Good morning, ladies and gentlemen. My name is Lauren, and I'll be your conference operator today. At this time, I would like to welcome you to Ferguson's second quarter conference call. All lines have been placed on mute to prevent any interference with the presentation. At the end of the prepared remarks, there'll be a question and answer session. To ask a question at that time, please press star and then the number one on your keypad. To withdraw your question, please press star, then the number two. Thank you. I would now like to turn the call over to Mr. Brian Lantz, Ferguson's VP of Investor Relations and Communications. You may begin your conference. Good morning, everyone, welcome to Ferguson's second quarter earnings conference call and webcast. Hopefully, you've had a chance to review the earnings announcement we issued this morning. The announcement is available in the Investors section of our corporate website and on our SEC Filings webpage. A recording of this call will be made available later today. I want to remind everyone that some of our statements today may be forward-looking. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Additional information is also included in our earnings announcement and in the section entitled "Risk Factors" in our Form 10-K available on our SEC website. Any forward-looking statements represent the company's expectation only as of today, and we specifically disclaim any obligation to update these statements. In addition, on today's call, we will discuss certain non-GAAP financial measures. Please refer to our earnings presentation and announcement on our website for additional information regarding those non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures. With me on the call today are Kevin Murphy, our CEO, and Bill Brundage, our CFO. I will now turn the call over to Kevin. Thank you, Brian, and welcome everyone to Ferguson's second quarter results conference call. On today's call, I'll cover highlights of our second quarter performance, and I'll also provide a more detailed view of our performance by end markets and customer groups before I turn the call over to Bill for the financials and for our outlook for fiscal year 2023. I'll then come back at the end to share some thoughts on how we're executing our strategy and on the fundamental drivers of our residential and non-residential end markets before Bill and I take your questions. We'd like to express our sincere thanks to our associates as they continue to go above and beyond to serve our customers and to help make their projects simple, successful, and sustainable. Our second quarter results were in line with our expectations following the significant step-up in performance we delivered in fiscal year 2022. We continued to leverage our consultative approach, our scale, our global supply chain, and our strong balance sheet to help improve our customers' projects. The result was 5% revenue growth on top of a 32% comparable. We demonstrated cost discipline to deliver solid profit with the two-year stack for adjusted operating profit increasing 67% and adjusted earnings per share nearly 75%. Our balance sheet and cash generation are strong, and we continue to execute our strategy of investing for organic growth, sustainable growth of our dividend, consolidating our fragmented markets through acquisitions, and returning capital to shareholders. We declared a quarterly dividend of $0.75 per share, implying a 9% increase when annualized over the prior year. On the M&A front, we are pleased to welcome 4 acquisitions during the quarter. These acquisitions bring annualized revenues of approximately $300 million and span across HVAC, waterworks, and our industrial customer groups. We're proud of these results, which came in as we expected, and are confident in the strength of our business model as we go forward. Turning to our performance by end market in the U.S. Overall growth has moderated as we came up against increasingly challenging comparables. As expected, residential revenues, which comprise just over half our U.S. revenue, slowed meaningfully during the quarter to 1%. Residential markets were most significantly impacted by the slowdown in new residential construction and in areas serving the project-minded consumer. Repair, maintenance, and improvement markets, particularly high-end remodel, showed continued strength. Non-residential growth was 11% higher than prior year on top of tough comparables, with broad-based growth across customer groups, including a pickup from industrial-related end markets. Importantly, we continue to outperform our markets, taking share across both residential and non-residential end markets. As we've discussed previously, we will continue to focus on maintaining our balanced end market mix. While we expect growth rates will fluctuate over time, we seek to maintain this healthy balance. Turning now to revenue growth across our customer groups in the United States. Residential trade declined by 5% against a 31% prior year comparable growth due to declines in new residential construction activity. Residential digital commerce declined by 10% against a 24% prior year comparable growth due to softening consumer demand. Residential building and remodel grew 12% on top of a 21% prior-year comparable with a healthy backlog and strength in higher-end remodel projects. HVAC, where the majority of our business serves the residential end market, grew by 10% with a two-year stack of 43%. Waterworks delivered growth of 6% on top of a prior-year comparable of 61%. We're very pleased with the balanced business mix inside of our waterworks group with both residential and non-residential exposure. The commercial mechanical customer group grew 8%, improving sequentially from the first quarter. Industrial, fire and fabrication, and facility supply businesses saw strong growth driven by non-residential trends such as increased industrial construction. It's through our growth platform of nine customer groups that we achieve broad and balanced end market exposure. In aggregate, this allows us to serve our customers' needs in a more holistic way and bring more value to the total project. Let me now hand over to Bill, who'll take you through the financials in a little more detail. Thank you, Kevin, and good morning or afternoon, everyone. Net sales were 4.9% above last year, with organic growth of 2.7%. As expected, price inflation stepped down from Q1 to Q2 to 10%. Acquisitions contributed 2.6% to revenue growth, partially offset by 0.4% arising from the adverse impact of foreign exchange rates and one fewer sales day in Canada. Gross margins of 30.2% were down 40 basis points against a very strong prior year comparable. The modest decline was driven by pressure on certain commodity products and business mix as non-residential outperformed residential. Non-residential carries slightly lower gross margins but very similar operating margins as residential. We have proactively managed the cost base, which stepped down approximately $77 million from Q1 to Q2, enabling us to deliver adjusted operating margins of 8.5% in what has historically been our seasonally lightest margin quarter. Adjusted operating profit of $582 million was down $6 million, or 1%, over the prior year, as highlighted earlier, remains 66% above fiscal 2021. Adjusted diluted EPS compressed by 1%, driven principally by the slightly lower adjusted operating profit and higher interest expense, partially offset by the impact of our share buyback program. Our balance sheet remains strong at 1.1x net debt to adjusted EBITDA. Moving to our segment results, the U.S. business delivered another solid performance, compounding revenue growth against very strong comparables. We continue to take market share with net sales growth of 5.4%. Organic revenue growth of 2.6% was bolstered by a further 2.8% growth from acquisitions. We delivered adjusted operating profit of $579 million, an increase of $3 million, or 0.5%, over the prior year. Turning to our Canadian segment, markets softened similar to the U.S., with some additional pressure from the adverse impact of foreign exchange rates. Organic revenue growth was 3% against a strong 13.8% comparable, but was offset by 1.2% arising from one fewer sales day and a further 6.3% due to the adverse impact of foreign exchange rates. Total revenue growth was down 4.5%. In line with the U.S., non-residential end markets performed better than residential in the quarter. Adjusted operating profit of $14 million was $9 million below last year's record performance in our seasonally weakest quarter. Turning to the first half results, net sales were 10.9% above last year, with organic growth of 7.8%. Acquisitions contributed 2.7% to revenue, with a further 0.7% from an additional sales day, partially offset by 0.3% adverse impact from foreign exchange rates. Gross margins were 30.4%, down 50 basis points year-over-year against a very strong prior year comparable. We managed both labor and non-labor operating expenses throughout the first half. We managed down overtime, temporary labor, and allowed natural attrition without backfills to reduce the number of FTEs in the business. We took the difficult decision to take certain targeted headcount reductions. Collectively, these actions reduced our organic full-time equivalent headcount by approximately 1,500 in the first half. During February, we have taken action to reduce FTEs by a further approximately 500. While we don't take these actions lightly, they are important to respond to the current market conditions, and we will continue to evaluate our cost base and resource allocation decisions as we move forward. Adjusted operating profit of $1.4 billion was up $91 million or 6.7% over the prior year, delivering a 9.8% first half adjusted operating margin. Adjusted diluted EPS grew by 9.9%, driven principally by the growth in adjusted operating profit as well as the impact of our share buyback program. Turning to cash flow, we take a disciplined approach to cash generation. It's an important priority and quality of our business model. Adjusted EBITDA in the first half was $1.5 billion. As expected, our working capital had a positive impact on cash flow as we have begun to reduce inventory as supply chain constraints start to ease. Inventory, excluding acquisitions, was down approximately $235 million during the first half. Generated $1.2 billion in operating cash flow, an increase of $946 million over the prior year. We continue to invest in organic growth through CapEx, principally invested market distribution centers, branch network, and technology programs. The increase over prior year is attributable to the timing of investments related to market distribution center rollout strategy. As a result, free cash flow was $936 million in the first half, a significant increase of $827 million over the prior year. Our balance sheet position is strong, with net debt to adjusted EBITDA of 1.1x. We target a net leverage range of 1x-2x, and we intend to operate towards the low end of that range through cycle to ensure we have capacity to take advantage of growth opportunities, as well as to maintain a resilient balance sheet. We allocate capital across four clear priorities. First, we're investing in the business to drive above-market organic growth. As I previously mentioned on the cash flow slide, working capital had a positive impact on cash flow in the first half, and our CapEx investments were focused market distribution centers rollout, technology investments in both front-end customer-facing capabilities, as well as the modernization of our back-end systems and investments in our branch network. Second, we continued to sustainably grow our ordinary dividend. Our board has declared a $0.75 per share quarterly dividend that implies an increase of 9% when annualized over the prior year, reflecting our confidence in the business and cash generation. Third, we're consolidating our fragmented markets through bolt-on geographic and capability acquisitions. We purchased five businesses since the start of the fiscal year, bringing in approximately $330 million of incremental annualized revenues. We maintain a good pipeline of potential deals, and we remain focused on executing our consolidation strategy. Finally, we are committed to returning surplus capital to shareholders when we are below the low end of our target leverage range. During the first half, we returned $564 million to shareholders via share repurchases, reducing our share count by approximately 4.6 million. This leaves approximately $400 million outstanding on the share repurchase program at the end of the quarter. Turning to our view of fiscal 2023 guidance. The year is progressing as expected, and our net sales growth and adjusted operating margin guidance remains unchanged. As we set out at the beginning of the year, we expect to deliver low single-digit revenue growth for the year, driven by continued organic market share gains and the benefit of completed acquisitions on top of markets which we expect to decline in the low single-digits for the year. We expect growth rates to continue compressing as we move through the year, driven by difficult comps, a reduction in inflation, and slowing end market volumes. After stepping up operating margins by 230 basis points over the last two years, we continue to expect some normalization, delivering between 9.3%-9.9% for the full year. We will remain disciplined and will continue to review our cost base, flexing it depending on the prevailing conditions. Our operational teams are very focused on volumetric trends in revenue as we make decisions around areas of investment and resource allocation. Interest expense guidance is $185 million-$205 million for the year, an increase of $15 million from our previous guidance due to a small increase in expected net debt levels, and to a lesser extent, an increase in short-term rate increases on floating rate debt. Our adjusted effective tax rate should stay broadly consistent at approximately 25%. CapEx is expected to come in between $400 million-$450 million, an increase of $50 million over our previous guidance, driven by the timing of purchases of certain real estate relating market distribution center strategy. to summarize, the business is performing well, and we remain focused on executing our strategy. We believe the combination of our strong balance sheet and flexible business positions us well for the remainder of the year. Thank you, and I'll now pass you back to Kevin. Thank you, Bill. We continue to drive ongoing end market outperformance while investing to build on our competitive advantages for the longer term. We hold leading positions in large, growing, and fragmented markets, with approximately 75% of our revenue generated from our number one or number two market positions last year. Our supplier base is fragmented, our customer base is quite fragmented, and our competitor base is also highly fragmented, with more than 10,000 small and medium-sized, mostly privately held competitors. While there are macroeconomic headwinds in the near term, markets we compete in have historically grown above GDP. As we've discussed, this comes together in a leading position in a $340 billion North American market opportunity, with a focused growth strategy to achieve balance in residential and non-residential, and a balance of repair, maintenance, and improvement, and new construction. That allows us to leverage scale and attractive profit pools with a less cyclical, more durable business model. We feel very good at a 54% residential and 46% non-residential, and a 60% RMI and 40% new construction mix. While most of us are clear that we're in the midst of a residential slowdown, particularly new construction, the fundamentals in residential markets remain attractive, not the least of which is the undersupply of homes. An aging housing stock and the utilization of pros in remodel projects should support residential repair, maintenance, and improvement, where we have greater exposure than new residential construction. We believe the residential market is attractively positioned over that longer term. There are a number of emerging structural trends in our markets, particularly our non-residential markets. We believe these trends, driven by mega projects, onshoring activity, recent legislative acts, and the aging infrastructure, will provide a multiyear tailwind and are very aligned with our competitive strengths. Onshoring trends have created an increasing number of larger projects. We believe our scale and advantage growth platform strongly position us to capture meaningful growth from these significant projects. The pipeline of activity for projects over $400 million equates to approximately $650 billion of expected construction activity over the next five years, covering a breadth of industries from chips and semiconductor plants, electric vehicle and battery plants, biotech and pharma, in addition to more generic manufacturing sites. We are able to leverage the combined expertise of our customer groups, such as commercial mechanical, waterworks, industrial, fire and fabrication, and HVAC, in order to support the needs of general contractors, owners, and engineers, all done while servicing our core customer base. In addition, there have been a number of legislative acts passed that provide federal funding and tax incentives across a number of industries. The Infrastructure Investment and Jobs Act was signed into law in November 2021, covering segments such as roads, power, transit hubs, and water and sewer projects. The CHIPS and Science Act, signed into law in August 2022, included $39 billion of manufacturing incentives. The Inflation Reduction Act is another broad-ranging act, also signed into law in August 2022. It focuses investment on areas such as energy, climate, and healthcare that feeds into a variety of manufacturing sites, such as electric vehicle and battery manufacturing. While it's difficult to quantify with specificity, construction activity supported by these acts will be beneficial to our overall non-residential markets over an extended period of time. Lastly, we wanted to touch on some data points around the aging infrastructure in the United States. Average age of commercial buildings now in excess of 50 years. There should be good activity over time with repairs and maintenance activity, and in some cases, the replacement of these buildings. Drinking water and wastewater piping systems in the U.S. are certainly aging and are in need of investment. Our large, broad-based and diversified waterworks business, combined with our environmental product strategy, should position us well for the future. To close, let me again thank our associates for their remarkable efforts to serve our customers. As a result, this year is tracking overall as we expected. The first half was strong against challenging comps, and we continue to build on our market-leading positions and our key strengths while investing for future growth. We're well-positioned with a balanced business mix between residential and non-residential, new construction, and repair, maintenance, and improvement. We have a flexible business model and cost base that allows us to adapt to changing market conditions. Our scale and advantage growth platform allows us to leverage our competitive positions across nine customer groups in order to capture opportunities from emerging structural trends in our end markets. We're maintaining a strong balance sheet, operating at the low end of our target leverage range, while also focusing on strong cash generation. Despite slowing end markets and more challenging comparables, we continue to position ourselves to outperform fundamentally solid, longer-term end market demand. Thank you for your time today. Bill and I are now happy to take your questions. Operator, let me hand it back over to you. Thank you. For our Q&A, if you would like to ask a question, please press star and then the number one on your telephone keypad. If you change your mind, please press star followed by the number two. When preparing to ask your question, please ensure that your device is unmuted locally. As a reminder, that is star followed by one to ask a question. Our first question comes from Matthew Bouley from Barclays. Matthew, please go ahead. Morning, everyone. Thanks for taking the questions. You know, high level on the end markets, no change to your overall kind of top-line guidance. You know, as this year's evolved, you know, you're seeing bigger differences between new resi and RMI and, you know, non-resi decelerating as expected. You know, what's really changed on the leading edge these past 90 days? Any of the moving pieces better or worse than before, specifically in non-resi? Are you seeing any signs as kind of the front end to that market following residential trends? Kind of any incremental color on what you're seeing in the end markets? Thank you. Thanks, Matt. I'll start with that and then let Bill fill in. From an end market perspective, clearly, we are seeing pressure on the new residential construction side, especially on the single-family side, a little bit less so on multifamily. Did it happen a bit faster than expected? Maybe a touch. If you look at the repair and maintenance side of the world, especially as we discussed in our first quarter call, and we were very pleased to see that that high-end remodel residential demand picture remains fairly solid. When you look at our residential building and remodel business with a 12% growth rate in the quarter on top of a 21% prior year comp, and then you attach that to really good activity inside of our showrooms, good open order volumes, and candidly, some pretty good confidence in that high-end builder and remodeler customer base, we feel pretty good about where that is and the support mechanism for it. On the non-residential side, it's probably less so that knock on construction following residential build-out that we would normally see and feel after residential build-out, and it really is the build-out of some of these mega projects and them starting to hit. We've talked in the past about the gestation period of that work being a bit longer than, say, typical commercial construction work. We're starting to see that play out, again, aided by fiscal stimulus, but certainly that onshoring activity, the build-out of semiconductor facilities, electric vehicle plants, battery and storage, pharma, to general industry, that's starting to provide some tailwinds, and we feel very good about what that can do for, call it, the next three to five years. Got it. Thank you for that, Kevin. Very helpful. Second one, kind of zooming into the operating margin guide. You know, assuming no change to the revenue outlook, you did have the headcount reductions. I guess number one, you know, were those headcount reductions kind of already contemplated within the prior guide? Or, you know, is that incremental? I'm curious if you can quantify that. I guess just sort of higher level, you know, given where you're tracking from a margin perspective, you know, and that outlook for OpEx, you know, how do you kind of think about what it will take to get to the high end versus the low end of your operating margin guide this year? Thank you. Yeah, Matt, good morning. This is Bill. I'll take those questions, and thank you. In terms of the headcount reductions, look, we have a flexible cost base, and we react more so to volume trends versus what we're seeing on overall revenue trends. We had planned as we got into this fiscal year, we were expecting for compressing sales growth rates as we move throughout the year, driven by increasingly difficult comparables, inflation that we did expect to roll over, moderating volumes across the business, particularly on that new res side, as you and Kevin just discussed. Our initial intention heading into the year was to manage that headcount down through overtime, temporary labor, natural attrition without backfills. As we said in the prepared remarks, we have taken those difficult decisions to take some targeted headcount reductions as we move throughout the year. We'll continue to manage that cost base as we go throughout the year, depending on how the volumes play out in the second half of the fiscal year. In terms of the margin guide, no change. Quite frankly, the year is playing out exactly as we expected, both from a top-line perspective as well as from an operating margin perspective. As you know, we delivered a 10.3% operating margin last year. We are expecting some compression in that, largely driven on the gross margin side of the business. We had also indicated there could be some SG&A deleveraging as we went through the year, given market volume declines, and given some inflationary cost pressures that we would face. Sitting here at the half year with a 9.8% operating margin towards the top end of that full year margin guide of a 9.3%-9.9%, we still feel quite comfortable with that full year guidance. All right. Thanks, Bill. Thanks, Kevin. Good luck, guys. Thank you very much, Matt. Thank you. Our next question comes from Keith Hughes from Truist Securities. Keith, please go ahead. Thank you. Inflation stepped down in the quarter kind of as expected. I guess the question is moving forward for the rest of the fiscal year, what do you think inflation is gonna contribute? Part of that, I know you mentioned some deflation in some products. What kind of role did that play in the quarter? Yeah, Keith, when we set out our guidance for at the beginning of the year, we had kind of penciled in an inflation for the year that would be mid to high single-digits. As you indicated, and as we discussed, that inflation has stepped down during the year. It was about 15% in Q1, about 10% in Q2, and it continues to step down. We would expect that to continue to roll over as we move up against those tougher comparables from an inflationary perspective. In terms of the commodity deflation, we've seen some pressure in a couple of commodity categories, principally on the steel side, both carbon and stainless steel. There was a bit of pressure in the quarter with some downward pricing there. More recently, just over the last several weeks, we've seen some price increases come through on those product categories. If we take a step back and look overall. The commodity basket as a whole has traded largely sideways or sequentially from a pricing perspective. There are different structural characteristics at play under each of those commodities. We wouldn't expect today to see those all move lockstep, either up or down as we move throughout the fiscal year. Yeah, Keith, to build on your question around how we see this moving forward, as expected, as Bill indicated, it moved downward and moderated as we went through the fiscal year. We don't see any real catalyst for further abnormal price inflation inside of particularly finished goods as we go forward. Are those natural annual price increases that we would see as an industry during that February to April time horizon gonna take place? Sure. Nothing abnormal. As Bill indicated from a commodity perspective, it's just south of 15% of our overall revenue base, and we don't think that that movement will happen in conjunction. We think it'll happen separately, given some of the demand that we're seeing on the non-residential side in particular. Using the numbers you gave, it looks like you're kind of expecting flattish inflation or flattish to modestly up inflation in the second half of the year. Is that directionally right of what you're expecting? I think we probably expect more like mid-single-digits on balance through the second half of the fiscal year. We already saw in the month of February inflation step down from that 10% Q2 into the, call it, mid to high single-digits. We expect it to continue to compress. Calling that, predicting that exactly as you can appreciate is a difficult thing to do. I would expect it to continue to roll over. Okay. Thank you. Thank you, Keith. Thank you. Our next question comes from Kathryn Thompson from Thompson Research Group. Kathryn, please go ahead. Hi. Thank you for taking my questions today. I'm focusing on the non-res commercial end market and appreciated the call you gave in prepared commentary in the Q&A, just in terms of seeing relative growth and strength there. When you look at day's market in terms of demand, which are generally appear to be, you know, bigger, more complex projects, how does this compare and contrast versus the prior cycle? Then also, what visibility do you have or confidence do you have in that end market in terms of planning ahead? In other words, how early do you get involved in the construction process in terms of working hand-in-hand with large developers? Thank you. Thank you, Kathryn. That's actually one of the really exciting parts about the non-residential market demand that we're seeing right now. As discussed, you know, earlier in the call today, we talked about what that typical knock-on construction of commercial activity looks like after residential build-out, that's not really what we're seeing as much of. It is those large mega projects. I mean, 365 projects that are over $400 million in construction value, $650 billion in overall construction activity that we're gonna see over the course of the next five years. What's really exciting about that is, really in line with your question, we're seeing the activity much earlier because we are, by our strategy, getting closer to the engineering community, closer to the ownership group, closer to the general contractor to make sure that we're involved in making sure that the supply chain is reliable and that we've got the right products regardless of customer group, from underground infrastructure through commercial mechanical, through fire and fabrication and on through our industrial product set, so that we can make sure that the project is built appropriately and properly together with the professional doing the install. Being involved earlier gives us better visibility, but also allows us to add more value holistically on the job. It's an exciting time for our company. Candidly, it's an exciting time for our country as we look at some of this activity that's going on. When you look at those big complex projects, what's been the biggest change? I mean, has there been a process change internally within Ferguson, or is this just something that you've been doing all along in order to get in earlier in on projects? We actually feel pretty fortunate around the timing, Kathryn, because several years ago, we started to move closer to the source of funds. Again, never abandoning the particular contractor. They're our core customer, the underground utility contractor or the commercial mechanical contractor or the fire and fabrication contractor. Getting involved with the GC and the engineering community and the ownership group allows us to help position the product set that's needed on the job, make sure that we've got a reliable supply chain, and make sure that we're operating safely on their site. Some of these sites are incredibly large. In fact, we were out in Phoenix last week, you look at the activity that's happening in Phoenix with regards to chip and semiconductor construction. These are incredibly large sites that require intricate planning and great safety. Being involved holistically on the project is serving us well. Okay. A follow-up final question, really more focused on waterworks because you kind of see that as the tip of the spear for residential. What trends can you talk about with your waterworks group in terms of how you're seeing development in new residential? Thank you very much. Yeah. Thank you, Kathryn. On the waterworks side specifically, for me, it's really a story of balance and that planned balance that we started to architect years and years ago, where we would have a balanced business mix between residential subdivision, residential multifamily construction, up through public works infrastructure, commercial activity, and municipal spend. That balance that we're seeing in bidding activity is actually quite encouraging. Are we seeing a bit of pressure on the residential new construction side? Sure. We're seeing that balance out with commercial activity and what we're seeing, again, with these mega projects and public works. The story of our waterworks business is again, one of balance with that municipality, public works, commercial and residential. Pretty pleased with the quoting level and the bidding activity that we're seeing. Great. Thanks very much. Thank you, Kathryn. Thank you. Our next question comes from David Manthey from Baird. David, please go ahead. All right. Good morning, Kevin. Good morning, Bill. Morning, Dave. My first question here. Yeah, a two-part question, I guess. I'll just put them together is on inflation. Can you provide some relative granularity on that 10% price? If you think about relative to U.S., Canada or, you know, high, low ranges within specific products or customer segments is the first question. Just the 10% is sort of an overall. I'm interested in drilling down a little bit more on that. The second question, which is somewhat related, I think is there any additional downside you see to gross margin as these as prices moderate and the benefits from inflation through the inventory starts to fade? Yeah, thanks, Dave. Just an overall price inflation, the 10% for the quarter, which again continued to step down and roll over a bit throughout that quarter. It was fairly balanced between finished goods and commodities. Again, as Kevin mentioned, commodities being about just under 15% of what we do, what we sell from a revenue perspective. It was fairly equal across those categories between finished goods and commodities. In terms of customer, I think you can just think about the non-res business has a touch more inflation in it right now than the residential business, but fairly close in total. More balanced than we've seen it. Yeah. over the past several quarters. On the downside to gross margin, Dave, I think that really if we looked at all of the commodity groups moving into a deflationary period at once, that's the risk that we would see to gross margin. It would not be on inventory as much as it would be just on general pressure from a selling perspective. We try to keep fairly lean from an inventory perspective on that commodity product category. As we've discussed in prior quarters, our buildup in inventory was really on committed finished goods. And we started to move that committed balance out of our system, generating good impacts on the working capital and cash generation in the quarter. It really is around deflationary environments across all commodity groups, at the same time. We don't see that because of the demand curve associated with particularly non-residential products, going into this quarter. That's helpful. Just one quick follow-up on finished goods. When you think about what you're selling through residential trade or the e-commerce business, I'm assuming that the price has been much more steady as we look at through last year, sort of upwards, and I think you mentioned there might be some price increases even into this calendar year. Relative to the commodity product that you referenced, is it safe to assume that we've seen much more of a sort of peak, and even though those products are up year-over-year right now, that they're off of the peak, whereas most of your finished goods are probably just on a more stable slope, if that makes sense? Yeah, Dave, I think you've got that mostly right in terms of if you just look back over the last year, we absolutely saw a much higher inflationary impact on the commodity side of the business. We saw several quarters where year-over-year commodities were up 50%. We did see higher than normal inflationary pricing go through finished goods as well. That peaked, call it mid to high teens in terms of year-over-year inflation, a couple of quarters ago. That has not softened, though, just from a price perspective. As Kevin mentioned, we're not expecting any significant price step-ups or increases in finished goods from here. We would anticipate those pricing levels hold from a finished goods perspective. You're now just more so seeing the rollover on those prior year comps that's causing those inflation rates to come down. The word that you used, Dave, during the question of steady, I think, really does apply. As you think about the finished goods, they are trading relatively steady. Do we always have? Because there's such a bespoke nature to our business in terms of quoting activity and then bidding projects. There's always gonna be puts and takes in terms of what happens from a pricing level perspective on jobs. Generally speaking, the pricing levels are steady. They're supported by what we think are some structural floors that will keep price in a reasonable place. We don't see any further catalyst for abnormal price inflation. Simply, what are those annual increases? What's going to be able to stick in the market given how those products play through to individual customers, and how they are experiencing the macro? All right. Thanks, guys. Good luck. Thanks, Dave. Thank you. Our next question comes from McClaran Hayes from Zelman & Associates. McClaran, please go ahead. Hey, how's it going, guys? Sticking to the pricing discussion, have you started to see any signs of incremental price competition in the market given, you know, the softer volume backdrop more on the residential side? Are you expecting, you know, any pickup there, or has there been any price concessions given maybe by competitors? Thanks, McClaran. In terms of pricing pressures, we compete every day, the competition that we experience with that competitive landscape every day hasn't changed dramatically. If you look at just the business mix that we have, about 18% of our business is in new residential construction. That activity level, again has seen a bit of pressure on the RMI side, particularly the high-end RMI side of residential. We're seeing good activity levels, no abnormal, you know, price competition. We're generally gonna see some pressure, if you will, some competitive pressures on those commodity areas as we flow through a year and our bidding projects, but nothing that we would consider to be abnormal or different than past quarters. Okay. Thank you. On the acquisition side, have you seen any change to the pipeline there or seller expectations with the weaker, you know, backdrop? Yeah. The pipeline remains strong. As we've talked about in the past, we work a strategic target list that's, you know, well north of 300 potential candidates from a funnel perspective, and we have been courting some of these deals for many, many years. We still feel comfortable and confident in the pipeline of deals that we have. In terms of valuation, look, I think coming off of the last two years that we've had from a market perspective, we've talked about in the past that sometimes there's a valuation mismatch on sellers wanting a peak multiple on top of peak profits. That's something that we're very disciplined about as we're looking at potential deals. That has not slowed us down from finding good quality deals to continue to consolidate our markets. The good thing about being a long-standing strategic buyer in the space, and M&A being a core part of our strategy, is we're meeting with these companies, understanding what the current environment is and what the current multiple expectation is, and really a value set match for whether that owner, because these are mostly privately held small to medium-sized businesses, whether that owner feels like we are a good home long term for their associates that made their business great. So that discussion leads itself well, especially when you look at some of the acquisitions that we were able to get in the first half, bringing into our waterworks business, our industrial business, and our HVAC business. All right. Thank you very much. Thank you. Thank you. Our next question comes from Mike Dahl from RBC Capital Markets. Mike, please go ahead. Morning. Thanks for taking my questions. My first question, just to follow up on the cost management, which seems to be a big focus and maybe even a little incremental in terms of the discipline there. You've taken out 2,000 in terms of your headcount. Could you clarify kind of what the annualized impact of that would be in terms of SG&A? More broadly, you know, I assume you've got various plans, you know, kinda on the shelf in terms of what else to enact should things get worse or remain under pressure. Maybe could you just help us, I know labor is your biggest bucket, but if we're thinking about, you know, branch infrastructure or logistics or further headcount, could you just help us contextualize kind of what else would the leverage or trigger points be and, you know, how you're thinking about timing or magnitude of end market pressures that would lead you to kind of enact further steps? Yeah, Mike, this is Bill. I'll start with that. If you think about the 2,000 FTEs, and that is organic FTEs from the beginning of the fiscal year through February that we've reduced. About half of that has been through that overtime reduction, you know, not allowing backfills on attrition and then temporary labor reductions with the other half roughly being targeted actions. If you think about 2,000, it's roughly 5% of our FTEs. You could equate that on the cost side roughly to about 5% of our labor cost. We would expect as we step into spring months, even though we're expecting year-on-year compression on revenue, we still would expect sales per day and volumes to pick up sequentially from our slower seasonal Q2 into the spring. We'll flex things like overtime, back, as needed to account for that volume. In terms of other plans, look, we're managing every day all of our discretionary, cost areas and cost buckets, so things like T&E, that have a very targeted focus. We're also investing a lot over time in productivity drivers in the business, trying to get more efficient and effective, everything from warehouse automation to more efficient and automated back office systems. In terms of other actions, we will manage our cost base appropriately against whatever environment we find ourselves operating against in the spring. We will always review things like underperforming branches and branch locations, and we'll manage that labor cost, which again to your point is about 60% of our cost base. We'll manage that very tightly as we move throughout the second half of the fiscal year. Mike, as Bill indicated, we really started this and looked at OT and temporary associates and then letting attrition play through. When you think about our associate base, that's the intellectual capacity of this business. Those are the relationships that are core to what we do. Is it always appropriate to look at whether or not you've got the most productive structure and how you can make yourself more productive over time? Absolutely. One of the things that's exciting about the balanced business mix that we have is that we're gonna be having to focus resources and add resources in areas like residential building and remodel. On the residential side, because of the activity levels that we're seeing in that higher end remodel activity, that higher end builder activity that continues to be pretty robust today. Making sure that we can flex in certain areas to take care of the green shoots and the demand that we see, is critically important. Right. Right. Okay. Got it. That's helpful. Thanks, Kevin and Bill. My second question, just on the inventory management, I know there's a lot that goes into that. You highlighted kind of the organic number down $235 million. When you think about your inventory across the product categories that you play in, could you just give us an update of kind of your sense of where you're at as a company in terms of inventory versus where you'd like to be? Then, you know, any view you have on the overall channel in terms of where the channels are on inventory for some of your major categories would be helpful. Maybe I'll start on that overall. From a supply chain pressure perspective, we still see some areas of elongated supply chain on high-end appliances, and then as we go through the Department of Energy transition on the HVAC side of our business. From an inventory perspective, making sure that we've got the right product for our customer is very important, and we would still see some degree of build from that perspective. Overall, the supply chain has normalized. What we needed to make sure of is, as we got out of supply chain pressure, that our customers' expectations and their ordering patterns normalized. That you didn't need to pull forward that ordering activity to ensure that you had supply for your project. Let us plan for this. Let us know what your required date is so that we can normalize that inventory level. We're getting through that right now. That's happening as we speak. As I indicated earlier in the call, really, that buildup in inventory was around committed product as we began to store product because our customer base doesn't have the capacity to store excessive amounts of materials. That's really how we're making the changes in our inventory profile today. Yeah. If I just go back to the other part of your question, we're very pleased with how the teams have managed that inventory down since July, since we came out of the summer months. Again, to your point, $235 million roughly of organic inventory decline in the, in the first half. We'll manage that appropriately in the second half. There will always be a bit of a spring uptick before our spring selling season in areas like HVAC. We still have a bit to go in terms of fully normalizing those inventory levels. To Kevin's point, we'll do that at the appropriate time as those product categories that are more pressured really come back to normal and start to ease. Okay. Thank you. Thank you. Thank you. Our next question comes from Will Jones from Redburn. Will, please go ahead. Thank you. If I could try three, please, if I can. The first was just coming back to the comment made earlier around the start of Q3. I think you said, Bill, that price had been up mid to high single-digit in the month. Could you maybe give us a feel for the degree to which volumes are down to give us some shape of the organic? I think that your guidance broadly implies the six months to July might be something in the order of 6%-7% down overall. The second was actually on facility supply, and just whether you could give us a bit more of an update just strategically, I guess, on where you're at with that business segment. Clearly, it's one I think you made a big push on, say, five, seven years ago, but how does it feature in the priority list over the next while? Then maybe just, you've been very clear on 2023. You're clear you're giving qualitative comments for how you feel about life further out. If we put together, the fact that you're talking about some second half price increases coming through, clearly some confidence building around on res and potentially later in the calendar year, we might see residential finding a floor. Would it be fair to say your early thinking around July 2024 would be that, I don't know, it's more likely that life aligns growth than decline, or is it just too early to give any view? Thank you. Yeah. Well, I'll take the first part of that question. February played out with organic growth was about flat in total, with mid to high single-digit price inflation, so mid to high single-digit volume declines. We had a bit from acquisitions to get us to the low single-digit growth rate for the month of February. To your point, our guidance for the full year of low single-digit growth in total based on where we performed in the first half would imply a mid-single-digit decline for the second half. We think we're tracking through February in line with that from a trend perspective. On the facility supply side, Will, as you can imagine, that business is performing well right now. It is a very good organic growth engine for us as we think about, you know, north of, call it 20% growth rates inside of that business in the quarter with good two-year stacks. Particularly as we've always talked about, that business allows us to continue the relationships that we make on commercial new construction and continue that through the life cycle of the building. We're seeing good growth in both multifamily renovation, hospitality renovation, and overall MRO. Much like our company, it's a story of balance, going after those really focused subgroups of customers where we can make an impact and use our branch network, our DC network, and our call centers to take care of that more national customer base. We're pretty pleased with the growth that we're seeing MRO and renovation on facility supply. In terms of FY 2024, quite honestly, Will, it's just too early for us to give a view on that sat here today. We feel confident in the view that we've given for the rest of this fiscal year. With that said, as Kevin outlined in his prepared remarks, we've got a lot of confidence in this business over the medium to long term, over our ability to operate in the short term regardless of whatever headwinds we face, and we're looking forward to the future. Thank you. Thanks, Will. Thank you. Our final question comes from Gregor Kuglitsch from UBS. Gregor, please go ahead. Hi, good afternoon, or good morning to you. A couple of questions if I can. Maybe on coming back to the margins. You know, obviously we're already halfway through the year, and I guess there's only six months to go, and you've got already, you know, a month under your belt. I wanna get a sense whether you sense at this stage you'd be looking to be more towards the lower or higher end of that margin range or whether you think you're sort of, you know, smack bang in the middle or, you know, just some kind of directionality. I think on the OpEx, just coming back on that, if I heard you correctly, you're kinda saying sequentially it'll go up a bit because of seasonality. Is that the right way to interpret that? Do you think you can actually hold the cost base sort of into the third quarter, you know, considering the fact that your volumes are dropping and I think you took some cost action as you laid out earlier? Those would be my two questions. Thank you. Yeah, Gregor, I mean, I can't really give you a guide within the guide, so to speak, on that 9.3%-9.9% operating margin. To my point earlier, we're sitting at a 9.8% through the first half of the year and pleased with that delivery, and we believe we'll land in the range that we've provided. In terms of OpEx, what I was trying to outline is that as you go into the spring and more particularly the summer months, volume sequentially should pick up from the slower Q2. There could be some cost dollar increases associated with that. We're gonna manage that very closely, and try to keep the costs in check particularly against whatever volumes play out in the second half. There could be a bit of a dollar increase as we move through the second half, but we're gonna keep a close watch on it. Thank you. Maybe a follow-up to Will. To the mid-single-digit H2 implied, are you saying that's an organic or total? Just sorry, maybe. That would be a total. Okay. Thank you. Thank you very much. Okay. Thank you. This concludes today's Q&A session. I'll now hand you over to Kevin Murphy for closing remarks. Yeah. Maybe I'll close the way I began. Really, thank you to our associates at Ferguson because they really delivered a solid quarter. The year is unfolding as we expected, and we're pleased with the revenue growth and the progress that we're making on our long-term journey. We're probably most pleased with what we're seeing from a structural trend perspective, both residentially and non-residentially. Yeah, short-term pressure on the new construction residential side, but as we look at that repair, maintenance, and improvement side of the world, and specifically what's happening as the residential trade plumbing contractor and the residential HVAC repair, replace contractor are coming together in that dual trade environment and what our ability is to service that contractor in what we think is a very large $90+ billion overall market. As we look at the non-residential sector unfolding with mega projects and our engagement earlier in the process to make sure that we're more successful as the project is more successful. Some good structural trends that we are pleased with and we'll stay engaged with as we go forward. Thank you very much for your time today. It is much appreciated. Take care. Be safe. That concludes the Ferguson second quarter results conference call. I'd like to thank you for your participation. You may now disconnect your lines.