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Welcome to Cisco's first quarter fiscal year 2027 conference call. As a reminder, today's call is being recorded. We will begin with opening remarks and introductions. I would like to turn the call over to Kevin Kim, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Cisco's first quarter fiscal year 2027 earnings call. On today's call, we have Kevin Hourican, our Chair of the Board and Chief Executive Officer, and Brandon Sewell, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Security Litigation Reform Act, and actual results could differ in a material manner. Additional information about factors that could cause results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes but is not limited to risk factors contained in our annual report on Form 10-K for the year ended June 27, 2026, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the investor section at cisco.com. Non-GAP financial measures are included in our comments today and in our presentation slides. The reconciliation of those non-GAAP measures to the corresponding GAAP measures is included at the end of the presentation slides, can also be found in the investor section of our website. During the discussion today, unless otherwise stated, all results are compared to the same quarter in the prior year. To ensure we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question. If you have a follow-up question, we ask that you re-enter the queue. At this time, I'd like to turn the call over to Kevin Hourican.

Good morning everyone and welcome to Cisco's Q1 fiscal year 2027 earnings call. This is a pivotal moment in Cisco's ongoing journey of growth, resilience, and operational excellence. Our leadership team is focused on three major activities this year. First, delivering with excellence for our customers as well as our core Cisco financial commitments including the planned acceleration and profit growth on a year-over-year basis. Second, improving our operating margins through an AI-powered business transformation, and third, preparing for the anticipated closure of the Jethro Restaurant Depot transaction by the third quarter of this fiscal year. Each of these critical priorities is on track, and I would like to discuss each of them during our call this morning. Let's start with chapter one, our core business. Cisco delivered a strong first quarter of fiscal 2027. We delivered adjusted earnings per share of $1.19. meeting our expectations. We delivered earnings growth in the quarter despite ongoing softness in restaurant foot traffic, rising fuel cost, and U.S. food cost deflation in the period. The last two of these three factors performed differently than we had planned for the quarter. Importantly, Cisco delivered our earnings guidance for the quarter despite these headwinds. I am proud of the team for their agility and decisive action. As seen on slide seven, during the quarter, we grew our local case volume plus 2.7%, slightly higher than we had planned, representing a 130 basis point step up on a two year stack basis, sequentially versus Q4. Our local business is building positive momentum and we are growing our share. Enterprise sales reached 21.7 billion, up 2.8% year over year, despite enterprise inflation coming in at only positive 0.3%. The lower than expected food cost inflation accounts for the sales delta in the period versus our expectations. That said, we measure our business health via profitable volume growth, and we are encouraged by our team's strong execution in achieving our volume objectives during the quarter. I would like to highlight a few items within the macroeconomic environment before I dive a bit deeper into our performance. Traffic to restaurants per black box was down 2% in the quarter. The traffic performance for the quarter is consistent with the calendar year to date performance and remains a headwind for the industry. Additionally, the cyclospora outbreak had an adverse impact on the middle of the quarter, softening traffic to restaurants and restaurant operator volume during August. Cisco specifically had stronger volume performance in July and September, as customers bounced back quickly after the cyclospora traffic headwind. The 2.7% volume growth for Q1 is inclusive of the cyclospora headwind, showcasing the underlying momentum of our local case volume growth. Rising fuel costs are impacting supply chains and end customers. As we mentioned on our Q4 earnings call, inbound logistics costs have risen due to the continued increase in diesel fuel. Brandon will discuss these dynamics during his section of our call today. Our team has done an excellent job of hedging fuel costs on the outbound delivery aspect of our business, but the rising cost of fuel is harmful to end consumer disposable income. Cisco is being thoughtful about the decisions that we are making on the fuel headwind to ensure we keep food affordable for our customers. We will revisit these decisions regularly to ensure we are managing our P&L and our relative price competitiveness in the end market. Lastly, food cost inflation came in lower than planned during the quarter as seen on slide eight. Our enterprise inflation was positive 0.3% and our USFS business was deflationary for the period. As you know, we budgeted inflation at approximately positive 1.5 to 2% for the year. The deflation of food in Q1 was helpful for end consumers but creates some short-term pressure on our P&L. Our merchants did an excellent job in the quarter of ensuring highly competitive procurement costs inbound to Cisco, and our revenue management teams ensured that product deflation was properly priced to our end customers. Given Q1 was deflationary in the US, we now expect for our overall basket of goods to increase sub 1% inflation in Q2 and approximately 1% to 1.5% for the full year based on commodity input cost projections. Cisco grew our business profitably in the quarter within the business conditions that I just described. The 2.7% local case growth speaks to the improving selling capabilities of our sales consultants and the improved productivity they are delivering. Both retention and tenure of our sales consultants remain strong and the effectiveness of our AI360 selling tool continues to improve. Our sales consultants who use the selling tool more often are selling more to their customers. As a result, those SEs are making more money than their peers. Our sales leadership team continues to coach to the effectiveness of selling with and through AI360 and our technology team continues to bring new capabilities to the tool. Regarding gross margins, we expanded our gross margin year over year by 18 basis points. The strong margin performance is due to strengthening customer mix and a step up in our Cisco brand performance. To be specific to Cisco Brand, we grew our mix by 44 basis points year-over-year in local, and we were positive in total USBL Cisco Brand Mix for the first time in many quarters. We are making progress in Cisco Brand in all customer types, restaurants of all sizes, as well as our non-commercial segments. Encouragingly, the greatest progress is being made with our local street customers. The work our merchants have done to expand our value to your assortment within Cisco Brand is making a difference. And our sales teams are doing an increasingly good job of offering Cisco Brand savings to our customers. We expect this positive momentum to continue in 2027. As it relates to our expenses, our supply chain performed at a high level during the first quarter. We delivered on our plan and logistics cost per piece, and we have improved our on-time performance versus our delivery windows. Strong supply chain performance was partially offset by higher fuel costs and medical expenses. Brandon will touch on these topics in more detail. As previously outlined, we expect our operating margins to expand throughout the year as the majority of our AI and tech transformation benefit will be realized during the second half. Lastly, our international segment posted another strong quarter with adjusted operating income growth of 12.2%. marking our 12th consecutive quarter of double digit adjusted profit growth. Our international team grew local cases 3.2% and posted strong Cisco brand growth. Chapter two on our call today is an update on our AI powered business transformation. Recently we announced an AI and tech powered business transformation program that we expect will unlock 100 million of net cost savings in fiscal 2027 and 500 million of net cost savings by the close of Fiscal 2029. This work directly supports the updated midterm financial targets that we recently shared for Fiscal 2028 and 2029, which included 4% to 7% sales growth, 9% to 11% adjusted EPS growth, and 12% to 14% total shareholder return. I would like to provide a quick update on the early innings of these efforts. The transformation program currently consists of 30 initiatives across the enterprise. with four of those initiatives driving approximately 70% of the total value, as you can see on slide number 11. The Q1 impact of these efforts met our expectations, and the value delivery significantly ramped into the second half of fiscal 2027. We have launched our routing project, which is the largest individual contributor to improved service levels at a lower operating cost. The routing initiative is now live in pilot regions and is delivering 2% to 4% improvement in pieces per mile driven and increasing compliance to our on-time delivery windows to our customers. This is phase one of the project, and we have planned to roll out the improved routing capability across all Cisco US operating locations this year. Every 1% improvement in pieces per mile delivers approximately 3 million of efficiency gains once scaled across the organization beyond this initial pilot. Phase 2 of the project is focused on further enhancing the improved routing capability with AI-infused flexibility and dynamic modeling. We expect to see an additional reduction to miles driven and a service improvement with the second phase of the work. Phase 2 is expected to begin in the second half of fiscal 2027 and run through fiscal year 2028. The goal is clear, improved service while lowering costs. This project is especially important given today's high cost fuel environment. After we have completed the rollout across our U.S. Broadline business, we plan to expand the capability to our specialty and international business units. I would like to voice a special thank you to our transportation team for their hard work. A second example today is within our indirect sourcing function. We launched our first AI-powered RFP in recent weeks. The tool performed as expected. rapidly completing the RFP autonomously with a human in the loop supervising the process. The results of the RFP exceeded our procurement savings target by approximately 30%. As Brandon has explained, the power of this capability is not only to source existing categories more effectively, but also the ability for us to RFP smaller categories of spend that would not historically warrant dedicated resources. The objectives are to cover more spend with RFPs and increase our savings percentages. We have been asked several times lately if the AI technology capabilities that we are building can be applied to Restaurant Depot post-close. The short answer is yes, and this indirect sourcing project is a great example. Lastly, I'd like to provide an update on our AI selling tools. Our AI360 sales consultant enablement tool continues to gain traction. We measure success in two simple ways. One, are we presenting sales offers to more customers? This is an activity measure. And two, are we selling more products to existing customers? This is an outcome measure. I am pleased to report that both the activity level and the outcome metrics have increased through the use of AI360. More customer visits have a pitched sales opportunity, and more customers are saying yes to those sales offers more often. The why is a tool itself. It prioritizes for SEs what to focus on on any given sales call. The tool suggests items to sell or items to convert to Cisco brand. The decisions are still 100% in the hands of our SE. SEs that are new to the company and SEs that have decades of experience benefit from the sales suggestions. The power is in the data. As I mentioned a moment ago, we are building momentum and gaining traction on Cisco brand conversion and penetration. This is a direct result of the AI360 tool prompting and prioritizing that sales activity. Most importantly, our colleagues are making more money as a result of these selling activities, which becomes the self-fulfilling flywheel of the tool utilization. Chapter 3 of our call today is an update on the Jetro Restaurant Depot transaction. The government review process continues to proceed as expected. Cisco and Restaurant Depot have substantially completed our respective responses to the FTC's second request. We expect the deal to be approved and we remain on target to close the transaction by the end of Cisco's fiscal Q3. I would also like to provide an update on the performance results from Jethro Restaurant Depot. We have been advised by their leadership that the most recently completed quarter, 1% volume growth supported operating profit and EBITDA increases year over year. both on a dollar and a margin basis. Restaurant Depot experienced 1.6% product deflation within the period. Year to date on a calendar year basis, Jetra Restaurant Depot is delivering compelling overall financial performance with sales and profit growth first prior year. Ahead of deal closure, our integration teams are hard at work on planning for day one as a combined company. Playbooks are being built to unlock the capability of buying together, reducing our food costs, and supporting our ability to buy better to sell better. By being more efficient in our buying activity, we can strengthen our P&L and provide more value to more customers through Cisco delivery and Jetra Restaurant Depot store locations. We have also begun the planning activities for the Better Together customer engagement opportunities that we believe can create revenue upside. We have a clear line of sight for how we can create value for additional customers, providing them better service, at affordable prices across more communities. These revenue synergy opportunities are being thoughtfully planned, sized, and we will communicate our projections at an investor day post-close. Morale is high at both companies and the collective teams are excited to get to work post-deal approval. In summary today, Cisco was poised to unlock greater shareholder value by delivering the following three outcomes. A strong core Cisco as evidenced by our Q1 results. A more efficient Cisco future through AI transformation and post-close a combined new company that we expect will grow faster and be more profitable than a standalone Cisco. These three forces when working together give our board, management, and global colleagues confidence in our future. We are strengthening the foundation of the company and building future capabilities that will differentiate Cisco from the rest of the industry. Our customers and colleagues will benefit from the actions we are taking and our shareholders will be the net beneficiaries of the profitable market share we can capture. We are excited for our future. With that, I'd now like to turn the call over to Brandon, who will walk through his perspectives on our financial performance. Brandon, over to you.

Thank you, Kevin, and good morning, everyone. We appreciate your time. Today we will provide an update on Cisco's Q1 financial performance, review the successful September financing for JRD, and reaffirm our adjusted EPS outlook, including the company-wide actions underway to accelerate top-line sales growth, deliver on our $100 million cost savings program, further support margin management, and importantly, accelerating adjusted EPS growth for the remainder of the year. Consistent with the commitments we previously outlined, our teams delivered 2.7% local growth in our U.S. food service segment and effectively managed margins despite the deflationary environment. This performance drove adjusted EPS of $1.19, in line with our expectations, and 3.5% higher year over year. Despite the macroeconomic and industry challenges Kevin outlined, our company-specific initiatives kept us focused on the elements of performance within our control in a choppy operating environment. As shown on slide 13, Q1 sales grew 2.8%, driven by balanced volume growth across USFS local and national accounts, and continued outsized growth in our international segment. Enterprise inflation was only 0.3% during the quarter, below consensus expectations of 1.5%, and included 0.3% deflation in our U.S. broadline operations. Strong margin management expanded gross margin, drove enterprise adjusted operating income growth, and marked another quarter of adjusted operating income growth in our USFS segment. Next, we successfully completed the bond and equity financing for the cash component of the JRD transaction, reflecting strong execution, robust investor demand, and Attractive Pricing. Consistent with the plan we outlined earlier in March, we raised $11.75 billion through senior notes, $5 billion through hybrid debt and $1 billion through equity. Combined with $3.75 billion of committed term loans and approximately $200 million of commercial paper, these actions position us well for the pending close. Inclusive of more than $300 million of interest rate hedging proceeds, Our effective cost of debt was 5.8%, providing attractive long-term financing for Cisco. This outcome demonstrates the strength of our investment grade credit profile, our commitment to deleveraging and maintaining our mid triple B credit rating and investor confidence in our strategic direction. This is a strong outcome for Cisco and our shareholders. Our team's preparation enabled us to execute within a relatively narrow window of opportunity in September. By acting when we did, we expect to avoid approximately $50 million of incremental annual interest expense that would have resulted had we raised the funds just one week later. Finally, I want to address the outlook for the balance of the year. We remain confident in our net cost savings targets. 100 million in FY27 with benefits accelerating in the second half and 500 million by FY29. Enabled by AI technology, these initiatives position Cisco to operate better, faster, and more efficiently. As Kevin noted, based on current visibility, four key projects represent approximately 70% of the program's expected value. Indirect spend management is one of those projects within finance. Given Cisco's size and scale, these new agentic reverse auction technology tools can improve transparency, reduce value leakage, and optimize over a billion of annual indirect spend. We recently piloted the tool for truck parts and tires with additional events planned in the near term. Momentum is building. and we expect continued progress with real-time negotiations and secure value from suppliers with the goal of supporting our deleveraging commitments. This is a tangible example of how Cisco specific initiatives can improve financial performance. These are net cost savings that we expect to flow to the bottom line, particularly in the second half. The opportunity becomes even more compelling when combined with gross margin expansion from local volume growth and increased Cisco brand penetration. Our supply chain also continues to deliver compounding productivity gains driven by retention, a trend we expect to continue over the coming year. Collectively, these efforts give us visibility into accelerating top and bottom line growth for the remainder of the year. I will return to this point shortly. Now let's review our quarterly performance and its key financial drivers. beginning on slide 13. For the first quarter, enterprise sales grew 2.8% on an as reported basis driven by US Food Service, International, and Sigma. Total US Food Service volume increased 2.6% and local volume increased 2.7% in the quarter. In USFS local, performance exceeded our guidance range and represented a 130 basis point sequential improvement on a two year stacked basis. Deflation in USBL was approximately 0.3%. International inflation was approximately 0.8% on a constant currency basis. Based on current visibility, we expect inflation to increase over the course of the year in both our U.S. operations and the enterprise overall. During the quarter, elevated fuel costs continued to affect food input costs and inbound transportation expense. Cisco continues to manage the industry's fuel-related challenges effectively and remains in a strong relative position with approximately 80% of our bulk fuel purchases hedged over the next fiscal year. In the first quarter, Cisco generated 4.1 billion of gross profit, up 3.8%, and expanded gross margin by 18 basis points to 18.6% while improving gross profit per case. The improvement in gross profit reflected local volume growth, customer fuel surcharges, increased Cisco brand penetration, savings from strategic sourcing initiatives, and tariff benefits. Adjusted operating expenses were $3.1 billion for the quarter, up 4% and equal to 14.4% of sales. The increase reflected planned investments in higher growth areas of the business, along with an increase in fuel costs. Corporate adjusted expenses increased 4.8% from the prior year, primarily reflecting higher insurance and benefits costs, partially offset by productivity savings and corporate efficiencies. We see the insurance and benefits costs as transitory, and the second half of the year will include incremental benefits from AI and technology-related efficiencies. Sequential volume improvements also benefited USFS, our largest business segment, which delivered another quarter of improving financial performance. International delivered 5.1% sales growth and 12.2% adjusted operating income growth, marking its 12th consecutive quarter of double digit adjusted profit growth. Stigma results moderated in the quarter with sales growth of 1% and lower operating income. Against a challenging fuel backdrop, the Sigma team remains focused on capturing operating efficiencies. For the quarter, adjusted EBITDA was $1.1 billion, up 5.4% from the prior year. Let's now turn to the balance sheet and cash flow. Our investment grade balance sheet remains strong and reflects a healthy financial profile. We ended the quarter with a 2.4 times net debt leverage ratio and $5.8 billion in total liquidity. Well above our minimum threshold and providing meaningful financial flexibility. Turning to cash flow, we generated approximately $278 million in operating cash flow, up more than 220%. Free cash flow is positive $230 million, reflecting timing of working capital, an increase in adjusted EBITDA, and the timing of CapEx. Now, let me review our expectations for FY27 as shown on slide 20. Consistent with the guidance provided on our last earnings call, we expect continued volume growth and an acceleration in adjusted EPS growth. All elements of our fiscal 2027 guidance reflect standalone Cisco and include the 53rd week. For FY27, We continue to expect full-year fiscal 2027 adjusted EPS growth of 9 to 11%, with our outlook centered on approximately 10% adjusted EPS growth for the year. We remain committed to the delivery of $100 million of in-year net cost savings as detailed on slide 11. While fuel expenses remain elevated, recall that in Q1 and throughout the year, Our increases in operating expenses are generally offset by increases in gross profit via customer surcharges. We are well positioned throughout the remainder of the year. We now expect reported net sales growth to be at the lower end of our prior 6% to 7% range, reflecting a lower inflationary environment for the industry. We are reiterating our USFS local case volume growth guidance of approximately 2.5% for the year. and the 53rd week contributes approximately 2% of reported growth. Based on the current outlook, we expect inflation of approximately one to one and a half percent. We expect cost saving benefits to build throughout the year with the largest contribution expected in the second half and a corresponding acceleration in profit growth. We remain on track to return approximately one billion to shareholders through dividends. We also continue to expect adjusted depreciation and amortization of approximately $850 million for the year. As a reminder, Q4 includes an extra week this year. We now expect interest expense of $680 million, other expense of $20 million, and a weighted average share count of approximately 487 million shares for the year to account for the September equity raise and current interest rate environment. Looking ahead, our teams remain focused on sustaining positive momentum through fiscal 2027. We remain excited about the pending JRD transaction, which represents a significant next chapter of growth and will create a preeminent multi-channel food service distribution platform. Combining the momentum and standalone Cisco with JRD will strengthen our financial profile and support long-term shareholder value creation. With that, I will turn the call back to Kevin for closing remarks.

Thank you, Brandon. In closing out today's call, I am pleased to announce that Brandon has been named Cisco's next chief financial officer. We conducted a thorough global search for our next CFO, and our board was unanimous that Brandon was the best choice. Brandon has distinguished himself as a trusted and highly effective leader throughout his 12 years with the company, and when asked to step in as interim chief financial officer, He performed at a high level. Brandon commands a deep knowledge of our business, broad financial expertise, and strong understanding of how Cisco creates shareholder value. During Brandon's interim assignment, Cisco delivered strong financial results, launched a multi-year artificial intelligence business modernization, and successfully financed the Jethro Restaurant Depot acquisition. Both the debt and equity issuance associated with the JRD transaction were meaningfully oversubscribed. displaying strong investor interest and confidence in the deal.

That would not have been possible without Brandon.

When coupled with the 12 years of strong financial leadership Brandon has delivered at the company, he has earned the trust and confidence of our leadership team, our colleagues, and Cisco's board of directors, as well as our investors. We are pleased with the strong performance that we have delivered in Q1, and more importantly, the significant progress that we are making as a company across sales, merchandising, and operations. I want to thank our 75,000 Cisco colleagues for the strong start to the year. Their collective hard work, dedication, and execution have positioned Cisco well to deliver on our 2027 plan. With that, operator, we're now ready for questions.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. and we will take our first question from Edward Kelly with Wells Fargo. Please go ahead.

Yeah, hi. Good morning, guys. Brandon, congratulations on the promotion. I wanted to start on local case volume growth. Could you maybe just provide a bit more color around the impact of cyclospora that you saw during the quarter, what October looks like, and then as we think about, you know, these comparisons as we move through the year, you lose the M&A benefit So I'm curious in terms of your confidence in hitting that 2.5% target as the compares get harder. And then just a quick follow-up on this inflation issue. Obviously softer than expected, and that is a headwind to growing gross profit and earnings. What are you hearing from vendors about the path from here? I mean, it seems like we're going to see some real reacceleration, which I would imagine would be good for your business as well as the restaurant depot side, given the deflationary level we saw there this quarter.

Good morning, Ed. Thank you for the questions. It's Kevin. I'll start on the volume topic. I'll then bridge into what we see for inflation for the year. Toss it over to Brandon, who will help round that out from a quantum perspective. To the very first part of your question, which was cyclospora, I would just start with we're pleased with our first quarter performance, meeting our expectations in spite of these macro conditions that I enumerated on our call. Cyclospora specifically impacted the month of August, we had a stronger July, we had a stronger September. The cyclospora headwind that transpired for about six weeks in the middle of the quarter is included in the positive 2.7% volume growth. And I think that's a strong statement of the progress that we're making. Specific to October, I think you have seen some restaurant names reported earlier this week and last week that the start of October was a little bit softer for the industry. We saw a little bit of that too. The good news is that that has progressed solidly as the month of October has progressed three and four weeks three and four of October stronger November off to a good start so not sure exactly what that blip was in the beginning of October perhaps it's you know midterm election noise perhaps it's you know fuel but as I said that was a short Duration Things, relative to October, we're anchoring on our four-year guide, the 2.5% volume guide for the year. We are confident in our ability to deliver our profit guidance for this year, given all of what we see, and more importantly, what we're working on. The second half steps up from a profit growth perspective because of the AI commitment, and our strategic sourcing activities, as you know, impact the second half of the year More than the first. So let's bridge to this inflation deflation question. The first quarter did behave differently than we had planned. I can highlight the causals of that. It's dairy. The categories of dairy was down significantly from a deflation perspective.

That's for two reasons.

Number one, lapping high inflation a year ago from avian influenza. and then in the fluid dairy milk categories and impacting cheese as well, there was a meaningful oversupply which was not anticipated. So oversupply brought price down. That's specific to dairy. The second category is in poultry. Poultry is currently significantly deflationary. That too is because of lapping avian influenza from a year ago. What we can see in our modeling, and I'm going to toss to Brandon who can talk about Q2 and the rest of the year, is we begin lapping Ebian influenza in period four for poultry and we begin lapping it in period six from a dairy perspective and that is impacting in a constructive way the rate of inflation that we will see in the second half and the oversupply of milk is something that will be addressed you know as it relates to you know how they produce milk etc because they don't want to see the oversupply extend for an extended period of time. Brandon over to you to talk about the year and how we're thinking about inflation now for the rest of the year.

Yeah, thank you, Ed, and thank you for the congratulations. I do appreciate the support. Let me go back to the first question you had, then I'll jump to inflation. Part of your question was, do we see continued improvement as the laps become more difficult? And for Q1, the 2.7% local on a two-year stack, it was an improvement versus Q4 of about 130 basis points. So we are getting stronger. We see positive momentum and penetration. And the reason for that is because of the tenure of our sales force, which will continue throughout the year. Jumping to inflation, Kevin called it out. We were at 0.3%. Our broad line in the US deflation was 0.3%. Now with that, We're lapping avian flu. So in October already, we see just under 1%. So that will continue throughout Q2. And then we see an improvement in Q3 and Q4. So, you know, we updated our sales guidance due to that inflation. And with that, you know, we managed our margins quite well during the quarter. We had excellent operational cost performance as well in Q1. It is a core competency of ours and that as well will continue. So we're enthused by our bottom line profitability performance and expect that to continue in Q2 and the second half.

Just to be crystal clear, Brandon said for period four, October, approximately one percent. That was positive. So just to be crystal clear, we've already begun to see the lapping of the avian influenza from a year ago, and we expect to be positive for the rest of the year.

Thank you.

Thank you, Ed.

Thank you. and we'll move next to John Heinbockel with Guggenheim. Please go ahead.

Hey Kevin, two related things. When you look at AI 360, you know, maybe speak to the potential impact there, right, on local cases. I'm not sure what percent of the sales force is using it to its full potential and if you look at the delta between those that are and those that aren't, You know, what would that constitute? How much can that move the local case style? And then the other thing is if you look at international, right? So if you had 0.8% inflation, international cases look like they stepped up nicely. Is that fair? And do you see any impact from what's going on in Europe on local cases?

Okay, very good. Thank you, John. Two good questions. Start at the AI360 topic. What we see macro in the industry right now, as you're aware, is approximately 2% traffic declines, which impacts volume per operator. That is impacting the overall industry. What we are seeing is strong penetration per operator. And I attribute AI360 for that progress that we are making. relative to the overall industry. So overall industry cases per operator is down and our performance is solid. And the why is AI360, the power is in the data. It is prompting to our sales reps things they should be selling that they're not currently selling. Or it's predicting that there's the potential risk for a future loss based on rolling 16 weeks data and it prompts them to take action. So we're seeing solid, strong penetration performance and I directly attribute that to our tenure improvement, retention improvement of our colleagues, which Brandon already covered, and then the leverage of AI360. We absolutely see the performance data that you're implying, John. Your top decile users are performing meaningfully higher than the bottom decile users, and that's across all tenure durations, one-year colleague to 30-year colleague. We can slice the data that way. So using it more means you make more money as a sales consultant. Using it more means you're profitably growing your business. We've not quantified the impact to this full year's volume performance, but I would say it's what gives me confidence in our ability to deliver our 2.5%. Volume growth for the full year, as Ed mentioned, that's a step up each quarter because we lapped stronger numbers a year ago. AI360 is what's giving us the confidence to do that. And we're going to continue to make it better. We launched new capabilities and new tools. The other thing I would point to on AI360 as a direct proof point is our progress in Cisco brand. It is teeing up very specific concrete opportunities for what we call swap and saves, which is the ability to save a customer money. And it serves it up on a silver platter for the sales rep through what we call prioritized next best action. So very pleased with AI360. Shout out to our tech team for that proprietary product development that we have built and our sales colleagues for embracing it. It's a real winner for us. As it relates to international, we're very pleased with our international performance, 12th consecutive quarter of double digit profit growth, strong local growth in every country we compete in around the world. You're right that there are some challenges in select countries, specifically the noise that we saw from unrest in France specifically, and we're not seeing it impact our business. And why is the strong leadership team we have in each of these international countries, the broadening of our assortment, improving our tech tools things like you know a modern website in every country increasing sales headcounts in every country and we're pleased and confident in our performance internationally we are seeing product inflation internationally at a higher rate than domestic us that's mostly because of how food is priced and contracted in a couple of our countries it's a twice per year government impacted price negotiation and that tends to result in a more stubborn price in select countries, and that is one of the reasons why food cost is inflationary in Europe particularly while deflationary in the U.S. Brandon, over to you for anything you want to add.

Yeah, we've used our U.S. programs as somewhat of an incubation to then transfer it to our international, and it's working really well. In the international space, in every region, we deliver 3-plus percent local, and it's a major contributor to the profit growth. As Kevin referenced, we're in our 12th consecutive quarter. of Double-Digit Operating Income Growth, and we expect that to continue. Thank you. Thanks, John.

Thank you. And we'll move next to Danilo Gargailo with Bernstein. Please go ahead. Your line is now open.

Great. First of all, Brandon, once again, congratulations on your appointment as permanent CFO. I was wondering if you can help us understand the evolution of OPEX in the first quarter. I mean, you showed very strong gross margins. OPEX was a little bit light of expectation. So can you help us understand how much of that was driven by the leverage of inflation and to what extent you could be offsetting lower inflation with accelerating capture rates of savings for the rest of the year?

Thank you. Sure. Yeah. Thank you for the question and the congratulations, Daniel. I appreciate it. You know, I'll start with our core business and optics and then I'll move to the topic of fuel, but we remain very disciplined on staffing and therefore our productivity was very strong. It is a core competency of ours in our US business. We ended FY26 with the highest retention on both selectors and drivers since the beginning of COVID and The reason why retention is important is because it's directly correlated with productivity and then obviously correlated with favorable cost control. So we were very pleased with our productivity in Q1. Taking a step back and looking at some of the transitory things on highway diesel, average fuel cost was higher, especially peaking in September than it was in Q4. As fuel rose, you know, we managed it and fuel costs were elevated and affected OpEx. But with that between, as we stated in the prepared remarks, fuel hedges offset by some of the customer surcharges, the overall impact to operating income of fuel was relatively small. So we're being very intentional in managing that pressure between our customers and our internal P&L. We did it in Q1 and we'll continue to do it in Q2 and in FY27. The one piece I would remind you of, Danilo, is when we have increased fuel costs, you'll see OPEX increase, and you'll also see margin increase because of those customer surcharges. So it's a geography change in the P&L that occurs.

Thank you. And we'll move next to Kelly Banya with BMO Capital. Please go ahead.

Good morning and congrats, Brandon, first of all. Just a couple of questions. Wanted to follow up on the US local case growth. Wondering if you could just specifically parse out the organic component of that. And then bigger picture, you've had very strong visibility into how that will shape up for the last few quarters, helped by you know, this improved retention and just wondering at what point do retention tailwinds kind of level off and other drivers take over in terms of supporting that figure? You talked a little bit about the AI360 and the swap and save and just wondering kind of how the handoff to these more kind of structural technology driven tools start to contribute to the local case growth as the retention tailwinds level out. and just a follow up also on the restaurant depot data point to the extent you can comment. That volume figure of 1%, does that include square footage growth? Do you have like a same store sales type of volume figure on that front?

Thank you. Good morning, Kelly. Thank you for the questions. Just going back to the local case growth part of your question, acquisitions contributed 0.4%. of volume growth for the quarter, and that's consistent with the calendar year-to-date performance as well. Going back to Ed's question, yes, we will lap that acquisition. Come the December period of time, we're confident in our ability to hit the 2.5% for the full year because of a host of strategic initiatives that are in play that will positively impact our local case growth. We are not expecting macro environmental conditions to improve to be able to deliver our performance. It's from strategic initiatives Specific to your point on colleague retention, I don't view that as a slowing down tailwind. Brandon makes the point well at our monthly business reviews. Tenure improvement continues on in perpetuity. The person who's one year in today will be two years in tomorrow, will be three years in the year after that, and they continue to get better. So while we have improved retention, what was temporary was the customer loss impact of that. but will be permanent is the continued strengthening of their selling skills that grows over time. So our improved retention will continue to be a tailwind throughout 2027. I'm reminded always how much this is a relationship business. Our restaurants buy food from us at least twice per week, 52 weeks per year. Our sales rep and our driver is in their place of business multiple times per week. It's a really intimate relationships-based transaction. and the strengthening of the colleague retention and tenure will be a tailwind for all of 2027 and I submit even into 2028. What gives me confidence is, you know, back to John's question, AI360 is not yet fully developed as it relates to what it can do. Colleagues are using it every day, but they can use it even more. We can be even more specific about what we prompt our colleagues on what they focus on. and one of the biggest focuses on the year to date for us is actually an increased effort and focus on winning that new business. Given the traffic to restaurants being soft, given the deflation that we experienced in Q1, we're putting a renewed effort on opening net new doors and that's something we can do given the fact that our sales population is stable. So you're gonna see a big focus from us in that regard to help us grow our customer count which gives us the confidence in our full year guide. As it relates to RD, you know, just a restaurant depot, we've not unpacked, you know, same store sales versus new store growth. New stores growth would be a small, small contribution for the year, but I'm not going to, you know, quant the number. What I like about RD's performance, they grew their customer count, they grew their transaction count, they improved their profitability year over year, including expanding their op margins. Richard and his team have grown profit for 30 consecutive years and they're on track to be able to do that again this year. It's a really capable, talented team. Brandon, toss to you for anything you'd like to add.

No, I would just reemphasize that last point, 30 out of 30 years. You know, our conversation with the restaurant depot team continue to be very positive, and each time we speak with them and interact with them, we become more impressed. We think that they will make Cisco better, and their track record for profit improvement is perfect, 30 out of 30, and they continue to do that this year.

And just one more proof point. Coming back, Kelly, confidence in our ability on the improved financial performance is Cisco brand. Our merchant teams, as I said in my prepared remarks, have done a really terrific job of improving our assortment at the value tier end of the equation, AI360, putting those opportunities in front of our sales reps to do the swap and save. We improve Cisco brand across every customer type in our book of business with independent customers being the area where we saw the greatest improvement. and that will continue into the rest of this year, which is one of the reasons why we had a strong gross margin performance in Q1.

Thank you. And we'll move next to Alex Slagle with Jefferies. Please go ahead.

Hey, thanks. Good morning, and congrats, Brandon, from me as well. I had a question on the national business, and I missed if you provided a volume growth metric, but just questions more on the opportunity to further optimize how you attack the growth opportunities in these channels, especially the non-commercial, just to help offset some of the soft as you kind of look out leveraging tools, new tools you have, or shifting resources to accelerate growth in some of those higher potential segments of the business.

Alex, good morning. Thank you for the question. Contract business is half our business. It's really important. We don't directly call it national, but you can do the implied math. The implied math is 2.2% volume growth for contract business or Q1, which is solid. and the reason I say solid is because restaurants, national restaurants are actually down year over year and that's offset by really strong performance in what we call food service management which is office buildings, big stadiums, college and K-12 business that all falls into that food service management sector. So strong performance in food service management, strong performance in hospitality. We're doing very well in the hospitality sector. and also strong performance in healthcare. We've got a renewed focus as a company on the selling strength capabilities within healthcare, strong partnerships in the healthcare GPO space helping us profitably take share within healthcare. 2.2% growth for the quarter. We're confident in our full year and we've expanded our profitability in contract business as well by creating what I call win-win contract structures with our big customers that if we work together and we create efficiencies, we share in some of those efficiencies with that customer, which motivates them to do that. And we are able to improve our profitability at the same time. So our contract sales leadership team is doing a terrific job. Thank you to that group. Alex, appreciate the question. Thanks.

Thank you. And we'll move next to John Ivanko with JP Morgan. Please go ahead.

Hi, thank you. In my observations, one of what I think is some of the lowest hanging fruit at Restaurant Depot would be to improve customer-facing marketing and customer-facing technology. And those are obviously two areas Cisco has really put a lot of effort towards over the past several years, but also the past many years. Can you talk about, just from your perspective, Kevin, how big of an opportunity do you think that it is? Just remind me, do we have a vision that Restaurant Depot, Cisco really gets collapsed into one brand to benefit from the marketing and customer-facing technology of the two businesses? Thank you.

John, great question. Appreciate it. First, let me just comment on where we are with the deal situation. As I said in my prepared remarks, we and Restaurant Depot have substantially complied to the second request. The FTC is doing their diligence. We have active conversations with them regularly. At this time, we are not aware of any concerns and we are confident that the deal will get approved based on its factual merits. While that's happening, we are deep, deep in the integration planning work. As I said in my prepared remarks, there's procurement savings that we will deliver by buying together. There's assortment expansion to each of the brands that we can create by leveraging each other's broad assortment. But John, what gets me most excited is the questions that you asked, the opportunity for revenue growth tied to what we call the better together thesis. And you hit on several of them. The Restaurant Depot team is excited to work with Cisco on customer targeted personalization. We, as you know, because you said it, have invested heavily to create a personalized website. The AI 360 capability that we have rides the rails of that hyper personalization targeting logic. Restaurant Depot is a membership club. Richard and his team know exactly what their customers are buying and not buying. And they're excited to partner with Cisco's tech team to bring forward customer targeted promotional offer opportunities to engage more of their basket. Richard often talks about just adding one more case per visit is worth a lot. And we're going to work hard to do that. We will, of course, test these things. I call it pull, not push. It'll be Richard and his team desiring these activities. And there's a tremendous amount of interest in this topic, specifically tied to data and technology and how we deploy it to actively engage the customers. Our intent as a management team is post-polls to have an investor day. Kevin, Kim, Brandon and I are talking about when would be the right time to do that it's probably six months post-close and what we will provide as color at that meeting is more detail including size the map on what we believe this opportunity as well as many others can create for revenue growth Brandon anything you want to add yeah you know it's a somewhat tactical point John but one of the things that impresses us about restaurant depot is their data they have really good strong clean data and given the investments

In personalization that Kevin talked about, we will be able to now use those and leverage those to be able to get a really great result out of personalization by working with Restaurant Depot.

Thank you, Brandon. And then last but not least, you asked about one brand. We will not change the brand of Restaurant Depot. That will stay on forever. The store is branded Restaurant Depot. It will be Restaurant Depot. You walk into that store, it will be Restaurant Depot. But what we can do is create, as Brandon said, the preeminent multi-channel food service distribution entity. You could have a delivery primary customer, ergo Cisco customer, who needs something in a hurry, leveraging the Restaurant Depot stores to do same day delivery or will call pickup at a Restaurant Depot. That would be a Cisco delivery customer, but activated through the RD box. We believe there's big opportunity for that. On the flip side, Restaurant Depot primary cash and carry customers at times grow and improve and strengthen their business and open a second or third door and going to cash and carry becomes a challenge for them. We can create a model where we can predict that is occurring by the data that Brandon just referenced and we can intervene and say hey we'd love to have Cisco delivered to you once a week and you can keep coming into the restaurant depot store to pick up your fresh products that's an example of something we will build but there are two different brands because they're different customers there's a cash and carry primary customer who chooses to go to the store to save money and there's a delivery primary customer who likes delivery for the convenience and White Glove Service. What we can do is better serve both of them by having these capabilities under one roof. Thank you so much. Thank you, John.

Thank you. And we will move next to Mark Cardin with UBS. Please go ahead.

Good morning. Thanks so much for taking the questions. And Brandon, congrats on the role. So on your routing initiative, you talked about it being live in pilot regions. How much of your U.S. footprint does this cover today? Will the rollout be pretty consistent throughout the year or back half weighted? And then on EPS, should we expect for it to be meaningfully slower from a growth perspective in 2Q relative to the balance of the year just given the cost-save pacing and some of the near-term deflationary pressures? Just any context on 2Q profit trends would be helpful. Thank you.

Great, Mark. Thank you. Two-part question. I'll do the routing part. Brandon will do the EPS part. I just want to be very clear on the routing project. It's actually two separate phased projects. The first is rolling out an update to our software, training our routers how to leverage and use that software. That is a staged deployment throughout 2027. Think X sites per month being implemented. That project is on track. It's going well. It's delivering that approximately 2% to 4% pieces per mile improvement that I referenced in my prepared remarks. and is embedded in our guidance for this year and it will contribute strong value as the year progresses. There's a second project which is what we're calling AI infused routing, so improved simulation. We onboard a lot of new customers every single week and doing that customer onboarding in a more efficient way right out of the gate, it's an easier to use software that will enable us to be more dynamic and we're calling this customer centric routing. So our best customers to get even tighter windows, smaller customers working with them to have a little more flexibility so we can be efficient, so we can serve their business profitably. That is phase two. Phase two will begin at the end of this fiscal year and is much more a fiscal 2028 financial contribution, which is why these AI You know, profit impacts step up over time. 100 million this year and 500 million by the end of 2029. This project is one of the biggest projects in the hopper and we have strong confidence in it. Again, I'm really pleased with our routing team and our tech team for the good leadership they are displaying. Brandon, over to you to talk about Q2 and for your EPS.

Yeah, yeah. Thank you, Mark. And thank you for the congratulations as it relates to Q2. In the full year really, we're really confident in our full year EPS guide of 9 to 11 percent growth and we will continue in Q2 to have strong margin management and high productivity and operational performance. If you look at it versus Q1, it will improve versus Q1. The phasing of our strategic sourcing and cost savings will enable that, and then Q3 and Q4 will continue to improve sequentially beyond Q2. So we will see a step up in Q2. We will see another step up in Q3 and Q4, and we will continue to execute with excellence.

Great. Thanks so much, and good luck, guys. Thank you, Mark.

Thank you. And we will take our final question from Sarah Senatore with Bank of America. Please go ahead.

Oh, thank you very much. I wanted to go back to the commentary you mentioned on being thoughtful about choosing to make the decisions about fuel headwind to ensure you keep the food affordable to your customers. So it kind of sounds like you're passing through the deflation appropriately, but you're holding back on some of the fuel inflation. So I guess my interpretation is you have big scale advantages. You've locked in your fuel better, I think, than some others. Are you kind of using this as an opportunity to press your advantage to take volume just because it seems like you're approaching how you think about fuel versus food inflation differently as you think about passing it through? And then just related, you know, it seems like the deflation kind of materialized very quickly, you know, given that you issued the top line guidance not that long ago. Is there anything that maybe needs to happen to change how you forecast inflation or this was just unavoidable given the dairy oversupply just even in a short amount of time couldn't have anticipated? Thank you.

Yeah, very fair question, Sarah. Thank you. So you had embedded in that product inflation, deflation, and if you will maybe we unpack the two. I'll start with product inflation. Brandon, maybe you take the fuel. First of all, we're constantly negotiating with our suppliers to get to the absolute best possible cost for Cisco. And then we contractually pass on our costs to the contract customers. Those are built into our contracts. For the street business, we dynamically price the street based on what's happening in the marketplace. So if the marketplace understands that dairy is deflationary, We lower our price to match the fact that costs have come down and the marketplace has come down as well. So we're very strategic, very thoughtful. We price scrape our delivery competition on the regular. We talk to our suppliers about where we anticipate trends and we change pricing for independent customers weekly because of the commodity fluctuations that happen in price. So that's what I was alluding to in our prepared remarks. Yes, we passed on product deflation to independent and contract customers, because that's the right thing to do. If our product cost comes down, our customers should benefit from that. And they did benefit from that in Q1. Your good question about, you know, should we have seen the Q1 inflation, the category that was a surprise was dairy. The oversupply of milk and that impacted the cheese market was significant and happened, you know, quite rapidly. And that category behaved very differently than what we had expected. The second, which I didn't mention earlier, is while beef is still inflationary, the rate of inflation within beef is beginning to step down. And that's good for end consumers. That is good for restaurants. But beef had been in the double digit inflation for a long time. That is normalizing. And we are now expecting beef inflation for the rest of this year to be low single digits. Again, good for end restaurants, good for end consumers. But that is a big change from where it has been. Your point on can we improve here? Yes, we can. We are leaning in hard to partner with our suppliers even stronger, leveraging some third party tools to do ongoing rolling forecasting of commodity costs. We also have to respect that things change, you know, floods and droughts and pestilence occur, and it is a dynamic food environment. So we do the best we can on forecasting inflation. Brandon was crystal clear. I'll just repeat it. We're seeing already in October back to inflation. We anticipate Q2 will be approximately 0.8% to 1%, and we expect the full year now to be approximately what we guided on today's call. Brandon, over to you for any additional comments on that, and then maybe you can talk about fuel and how we manage fuel through our P&L.

Yeah, absolutely. I'll jump straight to fuel, and thank you for the question, Sarah. So with fuel, there are three components. The first is our contract customers and outbound. It is relatively formulaic. With that, there is a lag of roughly 90 days between contracts and what gets charged to the customer. On the local side, we as well intend and try to pass on the fuel costs that we're seeing when it comes to our retail component. And then I mentioned this last time on inbound, it's a little bit different because the suppliers sell us product. Obviously, we're not hedged on the inbound fuel. That is a place where we manage A balance between our customers and us internally. So with the increased cost of inbound and product, that's where there's a little bit of art and a little bit of science. So all in all, I said initially that there was very little effect to operating income on fuel, thanks in large part to the hedges that we have in place and then to customers for charges. So we will continue to see that in Q2 and we will continue then to see it as well in 2H as we are hedged 12 months out and then we have smaller hedges that are 18 months out as well.

Thank you.

Thank you, Sarah.

Thank you. At this time, we've reached the allotted time for questions. I will now turn the call back over to our presenters for any final or closing remarks.

Great, thank you Madison. Thank you everybody for joining us today and for your continued interest in Cisco. The team here is focused on the year to go. Should you have any follow-up questions, please do not hesitate to reach out to the investor relations team. Thank you very much.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.