Ricky Dillon: Sure. So from a volumes perspective, when you look at Q1 to Q2, as I mentioned earlier, there is a step-up in absorption of lost business in Q2 from Q1, and that’s just moving past some exit billings. And then also, we do have a meaningful step down in the direct sale business. Direct sales are down 17% from Q1, and that’s attributable to kind of the seasonality of that business. And so, the combination of the — moving to absorbing the full impact of those rollover losses, the direct sales seasonality. And then finally, as I mentioned, we did see greater erosion of pricing in the front half, and that’s consistent with our discussion around back half pricing and customer sensitivity. You normally see some pricing erosion given the magnitude of our back half pricing.
That was a little bit more, and we made the decision to throttle back that Q2 pricing that we talked about on last call. So I think Q1 to Q2, those are the big drivers from a top line perspective. And I’m sorry, the second part of your question, oh, cost.
Oliver Davies: Just on cost inflation, yes.
Ricky Dillon: Sure. So we — labor is coming in higher than expected. I’m sorry, I take that back. Labor is coming in as expected. And so higher than prior year, we’re still trending toward approximately 5% year-over-year hourly or frontline labor increase, and we have locked in our approximately 3% for salaries. So that is up, but in line with expectations. I mentioned earlier that we had some favorability in energy in the quarter, and that is — has been driven by natural gas. We’re seeing the rest of the energy rates kind of flatten out here as we look to the back half. And so the front half favorability will come down but still be a little bit favorable in the back half. And that’s in line with our expectations for energy for the year. From other cost perspective, we aren’t seeing any significant impacts inflationary-wise for us for the remainder of the year.
Operator: Our next question comes from Manav Patnaik with Barclays.
Manav Patnaik: Thank you. I just want to take a little bit of a step back. Like some of the reasons you’re calling out for the shortfall and what you’re doing and what you changing, I mean they sound — they make sense in terms of what you’re doing. But I’m just curious, like can — you were at the company for almost two years, while under Aramark. You guys presumably did all this work going through IR Day and your confidence the last two quarters was pretty solid as well. So I’m just trying to understand on the margin, like what changed in the last 90 days or 60 days or whatever it is that caused this big of a revision?
Kimberly Scott: Yes, absolutely. Well, let me start, Manav. Thank you for your question. We remain highly confident in the strategy. So the confidence that you heard about this opportunity at Analyst Day and prior earnings discussions has not wavered. So we are completely confident in this strategy and our pathway to value creation. What we have done is really started to analyze — to create long-term health in this business, the best thing we can do is ensure that we have great retention rates. And so the whole strategy hinges on cross-selling the base and making sure that we improve lifetime value with our customers. And so we’ve spent a lot of time over the last few months very aggressively digging into reason codes related to the customer experience.
And so as we have done that, we have found that there is an opportunity to better serve the customer with improved processes. Many of our customers are still having a great experience because we’re cross-selling them, and we’re having great success gaining some more penetration. So it’s important to note that these are isolated reason codes, very specific delivery matters related to own time delivery, shortages on loads, and we are isolating that by market center and making sure that we are addressing procedural gaps and improving procedures by location where we have shortcomings related to service. And so as we evaluated that over the last few months, we made a strategic decision to take a pause, to get our services in order to make sure that they are excellent, and then we will return to pricing levels as appropriate.
So it was a very deliberate decision to make sure that we improve our service efficacy and that we’re building customer loyalty for the long term. So that’s really what’s changed as it relates to pricing. The second thing that has changed is we had continued to expect our sales teammates on the front line to ramp to higher levels. And those sales teammates, while they are selling, and we talked about the 700 basis points of new business wins that we’re seeing, they needed to sell at a higher rate to offset those rollover losses from ’23 that rolled into ’24. We are not seeing them ramp to the degree that we need to offset those losses and deliver the original growth rates that we had in the guide for the year. We can absolutely improve here, and we will do that, and I talked about many of the things that we’re doing.
But those things all have an impact on the EBITDA in the second half of the year, particularly the pricing that drops through at a very high flow-through will not be dropping through at that rate. And so that has an impact on EBITDA in the second half. Rick, anything you would add there?
Ricky Dillon: I would just note, as we think about what changed, we saw the impact — well, we knew the impact coming in of the lower retention rate. And as we progress through Q1 and Q2, we see the favorable impact of higher retention rates, so lower losses in year. And our decision, as Kim described, looking at customer efficacy, seeing the correlation between higher pricing and lost business, it was a decision we made to — intentionally to throttle as a result of that. So I just want to keep aligning that correlation between customer efficacy and the deliberate pricing decision. And what’s changed is that pricing and the significance on the top line, and the margin as a result of not seeing the ramp in sales.
Operator: Thank you. Our next question comes from George Tong with Goldman Sachs.
Keen Fai Tong: Hi thanks. Good morning. I just wanted to dive into the visibility of the business. The revenue guide that you issued just a quarter ago was brought down quite a significant amount. And so I just wanted to understand how much visibility is there, especially as it relates to your ability to win new business? Specific to new business, what changed over the past quarter that you didn’t foresee previously?
