Greetings, and welcome to the W.W. Grainger Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Bland, Vice President of Investor Relations. Thank you. You may begin. Good morning. Welcome to Grainger's third quarter 2023 earnings call. With me are D.G. Macpherson, Chairman and CEO, and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our Q3 earnings release, both of which are available on our IR website. This morning's call will focus on our third quarter 2023 results, which are consistent on both a reported and adjusted basis for all periods presented. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP and is reported in our results one month in arrears. As a result, the numbers disclosed will differ somewhat from MonotaRO's public statements. Now I'll turn it over to D.G. Thanks, Kyle. Good morning, and thank you for joining us. Today, I'll provide an overview of our third quarter performance and then pass it to Dee to walk through our results in detail. As I typically do, I'd like to start today's call with some reflections on how our Grainger Edge framework continues to drive our success. Unlike last year, our results in 2023 have not benefited from outsized macro tailwinds, and we don't expect this to change for the remainder of the year, as MRO market volume growth remains slightly negative. This means we must emphasize the value we bring through our customer experience and supply chain network to drive profitable share gain. I've recently had the opportunity to spend time with several manufacturing and government customers in California. While diverse in their operations, it was clear that our advantage, supply chain, strong digital capabilities, and ability to solve complex problems, is adding value for these customers. All of this is helping us to continue to gain share. Before we get into the results, I want to share a few examples of how our team members continually live our principles and improve the communities where we operate. Last month, our team members assembled more than 4,000 buckets to help natural disaster victims across the U.S. These buckets were strategically placed in regions vulnerable to hurricanes and flooding to ensure residents are prepared to quickly respond when a crisis hits. For the second year in a row, Grainger has been recognized as one of Fortune's best places to work for women. This recognition is based on team member responses to key questions based on trust, respect, credibility, fairness, pride, and camaraderie. We know that when team members feel heard and recognized, we unlock the full potential of our team and the full potential of our business. Now, let's dive into the quarter. On slide 5, you can see we had another strong quarter as demand stayed reasonably steady as we continue to provide strong service and deliver tangible value to our customers. We finished the quarter with sales growth of 6.7%, or 8.7% on a daily constant currency basis. Results again, were driven by positive performance in both segments, most notably within the High-Touch Solutions segment, where we continue to drive profitable share gain. Total company operating margin was 15.9%, an increase of 60 basis points over the prior year, as improved gross margin performance, driven by continued freight and supply chain efficiencies, along with favorable product mix, largely fell to the bottom line. Combine this with our strong, strong top-line performance, and we delivered another quarter of robust EPS growth, record operating cash flow, and strong ROIC of over 44%. We also returned a total of $287 million to Grainger shareholders in the quarter through dividends and share repurchases. In the High-Touch Solutions segment, we are advancing our five key growth engines as we continue to leverage our technology and data assets to unlock further value for customers. We remain focused on extending our service advantage and officially broke ground on our previously announced distribution center outside of Portland, which we expect will help enhance our service performance in the Pacific Northwest. Within the Endless Assortment business, while we continue to see a softer demand environment, we remain focused on acquiring new customers and improving repeat purchase rates across the segment, driving long-term profitable growth. Overall, 2023 is shaping up to be another great year as we follow the Grainger Edge, make progress on our strategy, and drive value for customers. We remain on track to deliver over 20% earnings growth for shareholders. And with that, I'll pass it to Dee to go through the details. Thanks, D.G. On slide seven, you can see the high-level results for the total company, including strong sales growth of 8.7% on a daily constant currency basis, driven by growth across both segments. This is a relatively stable growth rate compared to the second quarter, even as price contribution declines as we wrap inflation pass in the prior year period. Total company operating margin was up 60 basis points, primarily due gross margin in High-Touch, which more than offset lower EA gross margin and slight SG&A deleverage across the business. In total, we delivered diluted EPS for the quarter of $9.43, which was up over 14% versus the third quarter of 2022. Moving on to segment-level results. The High-Touch Solutions segment continues to perform well, with sales up 8.5% in daily constant currency, underpinned by growth across all geographies. Volume accelerated sequentially and contributed 6 percentage points of growth, exceeding price contribution for the first time in five quarters. In the U.S., we continue to drive year-over-year growth in all customer end segments, with government and transportation growing the fastest. Canadian daily sales were strong, up 9.1% in local days and local currency. For the segment, gross profit margin finished the quarter at 41.7%, up 110 basis points versus the prior year. We continue to benefit from improved product availability, which drove freight and supply chain efficiencies in the quarter. Product mix also remained a tailwind, partially driven by an outsized number of project-related value-added services in the current year period, a level which we don't expect to repeat going forward. As expected, price cost spread was negative as the timing favorability captured in 2022 continues to unwind. This price cost trend will continue in the fourth quarter, and we anticipate finishing nearly neutral on a two-year stack for the full year 2022 and 2023 combined. At the operating line, we saw improvement of 70 basis points year-over-year, as GP favorability was partially offset by continued marketing and headcount investments to drive long-term growth. SG&A leverage was further impacted by one less selling day in the current year period. Overall, it was another strong quarter for the High-Touch Solutions North American segment. Looking at market outgrowth on Slide 9, we estimate that the U.S. MRO market grew between 2.5% and 3.5%, indicating that we achieved roughly 550 basis points of outgrowth for the High-Touch Solutions U.S. business in the quarter. Performance remains above our annual target to outgrow the market by 400-500 basis points, driven by consistent execution across our five growth engines. We continue to remain confident in our ability to achieve our annual outgrowth target through any economic cycle. Moving to our Endless Assortment segment, sales increased 4.3% or 9.2% on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 1.2%, while MonotaRO achieved 12.6% growth in local days, local currency. At the business level, while we're seeing some signs of macro-related softness at MonotaRO, the business still drove strong growth with new and enterprise customers and remains focused on growing repeat business with its core B2B customers. At Zoro, results reflect a continuation of headwinds discussed last quarter, with tough prior year comps, declines with non-core B2C volumes, and a slowing macro environment, all contributing to more muted top line growth. Non-core B2C customer performance was down nearly 20% year-over-year as we continue to focus our growth efforts on stickier B2B customers. Core B2B customer growth remains in the high single digits for the quarter and continues to reflect a slower macro for small businesses and in end markets where Zoro is more skewed. We expect these pressures to persist for at least the balance of the year. From a profitability perspective, gross margin for the segment declined 20 basis points versus the prior year, as MonotaRO favorability was offset by year-over-year declines at Zoro. MonotaRO's results reflect continued freight efficiencies and strong price realization in the quarter, while the Zoro decline was driven by negative product mix and the impact of unfavorable timing from prior year price increases. These gross margin headwinds, coupled with the continued demand generation investments and softer Zoro top line, drove a 70 basis points decline in operating margins for the segment. On Slide 11, we continue to propel the Endless Assortment flywheel as we add new users and grow our SKU count. Total registered users were up 15% in total across the segment, and we continue to grow our Assortment at Zoro, having added roughly 600,000 SKUs in the quarter, pushing the portfolio total to over 12.8 million products offered. Now, looking forward to the rest of the year, you can see that we've narrowed our guidance ranges for the full year 2023. The new outlook includes total company daily sales growth between 8.5% and 9.5%, and an EPS range between $36 and $36.60. These updated figures imply a Q4 daily sales growth between 4.5% and 8.5%, which includes 4% month-to-date growth in October, which is in line with our expectations and reflects a tougher comparison given hurricane-related sales in the prior year. This month-to-date growth is roughly 100 basis points higher in constant currency. ...From a margin perspective, we are raising the lower end of our ranges and now expect operating margin for the full year to be between 15.6% and 15.7%, a record year for the total company. The new range in play implies fourth quarter operating margin will be lower sequentially as we anticipate product mix to normalize with fewer value-added service engagements and SG&A margin to delever in line with typical seasonality in the fourth quarter. Supplemental guidance covering cash flow and share repurchase expectations, which have also been increased, can be found in the appendix of the presentation. All told, we're poised to achieve full year results that includes historic highs for sales, profitability, and cash flow, further strengthening of our track record of delivering strong returns for Grainger shareholders. With that, I'll turn it back to DG for closing remarks. Thanks, Dee. Before we close out, I wanted to quickly reflect on the tremendous progress that we've made over the years since our Investor Day last fall. As you may recall, we outlined an earnings framework that got us some attractive three-year targets that included us delivering strong top line growth, ramping to record operating margins, and producing double-digit EPS growth through 2025. With the 2023 guidance Dee just outlined, even if you were to normalize for some of the one-time benefits elevating our margins this year, we are trending favorably towards those 2025 targets. As we look beyond 2023, the core tenets of this earnings framework remain intact. We will continue to focus on maximizing earnings dollars generation by delivering strong, strong top line growth, maintaining healthy gross margins, which we expect are going to stabilize after adjusting for the one-time benefits we realized in 2023, and gaining expense leverage by growing SG&A slower than sales. Executing against this framework positions us well to deliver attractive returns and consistently produce double-digit EPS growth for our shareholders. With that, we will open up the line for questions. Thank you. Ladies and gentlemen, at this time, we will conduct our question-and-answer session. Please limit yourself to one question and one follow-up question for each time in queue. To ask a question, press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Ryan Merkel with William Blair. Please state your question. Thanks. Good morning, and nice quarter. Wanted to start with a high-level question on gross margin, if I could. I think your guidance for gross margin 2025 is 37%, and you're a good bit above that here, you know, 39% plus. Can you just tell us why your gross margins are so much higher than the expectation you laid out at the Investor Day? Hey, Ryan, this is Dee. Thanks for your question. Like, if you kind of go back in time and, and think about where we were, about a year ago, you know, we were in the midst of kind of coming out of the pandemic. Product availability was not exactly where we wanted it to be, even though our relative performance was pretty good. And we were expecting to get back in line with product availability much later in this year. That snapped forward really quickly, in Q1, and it helped us significantly improve our margin. That's one piece. The other piece I will point you to is, you know, we target price cost neutrality over time. Last year, around that time, we expected costs to come in a lot sooner than what they did this year. We had passed price early, earlier last year in anticipation of that cost. Costs really are now flowing through GP as we expected. So a lot of things are timing related. We are performing better than what we had anticipated at that time, but really it's due to product availability, price, cost, timing, as we continue to focus on neutrality. And then we've continued to do very well as it relates to freight and supply chain efficiencies. That was also another timing element. Got it. Okay, that's helpful. And then just a question on trends. Government looks like it's performing very well. Transport, same thing. Maybe just unpack what the drivers are there, and, and then can you put a fine point on the October? I think you mentioned 4% month-to-date growth, and that's down from September. That's closer to 9. Just what's going on there? Yeah. So, government, I think a lot of that government has been very strong across the board. We have won some new contracts that have come on board that have helped us this year. And so that has been, you know, certainly a tailwind. When we say transportation, I think arguably, we mean aerospace there. Aerospace has been very, very strong. I think the, you know, the aerospace companies can't build enough airplanes now, so, you know, we're benefiting from that. And I would say, you know, the market in general remains stable. There's puts and takes, but those two have been certainly on the plus side for us. In terms of the 4% in growth that we've seen through October so far, there's a couple things going on there. You know, one is the our market share gain, we think, is gonna be pretty strong in October, but we did have Hurricane Ian basically generated a lot of tarp sales and other sales last year for us, and so that compare makes the month look a little worse than it actually is. The underlying volumes are actually still quite good. As it relates to the second part of your question related to the October month to date top line growth at 4% versus our implied for Q4 being in the range of 4.5%-8.5%, I'll point you to one thing. This time last year, we did support a sale through of products for the recovery related to the Hurricane Ian. And so we are in a period where we're cycling a tougher comp. But as the quarter moves on, comps will get easier. So we feel pretty good about the range that we've laid out for the quarter. Thank you. Our next question comes from Tommy Moll with Stephens. Please state your question. Morning, and thank you for taking my questions. Good morning. Morning. D.G., you used the phrase reasonably steady to characterize the demand environment. So my question is, if you could unpack that a little bit or offer any helpful anecdotes. The revenue guidance, or the range was midpoint, rather, moved slightly lower. I don't want to make a mountain out of a molehill, but is there anything behind that worth calling out, or is it FX noise or something else? Well, I think that the reality is the volume this year, the volume in the market has been near zero pretty much all year. All of our volume share gain, all volume pluses have been share gain. That will continue. I think the biggest difference is, you know, moving through the fourth quarter, we had price that happened last year that has been an increase in our revenue line for the first three quarters, but we lapped that going into the fourth quarter. We don't really see any changes, nothing to be made of it. This is exactly how we predicted the year to play out, and it's playing out pretty much exactly as we expected. We are not at all concerned about the revenue line. It's exactly what we expected. Great, thank you. And then, shifting back to gross margins and specifically around the High-Touch segment, I know 40% is still the official, long-term anchor there, and it may be prudent to wait to revise that. But could you even walk us maybe qualitatively from the 41.7 that you just reported in 3Q to how that may progress for 4Q and even into early next year? Sure. So, you're right. It feels a little early for us to start resetting things, you know, at this point, which I've kind of reiterated the last couple of quarters. But what I would say related to High-Touch, and if you compare, really Q3 to, where we think we're gonna go sequentially, Q4, I will call out, like in my prepared remarks, that we've mentioned our service-related or product mix. That happened as a benefit both in Q2 and in Q3. We don't expect that to continue into Q4. In addition to that, you know, there's some other pieces like, that fall into the price cost related to rebates. You know, last year, both years were doing very good in volume, as D.G. noted. But again, you know, volume was really strong last year, still very strong, and then that reset some of your, some of your rebates, and so that'll kind of fall off a little bit, and then price costs will continue to unwind Q3 to Q4. Thank you. Our next question comes from Jacob Levinson with Melius Research. Please state your question. Hi, good morning, everyone. Good morning. Just touching on the margins. I know you talked about some favorable items you have this year, and you're certainly trending well above those 2025 targets that you laid out. But D.G., or D., for that matter, maybe you can just give us a sense of how you're thinking about operating leverage in the business going forward, 'cause I would think at least if the growth is there, excuse me, if the growth is there, that you're probably not gonna see margins contracting meaningfully, even if mix is a little bit worse or price cost is a little bit worse. Yeah, I mean, so what I would say is that, you know, the adjustments that, once you take out the adjustments that we talked about, we believe that in High-Touch model will be relatively stable, moving forward. And, you know, we are trending favorable to the 25 targets, as we talked about. The earnings model is share gain and stable gross margins and grow SG&A slower than sales. That formula is not going to change, and we expect to be able to continue to do that, moving forward. Okay, that's helpful. Just switching gears, I think your balance sheet's probably the least levered maybe since you took over, D.G. Is that reflecting some conservatism of the macro, or is there appetite for a more aggressive share buybacks or a special dividend or otherwise returning more cash to shareholders? You know, you are correct. You know, we are very fortunate to have a strong balance sheet, and at the time, based upon our cash flow generation, we don't see a significant need to further lever the business. I heard, you know, use the word conservatism, you know, you can use that word. We don't see a big need right now for that. Now, you know, based upon our cash flow generation, our access to capital, if there ever becomes a need for that, you know, we feel like we are well positioned to go into the capital markets to help us with anything. Right now, based upon our operating cash flow and conversion, we feel like we're in a good place with leverage. Thank you. Our next question comes from Christopher Glynn with Oppenheimer. Please state your question. Yeah, thanks. Good morning. I was curious on HTS price, price cost dynamics, a couple components. What was price in the quarter? Is it holding well in the baseline, looking fine, on market competitive pricing to expect neutral price cost margin impact in 2024, like the algorithm? Just to answer your first question, price cost for High-Touch was 2.5% in the quarter. Again, we take a longer-term view of price competitiveness, remaining price competitive, and due to the lumpiness of all of the components of price and cost that impact the business, if you look at a two-year stack, we expect to be close to neutral if you include 2022 and 2023. I would say that would be, you know, looking ahead, we would not change that position. We are targeting price cost neutrality over time. You know, when we get to early next year and set the 2024 guide, we'll talk in more detail about 2024. And the only thing- [crosstalk] ... Yeah, thanks. The only thing I'd add to that is that we are not seeing a lot of product cost pressure relative to what we've seen in the last few years, as you might expect. There's been a lot of gives and takes, but generally, we're not expecting a lot of product cost inflation heading into the new year. True. Okay, thanks for that. And then on Zoro and MonotaRO, just curious how you're thinking about path back to the kind of 16%-18% long-term top line targets. Yeah. So what I'd say is, you know, Zoro grew... I'm sorry, MonotaRO grew about 13% in the quarter. You know, the Japanese market has not been strong. They've been dealing with some inflation for the first time, really, in anybody's memory there. I have a lot of confidence that the team is gonna be on the right track to continue to deliver strong growth. You know, whether that's approaching 20, like they've done for the last 20 years or something less than that, is probably debatable, but there's absolutely no concerns about the performance of that business. In Zoro, you know, we've seen some competitors to Zoro actually go negative in the last couple of quarters in terms of revenue. So that has had an impact. The market certainly has had an impact on Zoro. I think Dee, Dee talked about it. The core B2B sales are up in the high single digits at this point, which is not where we wanna be, but not, not horrible. There's a lot of other factors going on, particularly consumer business that's falling off, and we want that to fall off. But there's a lot of things we're working on that business to continue to get more repeat business out of customers, and we need to get better and better at that, and the team is working hard to do that. That'll be the real key to us being successful with growth long term as well. Thank you. Our next question comes from David Manthey with Baird. Please state your question. Hi, good morning, DG, Dee. Good morning. My question was along the same lines on Zoro, so I guess I'll try to refine it a bit here. DG, what you just said in terms of the trends, it sounds like what you're seeing there right now is primarily cyclical in nature. You're not concerned about the strategy there, but then you also said that you are implementing strategic moves to grow that business. Could you just outline a couple of those for us so we know what the drivers are? Yeah. So what I would say is there's two pieces to growth at Zoro. One is, these are very simplified, but one is acquiring customers. Zoro has always been really good at acquiring customers. They've been a good customer acquisition engine. The other is developing repeat business for those customers so you become the place of choice to shop. We've had some success with that. We have a lot of long-term customers, and we need to get better at that piece. So most of what we're talking about doing is how to make alterations. It's not really a strategy change, but we're testing a bunch of things to figure out how to improve that part of the business, and that'll be the big area of focus going forward. Got it. Okay. And then on High-Touch side, product and customer information tools have really been a key driver of the outperformance there. Can you update us? I don't know if you have statistics on the sales force's use of those tools or if you've added any new capabilities lately to those applications. Yeah, I mean, I think, I think that, you know, let's, let's start with, you know, as you, as you know, we are building some of our own software for the first time in a long time, and customer information and product information, we're early in the cycle. Product information, in particular, with a core publishing system that we've developed, has helped the website, helped customer positivity on our website, and has helped really drive a lot of, a lot of growth through both marketing and merchandising. The customer information system is supporting marketing efforts. It's also supporting seller coverage, which we have been adding sellers, and it's helped us understand where we can add and become more refined in that. So both of those have been a big driver of growth and will continue to be so going forward. You know, I think that we still have a long ways to go, particularly with customer information, to leverage it for all of our sales team and all of our marketing activities, but we continue to get better in those areas. Thank you. Our next question comes from Nigel Coe with Wolfe Research. Please state your question. Thanks. Good morning, everyone. Thanks for the question. So, looking at this, the fourth quarter margin, Dee, I think you called out, I think 50 basis points or thereabouts of, sequential margin, you know, kind of versus, third quarter. Is that math correct, first of all? And then how does that shake out High-Touch and Endless Assortment? Then I've got a follow-on on the Zoro gross margins as well. ... Yeah, so you're talking about a sequential change from Q3 to Q4? Yeah, 3Q to 4Q gross margin. Yeah. Yeah. Total company is, you know, about 60 basis points. Again, I think, well, I know that the, you know, pieces are the same. The, you know, favorability that we saw, you know, in Q2 and Q3 related to some services, project-related revenue, which is accretive to the business at the total company level, you know, that's about 40 basis points, and at High-Touch, that's about 60 basis points. The other piece I called out, which is really related to some, you know, smaller headwinds related to price costs, and some, you know, that flows through rebates, that's about another 20 basis points, total company, and round up to close to that on High-Touch level as well. Okay. And then just, just to calibrate the comments about price cost normalization. We're no longer looking at 40%, you know, gross margin High-Touch. You think, you thinking you maintain a higher plateau than that? Yeah, you know what we've said and what DG set out, reiterate that, is, you know, we've had some one-time benefits. If you look at, you know, this year, early in the year, we had a freight recall related benefit. We had a supplier rebate benefit that, that we won't see going forward. And then this product mix, which is related to supplier-related services, not services-related project benefit. When you pull all that together, that's like a 40 basis point headwind year over year that we would expect. But outside those things, we feel like, you know, we will be able to maintain relatively stable gross margins. Okay, that's, that's helpful. And then just a quick one on the Zoro gross margins, because, you know, as you burn off, B2C, focus on B2B, I'd have thought B2B gross margins would have been higher than B2C, so therefore you actually get a gross margin mix-up. So just wanna understand that dynamic. Yeah, with Zoro, that's not the way it works. Yeah. It's basically one price and, you know, spot discounts in some cases, but we don't have differentiated pricing for business and consumers. I see. Okay, thanks, DG. Thanks. Our next question comes from Steve Volkmann with Jefferies. Please state your question. Hi, good morning, still. like, wanted to go back to something you said, D.G. I think you said you didn't expect any cost increases or pressures in 2024. I'm not sure exactly how you put that, but are we thinking that cost and price are sort of flat in 2024? Well, we haven't really talked about that yet, but we do know that we're not seeing as much product cost pressure as we've seen the last two years. And there are certain categories where costs will be down that are commodity-related and certain will be up, but generally, we're not seeing a lot of cost pressure. We'll talk about price, cost, and the actual numbers at the end of the year for next year. Okay, fair enough. In your long-term algo, you talked about leveraging SG&A, but we didn't actually do that this quarter. I guess we're making some investments. Do those continue for a number of quarters, or how do we think about the sort of trajectory there? Yeah, I mean, we're gonna continue to invest in the business, but what we do believe that we will have, you know, consistent over... In any quarter, you may not see it, but over time, we will have SG&A leverage as we continue to find ways to improve our cost position while still investing in the business. Thank you. Our next question comes from Chris Dankert with Loop Capital Markets. Please state your question. Hey, morning. Hate to keep harping on Zoro here, but I'm curious. Again, you talked about a couple different initiatives, but, I mean, is there friction in that system that we need to pull out or kind of what can really get, you know, that customer acquisition up? You know, given SKU count has been moving up and doing well, what else kind of has to happen to the system, perhaps on a more holistic basis? Yeah, I would reiterate that I think on the customer acquisition piece, which the product breadth really does help, we've actually done quite well. It's after that where we're trying to get customers to become repeat customers, where we've done well in some cases, but we need to improve that part of the model. You know, again, not to oversimplify, but you use the product breadth to get new customers in, and then you have to become intimate with those customers in some way to get them to repeat buy, and that's really what we're focused on doing. Got it. And just as far as, like, benchmarking, given the greater cyclicality in that business, how should we be thinking about, you know, growth there, like, maybe, you know, beyond just this year and some of the challenges we've seen? Yeah, I mean, you know, we still think that it's gonna be a real strong growth driver for the company. You know, we're gonna—like I said, we're running some tests here in the fourth quarter. We're gonna learn more, and we'll continue to communicate with you what we think the go-forward growth is, as we have been before. Our next question comes from Deane Dray with RBC Capital Markets. Please state your question. Thank you. Good morning, everyone. Hi, Deane. Hey, good morning. Hey, I have a question on destocking, because it's... I'm not sure it's an issue for you. Certainly not, it's not coming up on the call here or in your remarks. Any issues with customer destocking? Maybe they're lightening up on some of their working capitals, lead times on products, and just all sort of the post-COVID normalization. Is that at all impacting your volumes? No, you know, that really never comes up in customer visits. You know, I was out in Northern California last week, and I would say, for our types of products, customers just generally don't ever have, like, overstock of our inventory. They're buying when they need it. And frankly, a lot of our value proposition is helping them not have too much.... So we really pride ourselves in making sure that customers have what they need to keep the business running, and that's really all they have. Good. All right. That's, I like hearing that. Maybe I'm just more aware of it now, but is there a bigger push on brand building, both in advertising, TV, and radio? Because I'm certainly hearing it a lot more. How do you measure the returns on that? I'm certainly, it helps on brand building, it helps on some of your outgrowth, but do you have any other precision around that? Yeah. Well, certainly, you know, we've talked about it before. Marketing has been a big part of what's helping us gain share. In terms of media advertising, we generally measure returns based on AB tests, where we test in certain markets and understand what the actual pull-through is from those. I would say our marketing area is probably the, as well a measured area as you could possibly imagine. We can tell you with a lot of precision what's working and what's not, and that helps us figure out what to do. Thank you. Our next question comes from Chris Snyder from UBS. Please state your question. Thank you. I wanted to ask on the project-related value-added services. I guess first, just to confirm, it sounds like that was a 60 basis point boost to High-Touch gross margin in Q3. And then I guess, kind of, you know, just higher level, can you just talk a little bit about what are these project-related value-added services that companies providing? And what makes them one time or transitory in nature? Thank you. So, thanks for the questions. So, you know, we go to market with our customers to help them solve problems. And those problems are solved with a combination of products, as you know, but also services. We have over 400 what we classify as value-added service providers that help us solve those customers' problems. And this is an ongoing revenue stream for us. However, what we have attempted to call out in this quarter, and then also it impacted us in Q2, is that we had a larger number of projects in the services area that we do not believe will repeat. Some of those projects include things that are, you know, that are more steady state for us, that we have been working with our customers on over the longer period of time, are things like lighting retrofits, roofing projects, safety certifications to help them ensure that they are investing in the right products, as well as capabilities to ensure that they can pass safety audits, et cetera. Was I right, or did you say earlier it was a 60 basis point boost in Q3 to the High-Touch gross margin? Yes. Yes, that is correct. Okay. Thank you. And then maybe staying on the topic of services, you know, D.G., in your opening remarks, you talked a lot about, you know, the value-added services that Grainger is bringing to the table. I guess, as we think about, you know, those going forward, do you view those services as a way for you guys to continue to drive price, even in, you know, a cost environment or inflation environment, called out going sideways? Or do you view those more as just: "Well, no, that's why we can outgrow the market by, you know, mid-single digits on a volume basis." Thank you. I'd probably frame that a little bit differently. So we are first and foremost a product company. We do two things for almost every customer. We help them simplify their purchasing process. We try to make it really easy for them to buy, receive, pay, return, if they need to, the products we have, and then we help customers manage their inventory. And so for almost all customers that are of any size, we're doing those two things, and those are not actually in the realm of what Dee would call value-added services, which she just described. Then there are a whole bunch of value-added things that we provide to our customers, often through our supplier partnerships, that are service related. They are a minority of our business, but they are important when customers want them. So if a customer wants to do a safety audit, it's really important that we can help them understand what challenges they have and help them get better at safety. And so we provide that service through our partners, and we will continue to do those things. But generally, I think the thing that's different this quarter is there was, in particular, a couple of very large projects that probably are not likely to repeat, that were driven by things that typically don't happen, and so we just wanted to call those out. But our fundamental business model and how we add value to customers is really around helping them get the products they need to keep their operations running, make sure they have the right inventory. Thank you. And our next question comes from Patrick Baumann with JP Morgan. Please state your question. Hi, good morning. Thanks for taking my questions. A lot of numbers like flying around on the gross margin side, so I just wanna clarify the, the 40 basis points, Dee, that you mentioned of gross margin, on an annual basis? Yeah. What I was calling out is- Is it 23? Yeah, that is if you are looking to normalize 23 and are thinking about gross margins on a go-forward basis, that's the 40 basis points. Right. Right. So all else equal, that's... So if everything else is 40 basis points, you know, comes out of, of your 23 number as kind of like a baseline? Correct. Next for next year. Okay. And then the follow-up is it sounds like maybe- ... 2024 is a more normal year for pricing, based on your comments, that there isn't a lot of product cost pressure. Assuming that's the case, and with the gross margin, you know, coming down a bit, do you see SG&A inflation slowing enough to be able to deliver, you know, a bottom line margin expansion? It looks like your fourth quarter guide there is flat year-over-year, but I think maybe there was some one-time benefit in SG&A last year that, or one-time cost, I think, in SG&A last year that inflated the prior year results. Just curious if you could give any color on that. Yeah. So, you know, I think when you look at our results quarter-over-quarter, you know, there are some timing things that happen. We continue to invest in demand generation to help us ensure that we can drive, specifically in the U.S., long-term market outgrowth. When you look at prior-year quarter, you know, we had a number of things happen. I think you recall, in Q4, we had a LIFO benefit last year that we will also be cycling. But just, you know, zooming out a little bit, if you go back to our framework, you know, over time, we want to outgrow the market in the U.S. by 400-500 basis points. D.G. talked a little bit about the fact that we're, while we're looking to invest in long-term growth, we also look to gain leverage. If you really looked into how we're doing that, most of our SG&A investments are really targeted towards high return, demand generating investments. A lot of the SG&A productivity or leverage we are gaining is in our non-core SG&A expenses. We accomplish that through really continuous improvement. We're really targeting things that help us with achieving an improved customer experience, but also assist us with operating more efficiently and effectively. Our intent is to continue to invest in demand gen, but also, you know, look to offset as much of that as we reasonably can do through continuous improvement activities. If you look at that algorithm, you know, that we laid out for Investor Day, it talks about driving double digit EPS growth over the cycle, and so we still expect to do that. Thank you. There are no further questions at this time. I'll hand the floor back to D.G. Macpherson for closing remarks. All right. Thanks, everyone. We recognize that today is a very busy day for all of you in terms of the number of people that are releasing results, and we appreciate you spending time with us. Yeah, I would just reiterate that, we feel really good about the way the year's played out. It's played out pretty similar to what we expected. We continue to invest in the business to drive profitable share gain. That is our, our primary focus, and we continue to invest, not only in that, but in our team and in making sure that our, our customers are successful. So appreciate you joining us, and hope you have a great day. Thank you. Thank you. This concludes today's conference. All parties may disconnect.