of business as our independent restaurant case and sales growth outpaced total company results. After outperforming the industry last year, our independent business continues to impress. On a two-year basis, independent unit case volume increased more than 11% compared to the first quarter of fiscal 2020, including pro forma Reinhart results in that period.

This means that our independent case volume is significantly higher than it was entering calendar 2020, quite a feat given the operating environment since that time. Specifically, independent business now represents over 39% of our total foodservice net sales, which is about 4 percentage points higher than it was two years ago. As a reminder, we continue to find independence as customers with fewer than five locations. We are also encouraged by the underlying trends within our foodservice results. For example, areas of the business that had been strong over the past 18 months, notably pizza, Italian and Hispanic continued to perform well in the fiscal first quarter of 2022.

According to our data, our three-month dollar market share through September remains well above 2019 levels in independent restaurants. This trend holds true across pizza Italian and Hispanic concepts. We have continued to invest upon these areas of strength and the data shows our efforts over the past 1.5 years have paid off. We believe that these investments will result in long-term gains and bodes well for our sales and profit potential. Overall, our Foodservice segment continues to produce solid sales and profit growth despite the labor cost challenges, which the majority of our divisions are managing well.

At Vistar, we are incredibly pleased with the sequential improvement that business is experiencing. Even without a full recovery in theater and office coffee, Vistar results have improved dramatically. And recent box office trends have caused us to be optimistic about the future for that channel. As you know, a strong recovery at Vistar, which is what we are expecting, would prove to be very favorable to our margin profile in the quarters ahead. We also wanted to discuss an area that we are particularly excited about at Vistar.

As you may recall, we have been building our retail automation warehouse network and are pleased to announce that we are now fully operational at all three facilities. The three locations, Retail East, Retail Central and Retail West are situated in areas that allow us to distribute to the vast majority of the country quickly and efficiently. While it is still early days, these operations allow us to tap into several exciting distribution opportunities, including customer fulfillment, direct-to-consumer e-commerce fulfillment and virtual warehousing. We believe this sets us up for incremental selling and growth avenues, while consolidating our capacity at other operating companies. The nature of this business means we can efficiently sell to a legacy distort customer, a foodservice customer or direct to consumers while maintaining significantly more SKUs with less complexity.

In today's operating environment where supply chains are stretched and customers are demanding an increasing number of products, we believe we have an advantage compared to our competition. As we continue to grow this business, you will hear more about our progress in this strategic objective. To summarize, we're off to a strong start to fiscal 2022. Our foodservice business continues to perform well with sizable gains in the high-margin independent restaurant business. This starts seeing steady sequential improvement, which we expect to continue in the quarters ahead.

We are thrilled to have closed the Core-Mark acquisition during the quarter, and the integration process is already ahead of schedule. We have added new business in the convenience channel on the traditional C-source side as well as within C-store food service. Our company is executing at a very high level while also making progress in our strategic vision. Sales growth will continue to be a priority for PFG. And over time, we expect to see improvement in EBITDA margin, which is another focus area for our organization.

As Jim will discuss in a moment, we have a strong balance sheet and cash flow profile, which supports our investment in the business. I'm excited about the progress we have made in a few short years and the potential we have for the years ahead. I'll now turn it over to Jim for an update on our fiscal first quarter and financial position.

Jim Hope: Thank you, George, and good morning, everyone. Before I review our results for the first quarter, I would like to review our financial position and cash flow dynamics.

As George mentioned, we are very pleased with the strong recovery our business is experiencing. We believe that these results are supported by our solid balance sheet and cash flow profile, which has helped fund the expansion of our business and support our working capital investments. We ended the quarter with $2.5 billion of total liquidity, the highest level in our company's history. We upsized our ABL facility during the quarter for a potential borrowing base of $4 billion, up from $3 billion. We believe that our ability to increase our ABL to this level, one of the largest in the country reflects our banking partners' confidence in our business model and strategic vision.

We also issued $1 billion of senior notes during fiscal Q1 at an interest rate of 4.25%. We were able to take advantage of the interest rate environment to lock in this attractive rate to partially fund the cash portion of the Core-Mark acquisition as well as pay off $350 million of 2024 notes, which had a 5.5% coupon. All in, we finished the quarter with approximately $4.1 billion of total debt, including our finance lease obligations. Turning to cash flow. In the first quarter, we generated about $32 million of operating cash flow as our team continues to do a fantastic job managing our working capital position.

Accounts receivable increased along with the sales recovery and our receivables over 60 days outstanding remain at a very low level. Disciplined management of inventory and accounts payable drove cash generation at both line items. We believe that our inventory build is now substantially complete. Factoring in the $24.4 million of capital expenditures in the quarter, PFG generated positive free cash flow of $7.4 million in the quarter. We are pleased with our organization's ability to generate positive cash flow even while investing in the working capital needed to keep pace with a rapidly improving business environment.

We expect our cash generation to improve even further with the addition of the Core-Mark business. With that, let's quickly review some highlights from our fiscal first quarter business performance. Net sales increased 47.4% in the quarter to $10.4 billion, driven by one month of Core-Mark's sales in addition to the inflation-driven pricing and a continued recovery in the business environment. Total case volume increased approximately 27% and was up 17.8%, excluding the contribution from Core-Mark. Keep in mind that the high selling price of cigarettes in addition to high rates of inflation impact the difference between case volume increases and our top line growth.

Independent cases increased 21.1% in the fiscal first quarter as we continue to see solid momentum in our independent business. We continue to be very pleased with our independent results and believe it provides a solid foundation for long-term profit growth at PFG. As George mentioned earlier on the call, over a two-year period from the fiscal first quarter of 2020 through the most recent quarter, our independent cases increased over 11%, including Reinhart cases in the first quarter of 2020 period. We believe that this is truly a remarkable result, highlighting our business's resiliency and the hard work of our associates through some challenging times for our industry. Total PFG gross profit increased 40.1% compared to the prior year quarter, helped by the independent case growth I just mentioned.

Core-Mark contributed $89.1 million to gross profit, including an $8.8 million amortization step-up on inventory acquired. Our reported gross profit margin in the quarter was 11%, down from 11.6% in the prior year period but impacted by the addition of Core-Mark. Food cost inflation continued to move higher in the quarter. Our weighted food cost inflation was about 11.1%, up sequentially as we continue to see double-digit increases in our foodservice commodities, including meat, poultry, seafood and disposables. Keep in mind that our total company inflation is impacted by somewhat lower levels seen at Vistar, which has more exposure to packaged goods and tobacco.

Our Foodservice operations experienced inflation in the low teens during the fiscal first quarter. While inflation has kept pace well above historic levels, we have successfully passed along these increases. Gross profit per case was up over $0.52 in the first quarter compared to the prior year period. Keep in mind that this includes one month of Core-Mark's results and is impacted by the higher gross profit per case for tobacco. In the first quarter, PFG had a net income of $4.7 million.

Adjusted EBITDA increased 35.9% to $183.7 million. Diluted earnings per share was $0.03 in the first quarter, while adjusted diluted earnings per share was $0.43. I'd like to finish by discussing our outlook for the remainder of fiscal 2022. As noted in our earnings press release this morning, we anticipate fiscal second quarter 2022 net sales to be in a range of $12.7 billion to $12.9 billion, highlighting the strong top line momentum our business has achieved. We also look for adjusted EBITDA for the upcoming quarter in a range of $210 million to $225 million.

For the full fiscal year, we are guiding to net sales of $49.5 billion to $50.5 billion and adjusted EBITDA between $940 million and $960 million. Let me provide some additional color on the quarterly cadence for the upcoming year. As you know, the winter months are typically the smallest from a seasonality perspective. As a result, we would expect our 3Q 2022 net sales and adjusted EBITDA to be similar to 2Q, accelerating in fiscal 4Q 2022. The fourth quarter acceleration in sales and adjusted EBITDA reflects the typical summer seasonality plus some expected easing of the labor cost pressures that George mentioned earlier in the call.

In summary, we are extremely pleased with the beginning of fiscal 2022. PFG continues to be an industry leader with continued success in the independent restaurant space and consistent recovery in our Vistar business. During the quarter, we successfully closed the Core-Mark transaction and are well underway in our plan to unlock sizable value from the convenience store space. Our balance sheet is strong and has allowed us to invest behind long-term market share and sales growth. And we believe PFG is in a great position to convert our top line sales into sustainable profit growth.

Our organization is engaged and focused on important enterprise initiatives that we believe will create long-term value for all stakeholders. We appreciate your interest in Performance Food Group. And with that, we'd be happy to take your questions.

Operator: And we will take our first question from Kelly Bania with BMO Capital. Your line is now open.

Kelly Bania: There was a discussion of just some of the encouraging signs at Vistar and what you're seeing maybe in the theater but just can you give us a little color in what you're expecting in terms of improvement in sales and EBITDA at the Vistar business, the kind of legacy Vistar business as we think about your guidance for the year?

George Holm: While we're very encouraged, and I think the biggest reason for encouragement is the amount of new business that we picked up going through this pandemic. We are very close to fiscal 2020 sales. We've gotten closer each month with October being the best month. We are back to the same return on sales or I guess I would put an EBITDA margin that we had before. So, we're looking for improvement with some of these channels coming back.

The biggest ones would be office coffee and theater. We're not sure that they'll come back to the levels they were before. But if they don't, will certainly be exceeding fiscal 2020 sales without that happening, so just really encouraged.

Kelly Bania: Great. That's very helpful.

And I guess just another one here, just a lot of discussion across the space on fill rates and obviously, labor and just the constraints that's happening both internally and at the customer level. Maybe can you just talk about where you think you stand on those two factors, particularly relative to a lot of the other competitors out there?

George Holm: Well, we've certainly had our struggles. This has not been easy. Going into what we thought we had made some really good decisions. We used to, like a lot of companies had daily calls as we were going through the real difficult times and I would end every call with you can't have too much inventory and you can't have too many people because this is going to come lowering back.

And I think that helped us, but it didn't help us for a real long period of time because we didn't anticipate how difficult it would be to hire people. And we didn't anticipate the depth of the problems that some of our suppliers would have. I think they were dealing with the same things that we were dealing with. But I think the COVID issues were more difficult for them, especially if they were somebody that operated with one or two plants, and I think it just made it real difficult. It's moved around on us where we've had tough times.

We spent the money. We would fly temps soon. We would fly in people from other distribution centers that weren't at that time negatively impacted. Even September was a pretty tough month. October is the first time we've seen a real good decline in the number of temp people that we have.

So that's very encouraging. But one thing that we've been cautious with is that, as Jim has put together, the type of guidance that we give, we're expecting to continue to have some difficulties and it'd be into 2022 before it reaches some level of normalcy. I want to also add that our shortage of people isn't as acute as it was before. We've done a pretty good job of getting the staffing there, and as I said, a reduction in temps. Which, of course, are very expensive.

Everybody needs temps today. But again, the encouraging part is that I think that we moved a little bit more towards the learning curve issue versus the number of people. And this is a job, particularly in the warehouse where you can train people for the job fairly quickly. But as far as them getting really productive in that job, it takes a period of time. So that's a really long answer.

We don't want to portray ourselves as having this problem solved. But we certainly feel like it's -- we're getting ourselves over the hump.

Operator: And we will take our next question from Edward Kelly with Wells Fargo. Your line is now open.

Edward Kelly: Could you talk a bit more just around the outlook for the temporary labor cost over the next few quarters? So I heard you mention that you expect some easing in Q4.

Does that mean that Q2 and Q3, the level of pressure is similar to Q1? Just kind of how do we think about the magnitude of that? And then you called the cost temporary. So is it right for us to look at these costs as we think about your business over a multiyear period. When we think about EBITDA guidance this year that EBITDA would obviously be higher by these costs? And I guess ultimately kind of like what gives you the confidence in the word temporary?

Jim Hope: Yes. Thanks, Ed. Thanks for that question.

I think the first thing I'd like to say is while we do have these heavy temp costs as most food distributors do, really do appreciate all the hard work our supply chain has done because at the end of the day, regardless of the heavy labor costs we've had and the difficulty in moving product to the supply chain as most distributors are, I think you'd agree, we posted some solid sales results. So that supply chain of ours is working very hard and they're getting the job done. Second, as far as temporary versus long term, the vast majority of these costs, the majority of them are temporary and will abate. There is no doubt that some of these costs are structural. And it's certainly not the majority, it's the minority of the cost.

But I think it would be wrong for us to say that some of them are going to be with us for a longer period of time. These contract costs, the temporary contract workers will start to fade away. We expect them to continue primarily through Q2, some easing in Q3, and we expect to work ourselves out of it in Q4. Important to note that the entire contract labor cost, all that number we quoted that particular cost goes away, those contract workers will be replaced to some degree of full-time workers. So it's not a dollar for dollar reduction.

Edward Kelly: Great. That's helpful. And I wanted to ask just one follow-up, big picture. It feels a little early to ask this question because you just closed on Core-Mark. But your financial position is strong.

And Jim, you led with that. Can you talk about the M&A backdrop? It's not getting any easier out there to operate. And your appetite, I guess, at this point to do more? Or do you need some time to digest?

George Holm: Well, I think that's a really good question. We've done a lot recently, and we don't feel any stress as far as impact on the organization from that on the one hand, but on the other hand, sometimes you want to tap the break a little bit and take a little bit of a resting and make sure that everything has gone well. But at the same time, we want to be very strategic.

And I guess on top of that, we want to make sure that we take advantage of opportunities when they're available and they may not be available in the future. So we want to continue to be opportunistic. I think that we have a balance sheet that gives us still some flexibility. Paying down debt is always important, but it gives us some flexibility. So I would put us in the camp of if there's something available that really fits for us, we're going to jump through hoops to make sure that we get that done.

Core-Mark, I believe, is going to be very similar to Reinhart. I think it's a good cultural match, and that's very important to us. In some instances, it's more important than getting something at a really great price. I think I'll leave it at that. We have things we're looking at now, not things that we went out and sourced, it's people that came to us, and they're opportunistic, but they're not really big.

So I think that's more what you'll see from us is continued activity but not real large.

Operator: We will take our next question from Alex Slagle with Jefferies. Your line is now open.

Alex Slagle: Question on the independent case growth, and curious how this two-year trend that you mentioned compares to the fourth quarter on an apples-to-apples basis, if you have that? And then curious with defense, if you have a sense, but what's driving the strong relative performance? And how much of this is category exposure versus winning new business versus other specific actions that you're taking to support your existing independent immersion and gain wallet share with them?

George Holm: Yes. When we look at I guess, you call it a two-year stack or comparing to 2020, we feel the 11% case growth that we've had has -- it just bodes well for us in the future, particularly how well Reinhart has done through that period of time.

And I would say, particularly how Reinhart has done the last couple quarters versus not last year but versus two years ago. That gives us a lot of confidence in the future. I think going to COVID itself, I think our customer base was set up pretty well for growth, but we gained a lot of share in the categories that are good for takeout, good for delivery. And once we lap that, and we thought those tough comparisons would be just that, it would be tough to jump over. We certainly haven't had the huge growth that we had the year before, but we've continued to have low double-digit growth in those channels.

So that also gives us a lot of confidence as we move forward. And then I want to add one other thing to that is, if you take our case growth versus -- and then you add the inflation to it, the delta between that number and our sales growth is the highest that we've seen. Or in other words, our mix of business has really moved more and more to high-priced product And we've done very well in center of the plate. We've actually done quite well in center of the plate in the retail area as well to our surprise. So I think we're positioned well.

We're in certainly not a normal environment. And what we have been seeing is actually a slight uptick from that 11% as you look at the last couple of months. So it's just been really pleasing.

Alex Slagle: Great. And then on Core-Mark, and sort of retention and turnover post acquisition, has that played out as expected? I know it's early, but any thoughts there?

George Holm: Yes.

We only have four weeks of that Q1. And of course, we've had we've got four weeks since then. As far as business retention, there hasn't been any business that we've lost through that period of time. We've had the same struggles from a labor standpoint in Core-Mark that we've had in the rest of our businesses. So it's a little tough when you get that kind of disruption.

But the momentum has continued there. The only difference would be that cigarettes did well through the early and mid-stages of COVID. And now cigarettes have gone back to their -- more than their historic drop, I think part of that is just getting more towards what would have happened over a two-year period of time. And we don't really pay that close attention to that. I mean it's obviously a lot of revenue.

It's not a lot of gross profit. It's not a product area that we market or go out and pursue business in. So just -- it's just there. But our foodservice business is doing extremely well. And I also should note that we were able to take a convenience store chain that we did the foodservice product for out of Performance Foodservice and we've been able to get an agreement with them to supply them with their convenience at a Core-Mark.

And then we did the opposite of that where we had a Core-Mark customer that had a good footprint for convenience, and we've been able to move the foodservice business over to us. Now neither one of those have started, one will start soon, one will start the beginning of February because obviously, we want to make sure from a labor standpoint, we're positioned well to handle their business.

Jim Hope: George, I would add, when we talked about the Reinhart acquisition, we completed that acquisition, we made it clear that we were pleased with the talent that Reinhart brought to the organization as well as a cultural fit. And that really bodes well and proved out as we move through integration and Reinhart began to deliver even better results than they had in the past. We see those same signs with the Core-Mark team.

George Holm: That's for sure. Very impressed with their management team, and I'll use the word again, but culturally, it's a great fit with us. They've got a great leader who will contribute to our company beyond just the convenience area. So, we're pleased.

Operator: And we will take our next question from John Heinbockel with Guggenheim.

Your line is now open.

John Heinbockel: George, I want to start with Core-Mark, right? So maybe talk about the process of cross-selling, right, kind of institutionalizing that, and you gave two examples, but really addressing that how you're attacking that every day, plus your visibility on contracts coming up, more chunky stuff? And then do you think they're nontobacco business right, which is really the key. Can you consistently grow that double digit? Or is that a high bar?

George Holm: Yes. I'll comment on that, each one of those things. As far as our approach to the market and somewhat our combined approach when you consider that there's significant overlap with Vistar and Performance Foodservice, we're working on that still, John.

And if you look at the foodservice part of it today, we actually do more business out of Performance Foodservice than we do Core-Mark and Eby. So it has huge potential for us. So there's accounts who have -- don't have a real heavy commitment to foodservice, where it's going to make a lot of sense for us to continue to do that type of business out of the Core-Mark, Eby structure. And then where there is a significant commitment to foodservice, we'll be sending four trucks into those accounts. The four examples that I just gave are both where we'll have two trucks going into those accounts.

So we've still got decisions to make about that. Our people are working close together. And we'll come up with the right solution, but I think the solution is really going to be on an account-by-account basis, and we just have a lot of work to do when it comes to that. As far as growth, I think that it's going to be -- it's going to come more in chunks than we typically see in Performance Foodservice. We do very well with independent convenience operators, but they tend to have either a very large commitments to foodservice, and that's the minority of them, or almost no commitment to foodservice.

So that, I think, will be steady and will be much more like we are in a Performance Foodservice environment. And I think nontobacco double-digit growth, I think that is the aspiration. But if you go back to kind of the 6% to 10% that we've always talked about in foodservice, it's probably going to be similar to that. Then that chain, which is significant. I mean less than -- it's less than half of the units, but it's much more than half of the sales, that's going to be pretty chunky.

But I will say that we have the largest funnel. And Scott McPherson will say, even going back before the merger, this is like the largest funnel that they've had as far as business that we're having processed today. Not closed by any means but in process.

John Heinbockel: And then foodservice side, right? So historically, you guys right had targeted independent case growth kind of mid-single-digit in more recent years, right, pre-COVID. How do you think about that? The one thing that you thought was going to happen with -- during COVID is that there would be this account consolidation right, automatically and whatever your share was, all of the primary distributors were going to get a lot more share of wallet.

Is that stuck? And has that -- how big is that opportunity relative to kind of mid-single-digit independent case growth?

George Holm: Well, I think that's a great opportunity, but I think the bigger opportunity will be new business. We are running the highest increase per customer in both lines and cases that we've ever run by a good bit. We're real conscious of picking up business right now that we're not capable of supplying properly, and not only that, but our salespeople are very busy, making sure that we're servicing our customers properly. So our increase in new accounts is much lower than it typically is. And I think that's where our big opportunity once we have full confidence from a labor standpoint.

And that's an area that we've always done well with. And I think that we'll continue to do well with, and that's just gone out and pursuing business that we don't have at all today. That's the bigger opportunity.

Operator: We will take our next question from Jeffrey Bernstein with Barclays. Your line is now open.

Jeffrey Priester: This is actually Jeff Priester on for Jeff Bernstein. One question, one follow-up for us. The first, just on your capital allocation priorities, over time, PFC has kind of added more and more channels, so there's kind of more mouth to feed. How would you think about the allocation of CapEx or just investments across your opportunity channels? And would you expect each channel to kind of fund their own growth, especially when you look at Foodservice and Core-Mark? And I guess the final piece for that is just on your balance sheet, how much cash would you be -- keep you comfortable to hold on the balance sheet just a normal And then I have one follow-up.

Jim Hope: Yes.

We think of it on the last question, we certainly think of it in terms of liquidity, and we're going to optimize our capital structure and make sure that cash is actually put to good use. So I would think about it in terms of a liquidity perspective. As far as CapEx, look, our capital priorities are certainly to pay down debt and manage our maintenance capital as well as expand for growth. I would think of it as both the Foodservice division as well as Vistar overall, will both be funding their own CapEx and they do a fine job of that. I think that everybody will be -- every one of those divisions will be taken care of from the standpoint of maintenance capital as well as preparing for growth.

George Holm: And I'm going to give you a little bit more of an answer on that, too. Performance Foodservice, we have several projects that are in place right now, a couple of new facilities and some addition to existing facilities. Vistar the same, not quite to the extent, but we've never been bashful about adding capacity to Vistar, and most of the distribution centers that we had, if you go back to when we bought PFG, we've really redone almost all the Vistar distribution centers. And these retail pick-and-pack facilities, fulfillment facilities, we've added three of those. We have all two of them profitable at this point.

We want to get better at it coming up here in the near future, but we have aspirations to take that to probably six of those distribution centers. We have some markets where we want to improve our brick-and-mortar from a convenience standpoint between Core-Mark and Eby, so we'll be spending some money there. In our national chain business that you can go through all the way back to 2008 when we did the original acquisition, we haven't done any expansion projects. We've actually closed two distribution businesses in there. It's been a pretty good cash generator for us, but it's basically been maintenance CapEx, and it doesn't come with the kind of margins that you're going to spend a lot of CapEx on.

So that gives you an idea from the different businesses. I think that's important for us to communicate where we see our growth coming.

Jeffrey Priester: Appreciate that insight. And then just on inflation. Obviously, you and your peers are all facing 10% plus inflation.

But just kind of what have you been seeing so far this quarter? And kind of what does your outlook look like in terms of when this might start to abate?

Jim Hope: Yes. Look, obviously, inflation continued to be significant in the quarter, coming in at 11.1% for PFG overall and low teens for Foodservice. We had larger increase in the proteins for sure and disposables. But it was really broad-based over all the categories. It wasn't a surprise to us.

I don't think it was surprise anybody and we're set up to handle inflation and pass along quickly to our customers as appropriate, and you saw that in this quarter. We feel good about our ability to pass it along. We'll continue to manage it and manage it fairly. As far as predicting it, it's pretty difficult to do, but I think it will be -- definitely be with us in the near term. Hard to say how long.

George Holm: I'll give you a quick shot on an opinion. I think that the commodity products, so supply and demand-based big inflation. I think that, that could be transitory. I certainly don't know but as far as you can get from being an expert on that. But I think any time that something is in short supply and there's a lot of demand, you're going to see nothing but inflation.

And I would say that our customer today is much more concerned about getting the product and what it costs, which, quite frankly, makes us kind of in that same boat. Then if you go to more package type product or further process product, I think these companies fight pretty hard to get price increases through. And I do feel that -- and by the way, product is also extremely hard to get. I think that once they establish that new level of pricing, they're not going backwards. So I don't see that as transitional, I see that as permanent.

The only thing that could happen is maybe those that do fairly frequent price increases or even annual price increases, they may not be as driven to do increase in the future if their input products go down. But to think that we're going to turn around and find ourselves in a position where this inflation goes down quickly, I don't see how that happens.

Operator: And we will take our next question from Lauren Silberman with Crédit Suisse. Your line is now open.

Lauren Silberman: Just a follow-up on the temporary contract labor.

You called out a $52 million increase in the quarter. Can you help us understand the incremental cost of using the temporary labor relative to if you had full staffing, the combination of direct costs as all as productivity? Any way to quantify how much better the cost would have been as you think about a normalized environment?

Jim Hope: Yes. I think the only thing I could share with you, and this is not specific or scientific by any means, is we think of the temporary cost is approaching double what the typical cost of an employee would be. It's expensive. And then there's also one other important dimension and consider, our full-time folks are primarily very well trained other than the new people.

They make less mistakes. They're much more efficient. As we move out of the temporary or contract labor workforce, we'll start to be able to train those folks and we'll see some improvement there.

George Holm: I would also -- I should add that will be a gradual, even though we made some good progress in October. And part of the reason for that is that we've taken our best, most productive people, and we work them incredible amounts of overtime.

And quite frankly, they need a break. And so we'll hold on a little bit longer to some of these temps just to get our people back to a normal cadence of work.

Lauren Silberman: That's very helpful. In terms of independent customers, can you share what percentage independent customers are serving today relative to pre-COVID? And if you're starting to see the appetite for new unit growth increasing, and then any color on the underlying performance of independent restaurants versus chain restaurants?

George Holm: Yes. We sell more independent customers today than we did pre-COVID.

And I look at that every week, and I look at it every week by OpCo. We do have some where we saw less at the OpCo level or at the distribution level, and you can be pretty much equate that with labor issues and service issues and where we had real problems is where our number of customers went down. So we got some work to do as we come back with that. As far as the health of the independent restaurant and new restaurants opening, we're seeing new restaurants opening and have been for months. It's just such a resilient business.

I do worry somewhat with the customer that struggled through and the PPP got them through and how are they going to be here in the future. So we're trying to work with our customers, as I'm sure our competitors are, and we're trying to be as -- we're just trying to work with them as hard as we can. But we also want to make sure that from a credit standpoint that we're really strict and really tight. And I think that's important. And even though I see that the independent restaurant being healthy, I think that in some ways, it may even be tougher when this is over.

More competition. These empty locations are filling up pretty quick. And we could go back to more -- too many seats. And right now, we not only don't have enough seats in the industry, we don't have enough people to wait on them. We don't have people to cook it.

So it's going to change dramatically, and I don't have the crystal ball for that, but I think that the independent is going to continue to do well.

Lauren Silberman: Just a final one. Anything you can expand on with what you're seeing in October's case growth and strength there?

George Holm: It's not huge difference. We're seeing a slight uptick versus two years ago, each month, but it's not huge. We've been negatively impacted by having a distribution center that hasn't been opened since the hurricane in Louisiana.

So that's had some impact on us. That is opening back up next week. But I just see it just a slow, steady increase, but slow off a high level. So we don't mind that.

Operator: We will take our next question from Mark Carden with UBS.

Your line is now open.

Mark Carden: So digging into labor a bit more, it sounds like a lot of the temporary headwinds are coming from the contract side. But when we think about full-time noncontract workers, we've heard some different perspectives. Some have been talking more about implementing base pay raises and others have talked more about spot bonuses. What's your view on the industry at this point? Are you expecting more structural pressures? Or do you see being mainly transitory?

George Holm: I think we're seeing both.

We've had markets where you've studied the market, you give somebody a third party to study it, maybe that's looking at it a little bit different. And if we're not paying enough in that market, we take our payoff. And we did it pretty substantially across Eby-Brown. I think that it's helped us. It was the right thing to do.

But most of what we've done has been in the form of sign-on bonuses or stay bonuses temporary. But where we need to, we'll make the investment in people that we need to make.

Mark Carden: Okay. That makes sense. And then building on some of the earlier Core-Mark questions, you noted that the Core-Mark integration is going faster than expected and that you've seen several major wins.

I know it's still early, but does your full year guidance building a material acceleration at Core-Mark versus what you may have anticipated at the time of the acquisition announcement or even at the time of close, or is the bigger impact just to be longer term beyond 2022?

George Holm: Yes. We did not add any real improvement at Core-Mark. I think we're wise not to right now because it's so early, and they've got transitions to go through. I'll just go back to what I said before that the cultural fit is great. The amount of sales that we're currently working on is really good.

The Eby-Brown and the Core-Mark people have gelled great beyond what I would have expected. I think from a synergy standpoint that there's a greater commonality in job functions, in product offerings and how the business is run between Core-Mark and Eby than there was between Performance and Reinhart, particularly when you get to product. A lot of the synergies that we'll get from Reinhart are yet to come. We've done really little consolidation of product offerings. So I think we'll be able to do those things faster in the Core-Mark, Eby world, and they're moving pretty quick.

But we're also really careful around lost people because we need talent across the organization. So sometimes you move too fast and you can mess up from the people standpoint.

Operator: And we will take our next question from John Glass with Morgan Stanley. Your line is now open.

John Glass: And most have been asked and answered.

But George, you didn't talk about this new automated facility in Vistar, pick and pack. What's the big idea there in terms of the opportunity set for new customers? You mentioned like DTC, I'm not sure if you've done that business before. What channel -- is it just more efficient? Or is there actually a new revenue opportunity that comes with those facilities?

George Holm: Yes, there's both. It's certainly more efficient than doing it at 21 distribution centers. But what we had to do first is we had to get the volume at the point where they could buy in truckload brackets on all of these key items just into the pick and pack center, okay? So that's why it took us really -- it took a few years, years to do this.

So early -- a good deal of it is existing business where we are picking, we're packing and we're having it delivered FedEx or UPS or in some cases, our own vehicles. The future opportunities are doing fulfillment for other people, which we have great confidence in that being a big business for us. We're in early stages, but we're -- it's been very successful for us. That is supplier-driven. And in some cases, it's also customer-driven, where our customer has an operation where they're fulfilling orders.

And it's not their business, and they would rather have us do that for them. And then it's also useful to bring product in that we can bring in truckload into there and then disperse out to our distribution center, something that Core-Mark does a good bit of it. The other thing that we've done is we've put a system in place. We only have a few of our OpCos using that today, but where our food service people could write an order and that be delivered to the customer, but that order comes out of one of those three centers and it's more geared to the product offering that they have. And that has gone well so far.

And I think that once we have that in all of our foodservice distribution centers, I think it will mean a lot for particularly our single-serve business within foodservice.

Operator: And we will take our next question from Nicole Miller with Piper Sandler. Your line is now open.

Nicole Miller: Just two quick ones. A little bit of ticking and time now that I've got to hear this conversation.

But the $52 million of temp expense that's kind of one-time. It sounds like that at least carries forward into the second quarter. So I just want to make sure that I would -- that's contemplated in guidance and get that right. And then when does it roll off and when it does roll off, is that OpEx line about $1 billion, give or take?

Jim Hope: So it is contemplated in guidance. We expect it to begin to roll off towards the end of Q2, early Q3, and we expect it to significantly abate as we go into Q4.

I'm not sure I followed your last question.

Nicole Miller: So once we kind of account for that OpEx, that line is about $1 billion, give or take, right? That's kind of the -- as I work through the numbers, that is the underlying expense given the guidance you've provided. I just want to make sure I'm getting that line item kind of right there.

Jim Hope: So we've provided, we believe, helpful guidance around sales and adjusted EBITDA, and we've given some what I believe is hopefully helpful color around the content of the P&L, and I'm going to leave the answer at that. But sure do appreciate the question.

Nicole Miller: Yes. Okay. I think that's about right. Got it. And then I might just ask this labor question a little bit differently.

So how is turnover? And maybe if there's a distinction between the distribution facilities and the drivers, how is that trending?

George Holm: Well, our turnover is fairly close to historical turnovers, except the churn is very, very high. In other words, people that come in and they do the work for a week or two weeks, and they leave, which isn't all bad because if it's not the type of work that they're capable of doing or that they want to do, that is the better outcome. So I think that's part of why it took us a long time to kind of get to where our people account is not where we want it to be, but getting close. And as I said, our attention will always be on recruiting and hiring, but our attention is really heavily focused right now on getting our productivity back to our normal standard and not only comes at a time.

Nicole Miller: And is it -- that's a very helpful context like in the restaurant world, if you can get someone for 90 days, then you might have them.

So when they talk about their turnover rates, the average -- is the average and then it's much higher, like you said, the first 60, 90 days. For you, is it a few weeks? Is a few months? When do you know that the person might stay in their role?

George Holm: It's all -- I mean this may be is -- almost as many there are people, there are circumstances. It's just what happens now. And I think with the training systems we have, with the technology we have in place, you can learn to be a selector at night. And within a couple of days, you know the job, but it's probably more like 60, 90 days before you're fairly efficient at it.

And we have people that a year into it are still improving, still reducing their number of errors and increasing their productivity. But it really varies by person. And I want to throw into -- we just had a selector in Massachusetts, and this doesn't happen very often, but he just picked his millionth case without a mistake. So you get some people that I call them just great athletes that can get out there and really get it done, and some people never take to it, just like any other job.

Operator: And we will take our final question from Peter Sale with BTIG.

Your line is now open.

Peter Saleh: Great. I think you guys touched on this a little bit. I was hoping you can elaborate on the independent case count growth. Can you give us a sense on how much of that growth that you're seeing is coming from new customers versus the existing customers that you had maybe pre-COVID that are maybe accelerating their case counts or their traffic with you?

George Holm: Existing customers are producing more of our growth today than new customers, and that's never happened with us before.

Some of that is self-inflicted because we don't want to go out and the first experience that the customer gets with us is not a great experience. So I think that, that will turn back again the other way once we feel we're in a much better position from a labor standpoint. The most difficult customer for us to handle today really is that it's mostly chain business, but they don't experience anybody other than us and they're not getting the experience they used to get, and that makes it very difficult. And I will also say there's been so much publicity around the supply chain issues through every industry that's kind of waned in people's expectation level, unfortunately, isn't what it used to be. And I will tell you when I go into a restaurant, my expectation level isn't what it used to be either.

Peter Saleh: Understood. And just lastly, on the food cost inflation and the ability to pass on. Have you had any resistance by channel or different customers in terms of passing on the inflation? Or has it been pretty seamless?

George Holm: It's been quite seamless. And I think part of that is that people are -- they want to get product, right? This is a competitive industry, and I think it will always be a competitive industry, and we're just in a period of time where that has waned a good bit.

Operator: There are no further questions on the line at this time.

I will turn the program back over to Bill Marshall for any additional or closing remarks.

Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please contact us at Investor Relations.

Operator: This does conclude today's program. Thank you for your participation.

You may disconnect at any time.