US Foods Holding Corp. (USFD) Q4 2023 Earnings Call Transcript

US Foods Holding Corp. (NYSE:USFD) Q4 2023 Earnings Conference Call February 15, 2024 9:00 AM ET

Company Participants

Mike Neese – Senior Vice President of Investor Relations

David Flitman – Chief Executive Officer

Dirk Locascio – Executive Vice President & Chief Financial Officer

Conference Call Participants

Lauren Silberman – Deutsche Bank

Brian Harbour – Morgan Stanley

Kelly Bania – BMO Capital Markets

John Heinbockel – Guggenheim Securities

Alexander Slagle – Jefferies LLC

Peter Saleh – BTIG

Jake Bartlett – Truist Securities

Edward Kelly – Wells Fargo Securities

Jeffrey Bernstein – Barclays

Mark Carden – UBS

John Ivankoe – JPMorgan

Andrew Wolf – CL King & Associates

Operator

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the US Foods Fourth Quarter 2023 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Mike Neese, Senior Vice President, Investor Relations. Please go ahead.

Mike Neese

Thank you Eric. Good morning and welcome to US Foods fourth quarter and full year fiscal 2023 earnings call. On today’s call, we have David Flitman, our CEO; and Dirk Locascio, our CFO. We will take your questions after our prepared remarks conclude. Please limit yourself to one question and one follow-up. Our earnings release issued earlier this morning in today’s presentation can be found on the Investor Relations page of our website at ir.usfoods.com.

During today’s call and unless otherwise stated, we’re comparing our fourth quarter and full year 2023 results to the same period in fiscal year 2022. In addition to historical information, certain statements made during today’s call are considered forward-looking statements. Please review the risk factors in our Form 10-K for a detailed discussion of the potential factors that could cause our actual results to differ materially from as anticipated in those results. Lastly, during today’s call, we will refer to certain non-GAAP financial measures. All reconciliations to the most comparable GAAP financial measures are included in the schedules on our earnings press release as well as in the presentation slides posted on our website. We are not providing reconciliations to forward-looking non-GAAP financial measures.

Now, I’d like to turn the call over to David.

David Flitman

Thanks, Mike. Good morning, everyone and thank you for joining us today. Let’s turn to today’s agenda. I’ll start by sharing highlights from my first year at US Foods and progress against our key strategy pillars and long-range plan. Before I hand it over to Dirk to review our fourth quarter and full year 2020 financial results as well as fiscal 2024 guidance.

2023 was an exciting year at US Foods to execution of our strategy and long-range plan which underpins our company’s transformation, we accomplished many of our goals, including capturing profitable market share and enhancing margins. Following this past year’s success, I am even more confident in our ability to continue to gain profitable market share with independent restaurants, health care and hospitality customers, improved productivity, drive margin expansion and deliver double-digit adjusted EPS growth. We achieved record full year 2023 adjusted EBITDA of $1.56 billion, driven by strong case growth, including independent case growth of nearly 7% and market share gains with target customer types. This was combined with 53 basis points of adjusted EBITDA margin expansion which came as a result of the implementation of key operational initiatives we outlined at the beginning of the year.

Our proprietary digital platforms, MOXe and VITALS were key drivers of our top line performance in 2023 and are enablers of further growth in 2024 and beyond. We also deployed our strong operating cash flow to reduce net leverage to 2.8x which is within our target range, repurchased approximately $300 million in shares and completed 2 accretive tuck-in acquisitions, all while investing in the business for continued organic growth. We continue to lead the industry in the digital customer experience by constantly innovating and adding new capabilities to meet our customers’ needs. Our differentiated business model, digital expertise and sustainable competitive advantages will enable us to drive continued market outperformance. The structural improvements we made in 2023 position us to win in any macro environment. My confidence comes from the strong momentum we’ve built, delivering against our long-range plan and from our 30,000 dedicated associates who bring their expertise and tireless dedication to work every day.

Turning to Slide 4; our strategy guides how we operate and what we are focused on to win and comprises 4 pillars: culture, service, growth and profit. I believe these are the right areas of focus to ensure continued service improvements and sustainable top and bottom line growth. We’re excited about the progress we’ve made to accelerate each of these coming into this year.

Moving to Slide 5; let’s take a look at some of our key accomplishments in 2023 that our team delivered under our 4 pillars. Our first pillar is culture. The safety of our associates remains our number 1 priority and we made significant strides in 2023 to reduce the number of vehicle accidents and associated entries across our facilities. Our injury and accident frequency rates improved from the prior year by 23% and importantly, our fourth quarter and full year 2023 safety results were our best in recent history.

Additionally, creating a supportive and inclusive workplace is key to our success and we enhanced our diverse talent pipeline by filling 47% of new or open leadership roles with women or people of color, exceeding our 40% goal. We also remain responsible stewards of our planet. And in 2023, reported reducing absolute Scope 1 and Scope 2 greenhouse gas emissions by 13% during the previous year, 40% of the way toward achieving our 2032 target. We continue to make progress on infrastructure design and construction to support electric vehicles and took delivery of 40 electric trucks and 8 electric yard tractors in addition to completing the delivery of 42 compressed natural gas trucks.

We also continue to innovate and offer our customers more sustainable private label products many of which come under our Serve Good product portfolio. In 2023, as part of our strategic focus on fighting hunger, we donated more than $13 million in food and supplies to hunger and disaster relief partners which is the equivalent of roughly 5 million meals for more than 225 drug loads of food. As a Feeding America mission partner, US Foods provides year-round support to food banks across the country through financial and product donations. This work is supported by our associates who volunteer their time and resources to fight hunger through annual company-wide engagement campaigns. Since 2007, US Foods has donated more than 170 million pounds of product to a national hunger relief efforts.

Turning to our service pillar; we continue to focus on providing a best-in-class delivery experience. We are proud to report our on-time and in-full customer service levels are now back to pre-COVID levels. We delivered the best cases per mile in our company’s history again in the fourth quarter, improving over our prior third quarter record. We launched the Dicard [ph] routing pilot in 2 markets in the fourth quarter and have taken away early learnings to apply to our national launch this year. Our routing initiative provided us with more than 5% improvement in routing effectiveness in 2023, while also focusing on further improvements in on-time deliveries enabled by the Dicard [ph] platform.

As I mentioned earlier, we are also transforming the experience for our customers through our MOXe digital solutions platform that enables customers to easily place orders, manage inventory and pay bills while freeing up time for our sales teams to further accelerate growth. In short, it puts our supply chain in the hands of our customers. which will generate tremendous efficiency for both our customers and U.S. fees. MOXe is now fully embedded with our independent restaurant business and approximately 50% of our national chain business with full deployment anticipated by the second half of 2024. Our digital penetration is at an all-time high of 73% for independent restaurants.

Our Net Promoter Score which is the highest in the industry among top foodservice distributors continues to increase since the launch of MOXe. We want to help our customers succeed and are giving them digital tools to make it easier for them to do business with us which we believe is a key differentiating factor in our success.

Now let’s turn to our growth pillar. In 2023, we had net sales growth of 4.5% to $35.6 billion, driven by our 4.4% growth in total case volume led by a 6.9% increase in independent restaurant case volume, a 7.2% increase in health care volumes and an 8.9% increase in hospitality volumes. We exceeded our 1.5x restaurant market growth goal and have now gained market share with independent restaurants for 11 consecutive quarters. We anticipate this will continue over the course of 2024. Our volume gains in both health care and hospitality were driven largely by converting our pipeline of customers into new business through our service model and innovation, such as our highly differentiated VITALS platform for acute care and senior living facilities. This platform allows customers to increase patient satisfaction and reduce labor and staffing costs. This improves revenue flow and bolsters operations through more effective pricing strategies, staff training and menu planning.

We also continue to differentiate ourselves through our fresh, on-trend and labor savings Scoop product innovations, such as our recently launched Chef’s Line exclusive brand of Kim Chi Fried Rice and a unique team-based selling model featuring our expert chefs and restaurant operation consultants, these are significant competitive differentiators that our customers have grown to value. Our hard work and commitment to constantly innovate was recognized as one of Fortune’s most innovative companies that are transforming industries from the inside out. Companies were ranked based on an assessment of 4 dimensions of innovation, product, process, culture and revenue growth. We believe our products will continue to be industry-leading as we use our in-house expertise, market research and supplier relationships to deliver value to our customers.

We also expanded Pronto which is our differentiated and flexible small truck delivery model aimed at improving customer service in targeted dense geographies. Today, Pronto has the presence in 35 markets and we plan to launch it in another 5 markets in 2024. Pronto has been a great addition to our customer service model and has accelerated independent restaurant case growth in markets where we have added it. Much opportunity remains for continued growth in both existing and new markets. The real machine behind our growth pillar is our sellers. Last quarter, I highlighted that we were working on revisions to our territory manager sales compensation plan. I want to provide a bit more context on the changes that we’ve made.

Why change now? We had our current sales compensation trends for several years and last made modifications during the early portion of the pandemia. We wanted to ensure our sales teams are aligned and accelerating profitable growth and that requires effectively incentivizing our sellers for that profitable growth.

A few highlights; we made more of our sellers compensation variable with a variable component now uncapped and focused on accelerating profitable growth and private label penetration. We have signed individual volume targets and higher-margin private label targets for sellers that roll up to our company business plan. ensuring we are all working together to achieve our profit and market share growth goals. Finally, we have implemented a more disciplined approach to route splitting to ensure our territory sizes are manageable. We are confident this plan better positions us for success and ensures we are growing together across the organization.

In 2023, we increased seller head count by 6%. We’re having great success in finding the right sales talent to ensure that our profitable growth continues well into the future. We continue to believe adding sales head count in the low to mid-single digits is the right model for US Foods going forward.

Turning to M&A; to bolster our local footprint in select markets, we executed two tuck-in acquisitions last year, renting foodservice and Saladino’s food service. And this morning, we’re excited to announce that we’ve signed an agreement to purchase IWC Food Service which serves the greater Nashville area, one of the fastest-growing markets in the country. This acquisition fills an important gap in our footprint and allows us to expand into the Central Tennessee market. IWC has approximately 220 associates and $200 million in annual sales. More than half of their business is in the growing independent restaurant space. We’re excited to welcome the IWC associates to the US Foods team and are targeting to close the transaction in the second quarter.

Finally, let’s move to our profit pillar. Driving margin, productivity and optimization of our business are the key tenets of this pillar, addressing cost of goods sold proactively managing pricing to help neutralize commodity volatility and healthy volume growth with target customer types all contributed to enhancing our margins. As a result of our improving execution, we grew adjusted EBITDA 19% to a record $1.56 billion and delivered record EBITDA per case, while expanding adjusted EBITDA margin by over 50 basis points to 4.4% and growing adjusted EPS by 23% to $2.63. Adjusted gross profit grew 9% in 2023 to $6.1 billion. We drove further progress on initiatives such as cost of goods sold by working collaboratively with additional vendors.

We addressed approximately 60% of COGS last year and continue to look for additional cost savings in 2024 as we deliver on the remaining 40% of our vendor spend that has not yet been addressed. We are also focused on growing our private label brands where our penetration was up 40 basis points to over 50% with independent restaurants.

Adjusted operating expenses grew less than gross profit, resulting in operating leverage. Our flexible scheduling initiative is now live at over half of our locations and we continue to receive positive feedback. We will roll out the remaining appropriate locations in 2024. We continue to see significant improvements across our network, especially in our pilots, including year-over-year reduction in turnover that is approximately twice the rate of improvement versus our other locations. 33% improvement in safety and continued improvement in productivity. As a result of our supply chain initiatives, we delivered more than 5% improvement in both delivery and warehouse productivity. We began to see early results with our indirect spending initiative late last year and expect to accelerate those savings in 2024. We have identified a number of opportunities which will favorably and permanently impact operating expenses. This work is an important enabler to achieving our target of 3% to 5% overall annual productivity savings in 2024.

Before I hand it over to Dirk, I would like to highlight one of our talented associates. Soon, we will be celebrating associates who ignite excellence in our first-ever CEO awards. Out of hundreds of associates nominated across the company, Mike Talmadge, our night warehouse manager in Albany is 1 of our 25 semi-finalist nominations. Mike’s leadership has driven significant improvements in safety, associated engagement, quality and profit at the local level. His efforts have quickly become a benchmark for excellence within the company, influencing customer service and our ability to grow profitably. Mike has one of thousands of our associates who strive for greatness within US Foods and we appreciate his leadership and the dedication of each of our associates.

I am pleased with our progress in 2023 as we gained momentum, executing against the 4 pillars of our strategy which is driving improved safety, service, productivity and profitability. Even considering this tremendous progress, we have a long runway of profitable growth. The team and I look forward to sharing our next long-range plan during our Investor Day in June and we hope you will join us.

Let me now turn the call over to Dirk to discuss our fourth quarter results and our 2024 guidance.

Dirk Locascio

Thank you, Dave and good morning, everyone. I’ll cover 3 topics with you this morning. First, I’ll discuss our fourth quarter and full year 2023 results. Second, I’ll provide an update on capital deployment. And finally, I’ll discuss our first quarter and full year 2024 guidance.

Turning to Slide 7. I’ll walk you through our fourth quarter results in greater detail. The fourth quarter was a strong finish to 2023 as our full year adjusted EBITDA margins increased double digits and we continue to grow our margins. Net sales increased 4.9% to $8.9 billion, driven by total case volume growth of 5.6%.

Food cost inflation was essentially flat, while mix was a headwind of 70 basis points. We drove strong volume growth in each of our target customer types again this quarter. Volume increased 7.3% for independent restaurants, including approximately 100 basis points of growth from acquisitions. Healthcare growth was 8.1% and hospitality was 5%. Health care and hospitality continued to deliver strong profitable growth, driven in large part by healthy net new business. We remain focused on expanding within our target customer types and expect to continue that momentum in 2024. Chef store volume in November and December had low single-digit case growth which was in line with our expectations.

We continue to expect accelerated growth in 2024. This quarter, we moved Chef store cases to all other and thus, they are no longer included in independence. We made this change to be consistent with how third-party providers such as Carcano, formerly known as MPD, report market share data and it better aligns with how peers communicate their broadline growth. All periods have been up for consistency.

During the fourth quarter, adjusted gross profit increased 6% to $1.5 billion, while adjusted operating expenses increased 4% to $1.2 billion. Our adjusted gross profit continues to grow faster than adjusted OpEx. Adjusted EBITDA was $388 million or 11% growth from the prior year. We expanded adjusted EBITDA margins by nearly 25 basis points to 4.3%. Finally, adjusted diluted EPS grew 16.4% to $0.64 per share, demonstrating our continued growth of EPS faster than adjusted EBITDA.

Turning to Slide 8; we made significant progress on a per case basis in 2023 which we believe emphasizes the strong execution of our strategy. Our adjusted gross profit per case increased 4.5% in 2023, while our adjusted operating expense per case was up 1%. Importantly, our adjusted EBITDA per case was $1.93 for the full year. up 14% year-over-year and represents 4.3% compound annual growth rate since 2019. We have demonstrated strong leverage through the P&L with operating expense per case growing at a slower rate than gross profit per case and we expect to maintain that operational discipline in 2024 and beyond.

Moving to Slide 9; our strong operating cash flow creates flexibility to deploy capital strategically to enable growth. Our 2023 operating cash flow was $1.1 billion with free cash flow of over $800 million. We invested $309 million in cash CapEx. We continue to focus on — to expand our fleet and invest in capacity and technology to enable organic growth. Our ongoing cash CapEx target is approximately 1% of net sales and we will remain disciplined in our approach. Following the successful closing of [indiscernible] in Q3, we closed the Saladino’s acquisition in December for a purchase price of $56 million. We remain committed to returning capital to shareholders as we repurchased 1.6 million shares in the fourth quarter for $65 million. We have $192 million remaining on our $500 million share repurchase program.

Before moving on to guidance, I want to highlight the significant progress we made in reducing our leverage in 2023. We ended the year at 2.8x levered which is a 0.7 turn reduction versus 2022. We were steadfast in our approach to lowering our leverage last year which we accomplished through disciplined debt paydowns and EBITDA growth. We expect to remain in our net target leverage range between 2.5x and 3x for 2024. Our balance sheet is in solid shape which informs our capital allocation framework. We will continue to invest in the business, repurchase shares given the current valuation of our stock price and evaluate tuck-in M&A opportunities.

Now, I’ll discuss our guidance on Slide 11. Importantly, there are several assumptions on this slide. For full year 2024, we expect total company net sales to be $37.5 billion to $38.5 billion. an increase of approximately 5% to 8%. We believe we can grow our total cases by 4% to 6% and we expect slight inflation of 0.5% to 1.5%. Our tuck-in M&A from last year, combined with the IWC announcement will add approximately 2 percentage points to our case growth. We expect our independent restaurant case growth to continue running higher than our overall case growth. As a result of good faith barging efforts, our agreement with the union Investa bill that represents our drivers was gratified at February 3. US Foods has a long-standing record of our being in good faith and reaching agreements with the union. From the start, we took a principal approach and provided a fair offer to the union before and after the expiration of the contract on December 29th.

We are pleased that the agreed upon proposal largely reflects the economics outlined in that offer. The 5-year agreement provides wage and benefit increases that builds on the highly competitive offerings are drivers [indiscernible] currently receive. It also includes safety enhancements aligned with the very high priority we place on associate safety. There was an increased cost to us for business continuity and labor relations to serve our customers. as well as weather-related issues across the country which have been noted by several others in our industry. As a result, we expect an approximate $20 million negative impact to adjusted EBITDA for the first quarter, primarily driven by incremental costs during the labor disruptions.

We believe the first quarter adjusted EBITDA will be in a range of $340 million to $355 million. Even with the labor disruption and the weather-related issues that we experienced in January, we remain confident in achieving our full year guidance. We expect adjusted EBITDA to be $1.69 billion to $1.74 billion and adjusted diluted EPS to be $3.20. This translates into double-digit growth on the bottom line from the combination of profitable growth and margin expansion as we expect gross profit per case to grow faster than OpEx.

In closing, 2023 was a strong year. I feel very good about the opportunity in front of us. the momentum we are generating and our growth potential this year, as outlined in our 2024 guidance.

I’ll now pass it back to Dave for his closing remarks.

David Flitman

Thanks, Dirk. As we move into 2024, we will continue to execute our strategy and maintain our disciplined approach to capital deployment to drive long-term value creation for our shareholders.

Before we head into Q&A, I would like to comment on our long-term growth prospects. As I’ve said before, our 2024 adjusted EBITDA target is not a ceiling for this company. and we are confident that we will continue to grow adjusted EBITDA in the high single to low double-digit range over the next several years. And we will continue to grow adjusted EPS even faster through a combination of earnings growth and share repurchases. Stay tuned. There’s more to come at our Investor Day on June 5. We are in a great position today and I believe we have sustainable competitive advantages to outperform the market well into the future as we continue to do what we do best, helping our customers make it every day. Thank you for your continued trust and confidence in US Foods. I have never been more excited about our future.

With that, Eric, please open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Lauren Silberman with Deutsche Bank.

Lauren Silberman

Congrats on the quarter. If I could just start with capital allocation. It looks like you’ll get close to $1 billion in free cash flow this year. not your target leverage, even with acquisitions, it looks like you have a lot of cash left over. Can you just talk about how you’re thinking about capital allocation appetite to further pay down debt versus buybacks or even the potential for a dividend?

Dirk Locascio

This is Dirk. So yes, we were excited to strong cash flow. We do expect that to meaningfully grow as you point out, as we grow earnings. And as our debt is already well within our target range, what we expect in 2024 as to have a reduction in leverage but more from earnings growth as opposed to much more on debt pay down. So that means that in addition to investing in the business, it will be around share repurchases and opportunistic M&A. So we’re very excited about the IWC announcement this morning and we would expect over the course of the year to increase the amount that we allocate for share repurchases.

Lauren Silberman

Great. Very helpful. And then if I could just ask on case growth. And there’s a lot of noise is whether in some of the idiosyncratic factors you called out in 1Q. Any color on what you’re seeing more recently as things began to normalize and just the confidence in the 4% to 6% case growth for the year?

David Flitman

Yes. Thanks for the question, Lauren. As you’ve heard from others, there were a few other disruptions across the country in January. That’s no surprise. But we were pleased actually with the recovery that we’ve seen since we’ve got past the labor disruption and those weather events, notwithstanding what happened on the West Coast last week and a little northeastern earlier this week. And really, really pleased with the team’s work around the labor disruption. I’ve been doing this for a long time in many industries and I’ve seen labor disruptions before. I will tell you that we are as well prepared going into that event, as I’ve ever seen. We came out with a very strong plan to go get our volume back. And so I’m pleased to see the progress that we’ve made and largely in those non-labor disrupted markets, we’ve seen our volumes get back to basically the trajectory we saw in the fourth quarter which was very strong, as you heard this morning. So really feeling good about that.

And just a little bit more color I can give you is the early read on the [indiscernible], formerly MPD, as Dirk said, we maintained our market share in January and I was quite pleased to hear that. So all in all, more work to do but feel really good about our trajectory and certainly our team’s focus to continue to drive that growth.

Operator

Your next question comes from the line of Brian Harbour with Morgan Stanley.

Brian Harbour

When you think about sort of the productivity and OpEx opportunity this year, what do you think will be most impactful kind of that’s different than what you did in ’23?

David Flitman

Well, I think largely, Brian, you will see us continue to lean in on the areas that we’ve been focused on and I was pleased. It’s kind of the tale of 2 halves last year. We spent a lot of time in the first half of the year really honing our focus in on the needle-moving activities and really pleased with the trajectory that you saw us deliver in the back half of the year resulting in those productivity improvements that I quoted. And look, there’s more work to do in all of those areas, whether it’s in COGS and the work we’ve done with our suppliers the pricing optimization work and certainly the supply chain productivity. Really pleased with the progress we’re making at routing but there’s a lot more to do there. So largely the same. You heard my comments earlier about indirect spend. that’s a piece of work that we started to talk about in the back half of last year and really started to see some traction really in the back half of the fourth quarter. So that was very good to see. And I think we will ramp up that effort significantly in the first half of this year and deliver significant productivity improvement there as well. So largely a lot of the same work, just a lot more to do and a few new things.

Brian Harbour

Okay. And when you kind of talk about low to mid-single-digit increases in headcount, as I think it sounds like the typical rate, how does that usually flow through to case growth? Or do you have like a certain target that like this should drive ex flow-through to case growth?

David Flitman

Yes. I think largely it depends on the mix of talent that you’re bringing in. We have had great success in finding strong sales talent with industry experience and not all that’s coming directly from competition. Others in foodservice that understand the market and the industry and have a sales background fit really well in our model. We spend a lot of time training people, as you know. And I think long term, Brian, the right way to think about that is we should be able to grow our cases 30% to 50% faster than our head count additions. But again, there’s a ramp-up period for that. So as we get into the cycle of kind of a stable single to mid — low to mid-single-digit growth, that’s what you should expect over the long run.

Operator

Your next question comes from the line of Kelly Bania with BMO Capital Markets.

Kelly Bania

Just wanted to ask, as we think about that 2% to 4% organic case growth target for ’24, can you talk about the channels in more detail? It sounds like you’re definitely still planning for those independents to outpace the total. But maybe within health care and hospitality, are there — is there any outsized growth left there for those channels? Or maybe just help us think about what you’re seeing in terms of the new business pipelines for health care hospitality?

David Flitman

Yes. For sure, we will continue to maintain our focus in the independent space. It’s the most profitable segment of the business. It plays to our strengths in terms of our product and sales portfolio. So that’s clearly a very strong focus for us. And what we saw last year, to your question, in hospitality and health care, largely a strong recovery from an industry perspective which provided some tailwinds. And importantly, as we talked about last year, we believe we’re differentiated in health care with our VITALS platform and some of the other things we have on the technology front. We’ve got a very strong pipeline in both health care and hospitality that we expect will deliver outsized growth again this year. Maybe not at the rate that we saw last year, just given the recovery is largely intact but we expect to continue to drive growth at or above market in both of those segments.

Kelly Bania

Great, that is helpful. Can I just also ask about the sales compensation. It sounds like you’re making some tweaks there. Can you just remind us the timing of that change? And — and what you’re seeing across the — across the space from kind of the other private players? Is this kind of a broad change happiness across the industry as we’ve kind of normalized in growth? Or is this just maybe unique to US Foods and a couple of others?

David Flitman

Yes. I really can’t comment on what others are doing relative to their sales comp. I think my color this morning largely gave in our prepared remarks where we really haven’t made any significant changes to our plan since some tweaks that were made in the pandemic which was largely aimed at maintaining our sales head count and providing what we needed to, to keep folks in the company as volumes decline. And as we get back on this aggressive profitable growth plan, those tweaks that we talked about there are really [indiscernible] giving our sellers the incentive they need to accelerate growth. The couple of things around shifting to more variable compensation, uncapping that portion of their pay, I want our sellers to make as much money as they possibly can if that means great things for our growth and for the company’s future. So again, I kind of foreshadowed this last quarter saying these were tweaks, not significant overhauls of our comp plan and it’s been well received. Answer your question, that all went into effect here in the first quarter.

Operator

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

John Heinbockel

Dave, I wanted to start with the investment in account facing folks, when you think about business managers, territorial guys specialists. Where do you want to — how do you want that investment to shake out? And then curious the impact that would have on new account additions versus wallet share, right? Is there — what’s your strategic thrust there?

David Flitman

Yes, good question, John. We’re focused on adding territory managers to continue to drive growth. But to your point, we have to have the right support around them. So the right number of specialists new business managers go out and target new opportunities, sometimes on their own, largely in parallel in partnership with our TMs. And then as we continue to grow our size and scale the sales force, we’ve got to make sure we’ve got the right management team in place as well. And the right number of districts and we add district managers when that makes sense, too, to make sure that we don’t overload our leadership. So all that is embedded in that 6% growth number, some of those pieces are growing at a slower rate, obviously, than the TMs. But when I think about that low to mid-single digits, that’s really comprehensive of all those rules.

John Heinbockel

Okay. And then maybe as a follow-up, right? So when you think about — and obviously, you’ll lay this out in June but when you think about the biggest low-hanging fruit, where do you think that is functionally right? I don’t know if that’s productivity. You talked about stem miles. There is productivity in the warehouse. And as you roll out the day cart, how much do you think you can further improve cases per mile?

David Flitman

Yes. So the first part of your question, I think we largely believe that the existing long [indiscernible] plan that we’re finishing up this year, feel really good about our progress. As we commented previously, I think we had outsized improvement in the first couple of pillars of that, the profit and the growth pillars and largely supply chain activity has lagged since the pandemic. I was pleased with the progress that we made in the back half of the year. However, I think largely that portion of our improvement has still lagged the other 2 areas. And so I see the greatest opportunity for productivity gains largely coming out of the supply chain. That’s why I get so excited about our flex scheduling the card platform despite all the improvements that we’ve made in routing efficiencies last year with some record cases per mile. There’s a lot more to do and we’ll get a lot of benefit once we get the card spread across the country here. So a lot more work to do in all those areas, John but I would say productivity is the one area we’re ramping up most aggressively.

Operator

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

Alexander Slagle

Yes, I was going to ask sort of along the same lines, I mean, the longer-term opportunities around flex scheduling. I mean now, I guess, more than half of [indiscernible]. It just seems like you’ve gotten productivity levels mostly back to pre-COVID levels and sort of normalizing levels of turnover and over time but improvements lately in turnover and safety over time all suggests there could be a good bit more room to go beyond just getting back to [indiscernible] levels of all that? And just — is that accurate and just a little bit more on the sense of kind of where it could go generally before you kind of consider other things like automation and whatnot?

David Flitman

Yes. I think generally, Alex, you’re thinking about it right. I think there’s a lot more runway there and as excited as I am about flex scheduling and my comments in the prepared remarks there, said we’ve seen outsized improvement in our pilot markets. So even where we’ve expanded it — expanded it across the half of our markets, we haven’t yet gotten the productivity uplift that we’ve seen in the pilot and it just takes time, right? It takes the local team time to — to work in the new operating model as well as our associates and we expect continued productivity gains there over time. So we’ll have a lot more to say about long-term productivity targets in June. But just suffice it to say, we’re excited about the work. We think we’re working on the right areas of improvement to drive the focus for the company going forward. And I’m bullish of our ability to continue to lean in and drive productivity.

Operator

Your next question comes from the line of Peter Saleh with BTIG.

Peter Saleh

Congrats on a strong finish to the year. I did want to come back and talk about the compensation for the sales force. You mentioned several changes, variable compensation, more variable focused on private label targets and removing the cap on compensation. Dave, I think you also mentioned this was well received. I’m just curious, have you seen any attrition as this has gone into place? Or are you expecting any attrition from the sales force in 2024 as these changes go into place?

David Flitman

So the gate answer is no. We haven’t seen any nor do I expect any. I think our team did a very good job preparing for this rollout. We had a thoughtful approach to that. Any time you make change even if it’s positive, you’ve got a change management process. You’ve got to leave through and that starts with robust communications. So we did a very nice job of that starting actually very early in the fall last year. So we had plenty of time to not only give our sales team a heads up but kind of model their compensation in the old model and the new model. so they could see what that looks like and importantly, understand what actions, if any, they had to take differently to maintain or actually increase their compensation. And so as we got further and closer to that date, what we saw was our sellers got excited about it because they see the opportunity to make more money lined up with what we’ve done here.

So, I don’t expect any attrition from this with something that we look at very closely all the time, every week, as you would expect. And we haven’t yet seen anything nor do I expect to.

Peter Saleh

Great. And then just on MOXe, I believe you have mentioned 50% of national chains now on MOXe. And I think last quarter, we were somewhere in the 30% range or pretty sizable step-up. Can you just talk about how — how or what you’re seeing in terms of behavior change as more and more of these chains are on this platform? Are you seeing increased case count? Just trying to understand the behavior change post this implementation.

David Flitman

I think it’s actually a little early on the national side to see anything significant change yet. We’re still in the ramp-up phase. We’re pleased that customers are liking it and the bracing it similar to have — the way they have in independent restaurants. And remember, what we said that’s going on in independents is that those customers are buying more and they’re stickier. They stick with us longer. We would expect to see those same sort of benefits through the course of time in the national area, just like we have in independents.

Operator

Your next question comes from the line of Jake Bartlett with Truist Securities.

Jake Bartlett

My first was on product cost inflation. You gave the guidance of 0.5 to 1.5 [ph] were flat in the fourth quarter. Looking back, I think you were actually — it was positive in October if my notes are right. So it looks like it decelerated. And so my question is just about the cadence. What do you expect? Do you expect to start the first quarter out with deflation going to inflation? Just help out on the cadence there? Then I have a follow-up.

Dirk Locascio

Jake, this is Dirk. So I would expect us to see inflation. We saw inflation in the fourth quarter. Actually, in January, we saw some modest inflation again, likely increasing as the year goes on. just I think the overall message embedded within that range is we’re not assuming sort of strong levels of inflation throughout the year. That’s not that different than the last couple of years. We’ve tried to be a little more conservative and drive more of our results through our overall things that we control within our business. But inflation through probably most of the period.

Jake Bartlett

Got it. So the comment of flat with, I guess, for the year as a whole. So another question on just your confidence on continuing to drive gross profit per case in ’24. You mentioned there’s still 40% of your vendors you’re talking with you have some modest inflation. But if you could just talk about what kind of gross profit per case increase you expect what’s embedded in? And maybe how much of that 40% that you think you’re going to be able to hit in ’24 and drive that forward?

Dirk Locascio

Sure. Maybe just back to your deflation question. So the reason we talked about essentially flat. I think it was 15 basis points or so of inflation in the quarter. So very, very important level but it was importantly, a positive. So we’re not going to talk about specifically within the per case increases. I think the important thing though is if you look at really the last 3 years, we’ve continued to drive gross profit and a lot of that’s going to come from a lot of the same initiatives that we talked about maturing as well as some additional things coming on board. But in the cost of goods, we do expect to get through the rest of the tail this year and there are some other activities that we will be doing. In the cost of goods, the thing that we continue to have an advantage versus a lot of others is with our rate of growth and especially our rate of growth with our target customer types.

So, we — as we partner with vendors, we’re bringing them growth in these customer types that they can have more influence in, so we think that it’s a great win-win opportunity. And then as we get some of those savings, we can, again, make sure we’re priced fairly with our customers. We’re going to continue on things like managed cases within logistics. And then at the same time, on OpEx, really striving through our efficiency, whether it’s supply chain Dave talked about, the indirect and other to mitigate most of the cost inflation that we see. So therefore, expecting the GP per case growth to continue to flow through. That message from us of EBITDA growth coming from a combo of profitable growth and margin expansion. You’re going to continue to hear us beat that drum. We think that’s important and that’s a healthy way to continue to grow over time.

Operator

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

Edward Kelly

Dave, I wanted to ask you first about M&A. Your [indiscernible] strategy is ramping nicely. You’ll get 2 points of case growth from M&A in ’24. Can you talk about the quality of the business you’re taking on from a margin standpoint? And then how does the pipeline look like moving forward? And is the contribution that you’ll see in ’24? Is that sort of a good placeholder for the run rate as we think about this over time?

David Flitman

Yes. We’re excited about what we’ve done in M&A, Ed and certainly the latest one we talked about here this morning with IWC. And as we said, the majority of their business is in the independent space which is — fits right in our wheelhouse, exactly the type of strategy we want to deploy. And IWC in particular, I didn’t say this on the call but we’re serving that market today but we’re coming through 2 other distribution centers that are probably 3 hours away from the market. So we’re not getting there very efficiently. So in all 3 of the acquisitions, they’ve solved that problem for us and have the right mix of business to help us to continue to drive growth on that platform. So we’re pleased with it. These are accretive and make great sense. We’re not overpaying for these acquisitions. And to the last part of your question, M&A is hard to predict. We don’t know when deals are coming to the market. We’ve been opportunistic on all 3 of these. We will continue to be but I’d be hard-pressed to predict how the rest of the year may or may not play out. But what you’re seeing us do is drive these tuck-ins in a way that just makes absolute sense for our business over the long haul and that’s what we’ll continue to look for. We think there’s still opportunities out there.

Edward Kelly

Great. And just a follow-up, I guess, for Dirk. Gross profit per case this quarter, Dirk was up a lot less than what it’s been year-over-year. And I think there are some year-end sort of like some of the year-end timing stuff. Maybe could you talk about that? And then as we think about ’24, how do you think about the relationship of GP per case versus OpEx per case in terms of how you grow EBITDA per case. OpEx per case this quarter was actually down a little bit. I’m just kind of curious as to how you think about that relationship in ’24 as well.

Dirk Locascio

Sure. Well, as you pointed out for the fourth quarter, not a real surprise. We’ve talked about this for the last few quarters that you’re going to have different cadence things that play out in gross profit, you’re right, it still stayed at a very strong level that we’ve been at the last couple of quarters. So we’re pleased and I think that demonstrates also again that the benefits are coming and the durability from the things that we’re doing as opposed to whether it’s inflation or deflation. And you’re right. So we talked about that a year ago, there were a few benefits in the fourth quarter and then over the course of this year, we’ve recognized them over the years. So there’s nothing really new or beyond that, as we go into 2024 and less about the specific number but we are very focused on continuing to grow gross profit faster than we do OpEx. And we believe we have a lot of opportunity and let’s come back to my comment on the durability, right?

We think that the gross profit that we continue to grow year after year after year through the actions that we’re driving from our initiatives that we think they’re still a runway there over the course of 2024. So I’m not going to give you a specific magnitude but clearly, we do expect that to grow faster than OpEx.

Operator

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Jeffrey Bernstein

Great. Two questions. The first one, just on the invested EBITDA, Dave, I think you mentioned or maybe you gave a little teaser ahead of the June Investor Day. But you put you’d grow adjusted EBITDA in the high single digit to low double-digit range the next several years. the low double digit was of our expectation. I know consensus is in kind of that 7% to 8% range. But just wondering if you could talk a little bit about the biggest driver of that potential growth acceleration. Whether or not it’s more from upside to sales or whether you have increasing confidence or greater confidence in the margin opportunity that would allow you to get into that north of single-digit range? And then, I have one follow-up.

David Flitman

Well, first of all, I’ll say we’ll say a lot more about all that up in June. But having said that, I think what you’ve seen us deliver, particularly in 2023 was a great balance in our P&L. We’ve got very good top line growth. We’re leveraging that quite well based on some of the comments you heard from Dirk and our control of operating expenses. We’re leveraging that quite well through the P&L. And so that model is working quite well for us. I’m excited about our top line growth, we’re investing in the right areas, both to drive top line growth and continue to drive productivity and efficiency in the business. And I think that will continue for a long time to come. So think balance, I think just equal opportunity in the top line as well as the leverage areas of GP and expense control.

Jeffrey Bernstein

Understood. And then, just a follow-up. I wanted because you talked about well, the very strong EBITDA margin expansion of, I think it was 50-plus basis points in 2023. I just think about that expansion in 2024 and longer term, I know you talked about supply chain being perhaps the lagging factor. But should we assume steady increases kind of in the theme of what you just said balanced? Or is it more lumpy? I’m just wondering if could prioritize the greatest opportunities to drive that EBITDA margin expansion.

Dirk Locascio

I think steadier would be a better way to mention about it versus one. Obviously, every quarter is the same winning [ph] is the right way to think about it. And we’ve demonstrated that ability to drive the leverage with a couple of pandemic and post years aside for a long time. And so it may not be at the 50 basis points but we think there’s still plenty of room for year-after-year opportunity for margin expansion.

Operator

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

Mark Carden

So to start, you guys talked a bit about your expansion of Pronto and that you’re now in 35 markets today. when you guys add Pronto to a new market, is the vast majority of the independent case growth lift capture in year 1? Do you see much of a waterfall benefit there? And then just more broadly speaking, what inning do you think you’re in for the initiative before its maturity?

David Flitman

Great question. We’re excited about Pronto, where we penetrated the market with that. We see a great uplift in independent growth, particularly with new customers there. and that comes fairly early. It gives us additional tool in our tool kit to service customers, particularly in those dense geographies where it’s hard to get to or they may need more frequent deliveries than we do with our larger deliveries. I would say we’re not mature in that yet but we’ve got 5 more markets we’re going to penetrate this year. I will say that not all markets are right for Pronto, particularly those larger dense geography markets make the most sense. We still have plenty of opportunity there. And I’d be remiss to not reiterate that we see plenty of growth where we’ve already penetrated the market with Pronto and continue to add new trucks and capabilities there where we’ve had success. So I see probably an equal balance for new market penetration as well as existing market growth.

Mark Carden

Got it, that’s helpful. And then as a follow-up, how are you guys thinking about the labor environment in the year ahead? You gave some really helpful color about the recent strike. Your largest competitor had a few of these as well in recent years. Has there been any underlying changes here? Or do you see it just being more or less of a nice issue?

David Flitman

Yes. We see this as an isolated issue. We pride ourselves on having very strong relations with our associates, whether they’re represented or not. We’ve got a long history of reaching positive win-win outcomes with our labor unions across the country. We had a disruption. And as I said, we’re well prepared for it. We got through it in a few weeks and settled largely on the offer that we put forward at the end of last year. So those things come and go over time. You don’t expect them to happen but you need to be planned and ready for it and we were. We’ve got a number, just like we do every year, we’ve got a number of new agreements that are up for negotiations this year and we expect those to go well.

Operator

Your next question comes from the line of John Ivankoe with JPMorgan.

John Ivankoe

Maybe your fourth quarter results and your overall ’23 results speak to this but just want to get a sense of the underlying health of the independent restaurant segment. There has been I mean, I think some debate or discussion in terms of whether this is actually still a growing industry and the fundamentals are still positive for independent restaurants to put new capital in the ground and for them to get new capital in the ground as we kind of think about ’24 — in the ’25 but let’s just focus on ’24. So as you talk to your territory managers, what are they telling you about this important addressable customer set? Are they seeing even more sales opportunities out there relative to what you’re currently serving?

David Flitman

Yes. They are excited about it. I’m excited about it. I think the healthy operator is really strong. I think there’s been a nice recovery since the pandemic in terms of actual units that have come back online or new restaurants. But importantly, the thing that I always tell our team, even given the health of the industry, it’s going to ebb and flow, we think it’s very robust right now. But we have ample share gain opportunities regardless of what’s going on with the macro. And let’s stay focused on the things we can control, our model works, our team-based selling model works. We have great products and services for our customers. And let’s not look left or right, let’s just stay focused on running our plays that are working. And I think we’ve got a long runway of growth ahead of us.

Operator

[Operator Instructions] Your next question comes from the line of Andrew Wolf with CL King.

Andrew Wolf

Dave, you’ve consistently kind of emphasized worker safety, almost like a mantra. I was kind of wondering given your experience, not just in this industry but others, have you — is there a correlation between improved safety and other key metrics across the enterprise more broadly, productivity, on time, et cetera? I mean I’m just trying to get to the bottom of why you lead with workers.

David Flitman

Well, the reason I lead with it is it’s the right thing to do for our associates and for our company. And I say this all the time to our team Andy, if we can’t keep our people safe working for us every day, then nothing else we’re going to accomplish matters. I’m that passionate about it. And when I got here, we didn’t have actually the focus I felt we needed on safety and that’s why I’m so excited about our 23% improvement last year. We will continue to focus on it because it’s the right thing. Now having said that, to your question, Yes. I think safety performance is a good indicator of overall operating discipline that you have in areas like quality, productivity, how you think about the customer. I worked with DuPont for 20 years, you might remember. And I used to be able to walk into an operation and just observe and look around. And if I saw a good housekeeping and safety behavior you can kind of get a good sense for how that operation was run top to bottom. So it’s the right thing for our people. It’s the right thing for our company and for our business and we’ll stay focused on it.

Andrew Wolf

Okay, that’s good color. Appreciate it. And just a last follow-up on the sales compensation changes. You’ve had a bunch of questions but do you think having an untapped compensation can help you recruit better or territory managers? Is there a recruitment advantage to that? Or more of a…

David Flitman

I think it will be. That’s not really the driver of it. But I think folks coming in from the outside that are hungry great salespeople and we tell them that that’s the way the comp is structured. I think that will be a real benefit. We just want to [indiscernible] our folks in the right way to drive as much profitable growth as they can for themselves and for the company and we thought that made sense.

Operator

I will now turn the call back over to Dave Flitman for closing remarks. Please go ahead.

David Flitman

Thank you and thank you all for joining us today. We have very strong momentum in our business. We’re excited about the future. We look forward to seeing all of you on June 5, we’ll talk before then. Have a great rest of the week.

Operator

Ladies and gentlemen, that concludes today’s call. Thank you all for joining and you may now disconnect your lines.