Good morning, everyone, and welcome to the MSC Industrial Supply 2021 Third Quarter Conference Call. At this time, I'd like to turn the conference call over to John Chironna, Vice President of Investor Relations and Treasurer. Sir, please go ahead. Thank you, Jamie, and good morning to everyone. Erik Gershwind, our Chief Executive Officer, and Kristen Actis-Grande, our Chief Financial Officer, are both on the call with me. As we continue working remotely at MSC, please bear with us if we encounter any technical difficulties. Before I get into our cautionary language, I wanted to highlight that we recently created a microsite dedicated to corporate social responsibility. For many years, the concept of doing the right thing has driven everything we do and all of our stakeholder interactions at MSC. I invite you to learn more about our community relations, diversity and inclusion, corporate governance, and environment and sustainability efforts by visiting our website. This is only the very beginning of our ESG journey, but we are committed to progress and continually striving for excellence. During today's call, we will refer to various financial and management data in the presentation slides that accompany our comments, as well as our operational statistics, both of which can be found on the investor relations section of our website. Let me reference our safe harbor statement under the Private Securities Litigation Reform Act of 1995, a summary of which is on slide two of the accompanying presentation. Our comments on this call, excuse me, as well as the supplemental information we are providing on the website, contain forward-looking statements within the meaning of the US securities laws, including statements about the impact of COVID-19 on our business operations, results of operations and financial condition, expected future results, expected benefits from our investment and strategic plans and other initiatives, and expected future growth and profitability. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks is noted in our earnings press release and the Risk Factors in the MD&A sections of our latest annual report on Form 10-K filed with the SEC, as well as in our other SEC filings. These risk factors include our comments on the potential impact of COVID-19. These forward-looking statements are based on our current expectations, and the company assumes no obligation to update these statements except as required by applicable law. Investors are cautioned not to place undue reliance on these forward-looking statements. In addition, during this call, we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations in our presentation, which contain the reconciliations of the adjusted financial measures to the most directly comparable GAAP measures. I'll now turn the call over to Erik. Thank you, John, and thank you everyone for joining us. I hope you enjoyed your holiday weekend. I'm excited to update you today on our progress this quarter. We are seeing the benefits of the strategic pivot that's been made by our company over the past few years. We made significant investments across the organization to transition from a leading spot buy provider to a Mission Critical Partner on the plant floor, augmented by our spot buy capabilities. With the bulk of the less visible changes completed, we outlined our plan to return to historic levels of revenue and earnings growth consistent with the legacy of our company. Mission Critical is our program to translate those investments into superior financial performance. We shared with you two goals that underpin our efforts. First, to accelerate market share capture with a target growth rate of at least 400 basis points above IP by the end of our fiscal 2023. Second, to return ROIC into the high teens, powered not only by leveraging growth, but also by structural cost takeout of $90 million-$100 million, also by the end of fiscal 2023. This year, our fiscal 2021 began our proof of concept, with our fiscal third quarter serving as the latest encouraging data point. With respect to revenues, we committed to achieve a minimum of 200 basis points of positive spread versus the IP by our fiscal fourth quarter. Q3 is muted by PPE comps, but the non-safety and non-janitorial business grew about 21% year-over-year, and we expect our total company growth to meet or exceed our fiscal Q4 commitment. This year, with the help of numerous structural cost reductions, we increased our customer-facing sales headcount and will continue doing so into fiscal 2022. We've grown share in metalworking through investment and innovation that improve our customers' businesses. At the tail end of fiscal 2021 and into fiscal 2022, we're implementing improvements in e-commerce. We started with a new production information system earlier this year and are now rolling out enhanced search capabilities, new user interfaces for both desktop and mobile, a new transactional engine, and overall improved functionality. We've committed to maintaining our gross margin through a series of initiatives, and excluding the write-down for PPE, we have done so. The macro environment is driving price increases, and given our inventory turns and innovative merchandising and pricing programs, we expect strong realization to continue. Finally, we've picked up the pace on structural cost takeout. We've already exceeded our $25 million cost takeout goal for fiscal 2021 for the full year. Looking ahead, fiscal 2022 is setting up even better than the current year. We will build on our momentum and continue making progress towards our goal of 400 basis points or more of market outgrowth as measured against the IP index. On the gross margin line, we expect inflationary pressures to continue. While purchase cost increases are beginning to make their way into our P&L, they will be offset by ongoing price realization, yielding a stable gross margin outlook year-over-year. On the structural cost front, we'll deliver roughly $20 million of incremental savings on top of that which has been achieved over the past two years. That will include benefits from existing initiatives, which will deliver incremental savings during the first half of 2022, plus benefits in the second half from new initiatives that we have yet to execute, along with a handful of more transformational projects that will deliver additional savings in 2023 and beyond. We will once again reinvest a portion of these incremental savings into our five growth initiatives to build upon market share capture. Nonetheless, we expect incremental margins at or above 20%. How far north they go will be a function of how high we can get revenue growth and how much price realization we see. With all of this as the backdrop, I'll now turn to the specifics of the quarter, beginning with the external landscape. The economic environment improved significantly. Most of our manufacturing end markets turned positive during the quarter, and this evidenced itself in IP readings that turned to double-digit growth in April and May, and in sentiment readings such as the MBI Index, which are at very high levels. All of this is supported by our customers' outlooks, which are robust. At the same time, the industrial economy is experiencing very real supply chain shortages and disruptions. These disruptions are evidencing themselves in product scarcity, freight delays, and extreme labor shortages that are resulting in significant availability and inflationary pressures. We are certainly not immune to these challenges, and in fact, we're seeing them play out. That said, we are very well positioned to navigate the current environment, particularly when compared to the local and regional distributors who make up 70% of our market. MSC's broad multi-brand product assortment, our high inventory levels, strong supplier relationships, and next-day delivery capabilities position us well to accelerate market share capture. The supply chain challenges are resulting in significant and growing inflation that is producing the most robust pricing environment we've seen in years. Turning now to our performance, you can see our reported numbers on slide four and adjusted numbers on slide five. Revenues were up 2.2% on an average daily sales basis, as we're seeing continued sequential improvement in our sales levels. Most notably, non-safety and non-janitorial product lines improved through the quarter from mid-single digit declines in our second quarter to 21% growth in our third quarter. Sales of safety and janitorial products, as expected, given the significant surge during the pandemic last year, declined just over 40% for the quarter. Looking at our performance by customer type and excluding for a moment the safety and janitorial product lines, all of our customers, all types, were up strong double digits. Including all product lines and given the extremely difficult comparisons, government sales declined nearly 40%. National accounts returned to growth by posting a low single-digit increase while our core customers improved and grew in the mid-teens. CCSG grew mid-single digits. June showed continued improvement with total company year-over-year growth estimated at 15.4%. Our non-safety and non-janitorial growth is estimated at roughly 20%, while safety and janitorial are estimated to be down roughly 10% against last year's continued PPE surge. We expect strong growth rates in non-safety and non-janitorial products for the balance of the fiscal year. On the pricing front, we've seen solid realization of the March price increase that we mentioned last quarter, and as a result, we saw a sequential lift in gross margin from our fiscal second quarter's adjusted rate of 42.0%. Since that last call, we've seen continued significant pricing activity from our suppliers, and as a result, we've implemented a June price increase. This is earlier than normal, but certainly warranted given the environment. We will not hesitate to move again if suppliers continue raising their prices. Beyond the numbers, we had a couple of positive developments during the quarter. One was the recovery of the nitrile glove impairment, which Kristen will touch on in just a bit. The other was the acquisition of a majority stake in the William Hurst Company, in June. Hurst is a metalworking distributor based in Wichita, Kansas, with a heavy focus on the aerospace sector. This deal is meaningful to MSC in several ways. Hurst goes to market with a highly specialized and highly technical sales force. It fills out a geography in which MSC was under-penetrated, and more importantly, brings technical capabilities that we can leverage across the entire MSC business. aerospace is roughly 10% of total MSC sales today. It's an industry that is poised for strong growth coming out of the pandemic, and the Hurst platform will considerably enhance our effectiveness in serving and growing that portion of our business. Hurst has been led by CEO John Mullen, who remains at the helm and retains a meaningful ownership stake in the business. I'll now turn things over to Kristen to cover the financials and our Mission Critical progress. Thank you, Erik. I'll begin with a review of our fiscal third quarter and then update you on the progress of our Mission Critical initiatives. On slide four of our presentation, you can see key metrics for the fiscal third quarter on a reported basis. Slide five reflects our adjusted results. Our third quarter sales were $866 million, up 3.8% versus the same quarter last year. We had one more selling day this year in our third quarter, so on an average daily sales basis, net sales increased 2.2%. Erik gave some details on our sales growth, but I'll just reiterate that our non-safety and non-janitorial sales grew 21% in the quarter, while our safety and janitorial sales declined 42%. Moving to gross margins, execution, and realization on our mid-year price increase was solid. Our gross margin for fiscal Q3 was 42.3%, up 30 basis points sequentially after adjusting out our inventory write-down from last quarter, and down just 10 basis points from last year. Looking ahead, we took our summer increase in early June in response to the continuing inflation we are seeing from our suppliers. We expect the recent trending to continue and aim to achieve a gross margin for fiscal 2021 that is flat with fiscal 2020. Operating expenses in the third quarter were $257.3 million or 29.7% of sales versus $242.8 million or 29.1% of sales in the prior year. Our third quarter includes just $400,000 of legal costs associated with the loss recovery, which I'll discuss shortly. OpEx as a percent of sales, excluding those costs, was the same as the GAAP figure or 29.7%. Let me share a few more details on our third quarter OpEx. As I mentioned on our last call, we expected OpEx to increase sequentially from our second quarter, not only by the variable operating expenses associated with higher sales, but also due to expected higher incentive compensation as well as growth investments related to Mission Critical. Recall that our adjusted OpEx for Q2 was $244 million. A $90 million increase in sales means roughly $9 million of variable related OpEx. The remainder of the increase was primarily related to higher incentive compensation. While Mission Critical growth investments did increase sequentially, this was offset by an increase in Mission Critical savings, which I'll speak to in more detail in a few moments. As you may have seen in our earnings release this morning, we had a very positive development regarding the nitrile glove impairment we announced in our fiscal first quarter. We're pleased to report that last month we received a $20.8 million loss recovery of the original $26.7 million impairment loss recorded in Q1. That recovery is below the operating expense line in the P&L, but it does increase our GAAP operating income such that our GAAP operating margin for the quarter was 14.8%. Excluding the $20.8 million loss recovery and associated legal fees as well as restructuring charges during the quarter of $1.3 million, our adjusted operating margin was 12.6%, down 70 basis points from the prior year. GAAP earnings per share were $1.68, adjusted for the loss recovery as well as restructuring and other charges, adjusted earnings per share were $1.42. Turning to the balance sheet and moving ahead to slide seven, our free cash flow was $3 million in the third quarter as compared to $49 million in the prior year. The largest contributors were our increasing inventory and accounts receivable balance as our sales picked up significantly in the quarter. I would also note that we repurchased $47 million of stock during the quarter, or about 507,000 shares at an average price of $92.92 per share. This underscores our ongoing commitment to a balanced capital allocation philosophy and our goal to maximize total shareholder returns. In fact, to date in our fiscal Q4, we repurchased another 229,000 shares at an average price of $89.07. Lastly, when it comes to cash flows, please note that the $20.8 million loss recovery was received in June and will therefore be reflected in our fiscal fourth quarter cash flows. As of the end of fiscal Q3, we were carrying $598 million of inventory, up $66 million from last quarter. We're actively managing inventory levels to ensure we can support our customers as sales continue accelerating. Therefore, inventory levels are likely to continue climbing in the fourth quarter. We still expect capital expenditures for the fiscal year of approximately $55 million, and we still expect our cash flow conversion for operating cash flow divided by net income to be above 100% for fiscal 2021. Our total debt as of the end of the third quarter was $759 million, reflecting a $75 million increase from our second quarter. Roughly 2/3 of that increase was used to repurchase shares under our ongoing share repurchase program. As for the composition of our debt, $187 million was on our revolving credit facility, about $200 million was under our uncommitted facilities, $20 million was short-term fixed-rate borrowings, and $345 million was long-term fixed-rate borrowings. Cash and cash equivalents were $27 million, resulting in net debt of $732 million at the end of the quarter. Let me now provide you with an update on our Mission Critical productivity goals. On slide eight, you can see our original program goals of $90 million-$100 million of cost takeout through fiscal 2023, and that is versus fiscal 2019. Our cumulative savings for the first half of fiscal 2021 were $17 million, and we saved another $12 million in our third quarter, bringing our year-to-date savings to $29 million against our goal of $25 million by the end of this year. We also had invested roughly $7 million-$8 million in the first half of fiscal 2021, and we invested another $7 million in our third quarter, bringing our total year-to-date investments to $15 million, which compares to our original full-year target of $15 million. Given the success of the program through the first three quarters, we now expect to achieve savings for fiscal 2021 of roughly $40 million. Regarding total investments for fiscal 2021, we now expect roughly $25 million, which would result in net savings of $15 million for this year. Before I turn it over to Erik, let me leave you with some broad expectations for the coming quarters. With respect to sales, the difficult safety and janitorial comparisons will ease in our fiscal fourth quarter and into fiscal 2022. We expect double-digit growth rates for the total business in our fiscal fourth quarter and continued strength into fiscal 2022. For fiscal 2021, we expect low single-digit total company growth, and we aim to achieve gross margins that are flat with fiscal 2020. In terms of adjusted operating expenses, sequentially from our third to fourth quarters, we will see a decline due to volume-based expenses from sequentially lower sales dollars and lower incentive compensation. With that in mind, we remain on track with our adjusted annual operating margin framework for fiscal 2021, which you can see on slide nine. Furthermore, and as Erik mentioned earlier, we expect to achieve 20% or higher incremental margins in both fiscal 2022 and fiscal 2023. I'll now turn it back over to Erik. Thank you, Kristen. Fiscal 2021 is finishing on a high note. We expect that momentum to continue into fiscal 2022. We are gaining steam internally. Our end markets are strengthening, as evidenced by IP readings. The inflationary environment, along with our ongoing price realization, should continue to support gross margins. On the structural cost front, we've made strong progress on our Mission Critical program. We'll deliver further savings over the next two years and beyond. All of that should translate into incremental margins at or above 20% for the next two years. I thank our team for all of their hard work and dedication. I will now open up the line for questions. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. Once again, to ask a question, you may press star and then one. To withdraw your questions, you may press star and two. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Tommy Moll from Stephens. Please go ahead with your question. Good morning. Thanks for taking my questions. Hey, Tommy. Hey, Tommy. How are you? Doing great. Erik, I wrote down one of your comments, and I think I'm getting this about right. You talked about this being one of the most robust pricing environments you've seen in years, so I wanted to dig in on that. You talked about another increase in June. Possible we'll see another one before the end of your fiscal year? Any way you could frame for us what the June increase looks like quantitatively? If you play this out longer term, beyond the next quarter or two in this kind of inflationary environment, is this a net benefit, net neutral to your platform? How does this play out? Tommy, so yeah, look, let me start with the macro and the environment, you did capture my comments accurately. If you go back, for those who have been studying our space for long periods of time, you go back to different eras that we've experienced for the past 10 or 15 years, generally strong, robust inflation is a distributor's friend. If you looked at MSC's gross margin performance in the 2000s versus what it's been the last several years, you'd see a noticeable difference. We've talked about our gross margin formula consisting of three things: price, cost, and mix. We've talked about the fact that there's generally a mix headwind in the business of somewhere 30-50 basis points. To the extent price and costs were a wash, we would see erosion of somewhere 30-50 basis points. Not surprisingly, over the past few years, that's about what you've seen from us in a very low inflation environment. I think unusually low. 2000s may have been unusually strong. This is unusually low. Certainly, some of the supply chain issues that we discussed and scarcity are leading to more inflation than I've seen in at least a decade. Price increases coming from suppliers fast and furious. You're right, for us to take two moves in a matter of a few months, we haven't done that in a while, and that's in response to the environment. Net, Tommy, we view this as a positive. Typically, what you would see from us is the early stages of an inflation cycle. Price would outpace cost, and we believe that's where we're at right now. Certainly in the later stages, things can flip around. To the extent that this inflationary cycle has some legs to it as it appears, we would expect price to outpace cost. The proof in the pudding will obviously be in our numbers. You think about, yes, we're going to begin to start seeing cost in our P&L. Yes, that'll begin to happen as early as this quarter. You sort of zoom out and say, okay, fiscal 2021, we're calling to be plus or minus flat with prior year. As best we can tell now, and of course, we'll come back next quarter with a framework as we normally do, but as best we can tell now, we're giving you sort of a look ahead to 2022 and saying, we're seeing a roughly flat picture. That would imply positive price cost in each of those years to offset mix. Then you take it a step further, and I'll stop talking, Tommy, but if this business can produce roughly flat gross margins, and IP does what it is forecast to do, and we continue to build on our internal momentum and outpace IP, you're looking at strong top-line growth, roughly flat gross margins, enhance that with some cost takeout, and we think we have a really compelling picture. Thank you, Erik. That's all very helpful. I wanted to follow up with a question on inventory, which you provided some helpful comments on in the script. Has the philosophy changed at all in the appropriate level there? You've got potential supply chain issues that you may want to protect against. I think you referenced in the script the opportunity to deploy or to put your balance sheet to work with some inventory to take market share. Has anything changed in your mind about how to manage that? Or what do you want us to know about how you're thinking about inventory right now? Thank you. Tommy, I would say this: no change in philosophy. Some change in tools and tactics and keeping up with the times. In terms of philosophy, no change. Again, going back, being in this business now over two decades, times of growth and times of product scarcity create really compelling opportunities for distributors like MSC. Bottom line is, if you have stuff on the shelf, you're going to capture share. I think what you're seeing, the big build in inventory you're seeing over the past quarter, and we telegraphed, we expect it to continue. We would've liked it to be even bigger if it weren't for scarcity issues. We're going all in on making sure that we have product on the shelves for our customers at a time when product is scarce. It's critical as the economy now ramps back up, the industrial economy, that our customers keep their lines running. We are going all in on inventory. It sort of is a reflection of our view on the outlook of the economy and a view on the importance of having product to capture share. Thanks, Erik. I'll turn it back. Our next question comes from Hamzah Mazari from Jefferies. Please go ahead with your question. Hey, this is actually Ryan Gunning on, filling in for Hamzah. Could you just talk about your current vending initiative and how much of your customer base or what% of revenue is vending, and what kind of growth you're seeing there? Yeah, sure. Good morning, Ryan. What I'll do is just connect back to, if you recall, we are right now laser-focused on restoring the kind of market share capture rates that this business had become accustomed to. We put our first marker out there of 400+ basis points by 2023. The first sort of goalpost in getting there is going to be our fiscal fourth quarter, at least 200 basis points. If you recall, we outlined five growth initiatives that are going to get us there. One of those is what we refer to as solutions. In solutions, specifically it's three things. It's vending, it's vendor-managed inventory, and it's our in-plant program, all of which are aimed at bringing us closer to the customer, and embedding us onto the plant floor. What I would say is vending is picking up steam. We definitely saw, not surprisingly, Ryan, we saw a lull in our new account signings. The growth rate of the installed base came down with COVID and has bounced back as the business has. The new signings took a lull during the pandemic because of the inability to get into plants. We are seeing it come storming back, so we're measuring size of funnel, dollars in funnel, close rate. All of those are doing what we wanted to see happen. As the years gone on, they've gotten stronger and stronger. What I would say is, remains an important growth driver along with VMI and in-plant as part of this solutions initiative. Got it. That's helpful. Thank you. I guess kind of switching gears, can you talk about what you're seeing in terms of metal working markets from a growth perspective and j ust the competitive dynamic there? Yeah. I think from a market standpoint, what we're seeing is, and particularly, Ryan, this quarter, if you think about metalworking and our end market exposure, they're very tightly coupled. Not surprisingly, nearly half of our sales are tied into five heavy manufacturing end markets that are the bulk of where the metalworking consumption happens. Those heavy manufacturing end markets went down deeper than most of the economy, and quite frankly, have been a little slower to recover. We saw that start to flip in the past quarter. If you take a look at below the IP reading, you can see some of the sub-indices. We are starting to see the heavy manufacturing markets come back, and we think that's a great opportunity for us. In terms of share capture, we're still sitting in leadership in metalworking, but still sitting in the neighborhood of 10% market share. We've got a big runway ahead of us in terms of share capture. We have end markets that we think have legs to them in terms of this recovery. We're excited by our metalworking outlook. What I would say is to capture that share, there's a few things that are powering it. Investment into people. You see our headcount ticking up. That's investment into metalworking talent. We did it both organically and in the past quarter through acquisition. We're really excited about Hurst joining the family. We're doing it through technology with initiatives like MSC MillMax that are combined with our people, are really helping customers take cost out of their operation. I mentioned earlier to Tommy's question, the old-fashioned way of just having product on the shelf when others don't, we think that really matters as well. All of those feed into what we think is an exciting metalworking outlook. Great. That's all super helpful. Thank you very much. Our next question comes from Adam Uhlman from Cleveland Research. Please go ahead with your question. Hi, guys. Good morning. Good morning, Adam. Hey, can we go back to the price increase discussion we were having earlier? I guess in the operational stats, it looks like there was $1 million attributed to price, which seems kind of low, and I understand there's some other offsets that you call out in there, like customer mix and product mix and discounting. Can you maybe parse that apart between what were the headwinds that offset the price increase from March? As we put this price increase through in June, how should we be tracking that contribution to total sales growth? I guess maybe you could just dimension it too. It sounds like low single digits, but maybe you could clarify that. Sure. Going back to the first part of your question, the first thing I'd say is price realization, I think as Erik touched on, is solid. We're pleased with what we're seeing around realization. The second metric that you mentioned, which is what we see in the growth decomposition of the op stats, that has about 0.1% of growth assigned to both price and mix. To your point, it's a combination of things that are in that metric. Normally, that's a pretty good indicator for how you could think about price growth in the business. What's happening in the second half of this year, in Q3 and Q4, is if you look at the large amount of PPE volume that we had in the base, in the second half of 2020, it's really making it not a very meaningful metric to think about how price is impacting the business. That's what you see near term. I think if you zoom out and you look at what's happening sequentially, we did grow margins from Q2- Q3. That's an indicator that we're seeing the price benefits that we had expected to see coming into the numbers. Beyond that, like Erik touched on, we're seeing about flat margins 2020 to 2021, which is not something we typically see in the business. That means we're offsetting the cost coming out of the P&L and that traditional mix headwind that we see in the business, and we're expecting to do the same thing again in 2022. Okay. Got you. Thanks. That's helpful. For Mission Critical, I guess there's $40 million of gross savings remaining over the program for the next couple of years. Could you dimension some of the bigger buckets that you expect those savings to come from? Have you changed your thoughts at all on your reinvestment appetite of those savings? For the following two years on the program, 2022 and 2023, we've got programs that are working across all areas of the P&L. I think if you think about the transformational work that we have ahead of us, it's like the bigger, longer term projects to execute. You'll probably see us pivoting a little bit more to the operations side of the business. We did a lot of work around the sales side of the business that you saw us execute in 2021. There'll be a bias towards operations on the transformational work. The pipeline of projects really touches every part of the P&L. There's a lot of small things that are going to deliver benefits, particularly in kind of 2022, second half of 2022. We'll get carryover in the beginning of 2022 from what happened with, in particular, the sales program or the sales restructuring that you saw us execute in fiscal 2021, and then those transformational projects are going to position us for 2023 and beyond. In terms of the reinvestment, I'll give you guys some firmer guidance on that next quarter when we publish the framework. One of the things that we're looking at right now is kind of which projects we want to bring online and when on the growth side. We're really committed to delivering that incremental margin of greater than 20%, so we'll probably adjust the investment schedule accordingly based on our other assumptions to make sure we're delivering on the incremental north of 20% that we committed to for fiscal 2022 and 2023. Okay, thanks. You're welcome. Our next question comes from David Manthey from Baird. Please go ahead with your question. Hi, good morning, everyone. Hey, Dave. First off, Kristen, in your discussion there on price mix, if we set mix aside, it sounds like you had solid price realization on the March increase. With the glide path from that increase, in addition to the new June increase, in light of the current inflationary environment, should we be reading that your expectation for price realization alone might be on the higher end of low single digits or even into mid single digits in the coming quarter? No, I'd say lower single digits is a reasonable expectation, Dave. I think what's starting to happen too in Q4 is all the inflation we're seeing passed on to us from suppliers are starting to roll onto the P&L. It's dampening a little bit of the price-cost spread we might've been hoping to see when we look toward last quarter. Generally still really pleased at being able to offset the mix, cover the cost, and keep the margins flat for the full year. Okay. I know you've always been hesitant to talk about price realization specifically, but based on your comments, from your price realization, forgetting about mix and forgetting about the cost side, it sounds like you're seeing good realization, which might imply a little bit higher than low single digits. Is that in the ballpark? We are seeing our realization come online as expected. Yes. Okay, fair enough. Yeah. And Dave, just to put color on that, as Kristen mentioned, the metric that's the public metric she mentioned, because of last year, the PPE surge, the mix component of that metric is so distorted compared to what it typically is in normal times. That'll correct itself in a quarter or two. As you can imagine, inside of the company, our pricing team has 10 ways till Sunday in which they're looking at more micro price realization metrics. Yeah, we're seeing just as Kristen said, just as we would've expected in terms of outcomes. Okay, sounds good. Second, on the e-commerce front, it seems like that metric lost momentum during the pandemic and has since re-accelerated. I think trailing 12 months, you're back over 60% e-commerce. What does that tell us about the trends in the business, if anything, as we come out of the downturn here? Yeah, Dave, I think important to understand just sort of what makes up the buckets. Under that 60% e-commerce, obviously there's a big chunk. Over half of that is mscdirect.com. That's the part right now I mentioned investments into digital. Most of the investments are directed there to take mscdirect.com to another level. Certainly I would expect over time that portion of the business to grow as a percentage of revenues. The total 60% includes other buckets like vending, things flowing through a vending machine, e-procurement with large accounts. There was sort of a lot of mixed dynamics going on underneath the covers because as you can imagine, I mentioned earlier, vending dropped considerably during the pandemic and is now climbing back. For us, what I'm going to be looking at is the quality of the experience on mscdirect.com. Going to be looking at retention, average order size, and some of the micro measures. Yes, I think for you over time, seeing that 60% grow will be the way to look at it and evaluate it. Great. Thanks, Erik. Our next question comes from Ryan Merkel from William Blair. Please go ahead with your question. Hey, everyone. Nice job on gross margins this quarter. Hey, Ryan. Thank you. My first question is on SG&A leverage. I know you expect strong leverage in 2022, but should we expect SG&A leverage in the fiscal fourth quarter? Yeah. Fiscal fourth quarter, we're going to come down sequentially, Ryan, relative to where we were in Q3. A little bit of that coming with a decline in sales. We're also going to see a bit of a normalization on the sales incentive compensation. We will see a more favorable OpEx rate coming in Q4, better leverage coming in Q4. For the year, feeling confident that we'll land inside that low single digit framework. Like I said, probably on the lower end of that given where we think revenue's going to land and given what we see happening in the inflationary environment. We've talked a lot about what's happening on the cost of goods sold with inflation, we're also seeing some costs start to creep into the business on the SG&A side around things like labor inflation, wage increases, things like that. All right. It sounds like SG&A leverage will improve in 4Q and then it'll improve more so in 2022. Is that right? Correct. Okay. My second question, June average daily sales growth, that was a nice number. I know you're not giving guidance, but I'm hopeful to get your view on what inning of the macro recovery we're in, and then if sales growth can accelerate from the June level? Ryan, look, I think from our perspective, we are encouraged. I think for me, June is one data point. We're looking at a bigger story here. I am encouraged by the momentum we're seeing. I think that goes for macro, but also sort of for micro, meaning how is the company doing relative to IP? We had a pretty good quarter in Q2, obviously PPE noise here, but we are starting to see progress. In terms of the macro recovery, again, Ryan, we're coming from a fairly slanted view where we're heavily exposed to heavy manufacturing, which have been hit hard in later stage. We think there's plenty of room here. We're kind of hitting a speed bump as an economy, an industrial economy with the supply chain and labor constraints right now, no question, impacting growth, with our customers anyway. We think there's a nice recovery here, particularly in certain end markets where we think there's a ways to go. To answer your question, early innings. I feel the same about internally. We still feel like we're in the early innings. We think this year has kind of been a proof point that we're on the right track, but we have sights set high in terms of share capture and spread above IP, and still feel like we're early innings there too. Sounds good, Erik. Thanks. Thanks, Ryan. Our next question comes from Michael McGinn from Wells Fargo. Please go ahead with your question. Hey, everyone. Good quarter. Hi. I was hoping to get a little more color on the recent acquisition. Can you frame for us what aerospace is like roundabout percentage of your business today? Is there ever a point from a portfolio management standpoint where you think you cap yourself? Mike, I'll touch on what Hurst brings to us. Aerospace roughly at 10% of MSC's revenues. We think that it is a really good fit in terms of an end market for MSC for a number of reasons. First and foremost of which, we can really move the needle for our customers' productivity using metalworking. Our metalworking experts, metalworking technology like MillMax, our product portfolio, et cetera. We think it's a good fit. In terms of capping it, at some point, that will be a very high-class problem. We think we have a ways to grow in penetrating that market. We really like the timing of Hurst because aerospace obviously has been on its back and we think has a long way to go in recovery. What really excites us is the team there is really technical and really focused. So they're bringing something, in some sense, expanding our metalworking capabilities for sure, but they're really bringing something that we don't have organically in the business, which is a metalworking focus specific to aerospace. We think that's a capability not just to build out and cross-sell into their customer base, but for John and his team. We think we can leverage that team across MSC's broader aerospace customers to increase penetration. Bottom line is we see a ways to go with aerospace, and at some point we'll be in a high-class position to have to try to cap it. We got a long runway in front of us there. Got it. Going back to the earnings algorithm you outlaid earlier in the call, mentioning if we can get flat gross margins. Just in terms of that, how much one way do we have to get back to normal in terms of gross margin rebates and in terms of the local core customer catching up to that national account? Here's what I'd say, Mike. Let me break apart gross margin into three buckets: price, cost, and mix. What I would say is, over the past few years, price and cost have more or less been a wash. What you're hearing is that price is now outpacing cost. We think that as long as the inflation cycle continues, and by all measures, given product scarcity, labor scarcity, et cetera. It does feel like we're in the early stages of an inflation cycle. To the extent that continues, while costs are going to creep into the P&L, we think we can stay ahead of it with price. That brings us to mix. You mentioned a couple of moving parts, Mike. There's a lot of moving parts to mix, in terms of which product lines are growing faster, which end markets are growing faster, size of customer, as you said, national accounts, et cetera. Net-net, when you put it in the wash and you put all of the mix components in the wash, we still see a negative sort of a headwind coming from mix. We do still see it somewhere in the 30-50 basis points, and it's tough to give you a precise number. It moves around, somewhere 30-50 basis points per year. The way we get to flat and take 2021 as a for instance is, mix headwind, yes, price outpacing cost and those being awash. Got it. Appreciate the time. Thank you. Our next question comes from Kevin Marek from Deutsche Bank. Please go ahead with your question. Hi, good morning. Thanks for taking my question. A lot has been up, I guess, maybe wondering if you could give some more color on some of the supply chain constraints. What are you seeing in terms of labor, product availability, and have things gotten better or worse for you and for your customers, and how are you managing that? Yeah, Kevin, I'll talk about sort of broad marketplace, which would include customer and supplier. I would say over the past quarter, the supply chain issues have become more acute, not less. I think that in particular, the one that is just white hot is access to labor. Everybody I'm talking to is feeling the pinch, and what that means is it's really, at this point, constraining growth. I think the exciting thing is to the extent this is a speed bump, the long-term prognosis outlook is really good. What it means for our suppliers, an inability to hire people who are needed to produce stuff and ship stuff to distributors like MSC. For our customers, it's much the same. Their order backlogs are massive, and they can't keep up, and they can't get product out the door. I think from our standpoint, Kevin, we think we're really well-positioned to navigate this. First of all, it should be temporary. Who knows how long it takes to relieve, but it should be temporary. The second thing is we think we're well-positioned. Number one is that whatever issues we're facing, we are facing them, we mentioned we would like inventory levels to be even higher than they are. We're facing issues from our suppliers, whatever we're facing, remember 70% of our market is made up of local distributors who really struggle in gaining access to product. We think there's a tremendous market share capture opportunity. The second thing I'd say is that all of these constraints and scarcities are what is fueling the inflation, that is then fueling the ability to take price. We think we're well-positioned to navigate this. We think the outlook is really good. To be clear, absolutely, the issues are acute and labor is at the top. Got it. Thank you. That's really helpful. Maybe just one more getting back to some of the Mission Critical commentary. Is there a scope to, by the time we get through fiscal 2023, to be above $90 million-$100 million, given that you're executing on a chunk of it faster than originally anticipated? I'm wondering if there are other things or other initiatives that maybe didn't make the first round of planning for Mission Critical that you now feel like you may have the ability to pursue. Yeah, I think we're definitely optimistic that that's possible. We're clearly at the higher end of that $90 million-$100 million range right now, and one of the things we've talked a lot about internally is that we communicate Mission Critical as a time sense between 2019 and 2023. Really what we're doing here is changing the culture of the company to make this idea of driving these costs out of the business an ongoing part of what MSC does year after year. We do have a long pipeline of projects. I think it's always possible we shuffle timing on some things, pull some things forward that could provide the potential to go above that. One of the things we are thinking through for 2022 is you've got some big projects executed in 2021 to carry over, some smaller new things we're going to execute that help us in 2022, and then you're going to see us really reload and recharge on the transformational projects that'll hit in 2023 and beyond. To the extent that we could bring those big transformational things on faster or maybe to a greater extent than we're originally contemplating, that would be the path to going above that $90 million-$100 million range right now. Got it. Understood. Thanks a lot. I appreciate it. You're welcome. Our final question today comes from Patrick Baumann from JPMorgan. Please go ahead with your question. Patrick, is it possible your phone is on mute? Hello, sorry about that. Can you hear me now? Oh, there we go. Hey, Patrick. It was on mute. Apologize for that. Erik, wondering if you could talk some more about what you're doing to the website and why. Is this just basic upgrades or is it something more transformational in the way you interact? On this front, how would you benchmark yourself, the website capabilities, I guess, MSC Direct versus kind of leaders in the industry at this point? Patrick, what I would say, and I'll answer your question on e-commerce. To do it, I just want to underscore something Kristen said, and it was in relation to Mission Critical, and that was about cultural change happening inside the company. I bring this up in the context, you asked me about e-commerce, because what Kristen described happening in Mission Critical, with it becoming a way of life and constantly raising the bar on ourselves, the same thing is happening everywhere in the company, across our commercial organization, across marketing, across structural costs, you name it. I think what's happening here and the investments being made is we're raising the bar on ourselves. Certainly, we benchmark peers inside and outside of the industry for capabilities. I have to tell you, the north star for us that's driving these changes is the customer, how we can make their lives better, how their expectations with a younger millennial influenced workforce growing as a percentage of total workforce. This is about raising the bar on ourselves and doing better for customers. What we're doing is, and I'd call it somewhere between an upgrade and transformational, but really changing the technology stack we use. What that means is moving certainly more cloud-based, where we can capture changes that happen overnight as opposed to needing to do upgrades. We're talking about using capabilities like AI-powered intelligence and logic that allows our search engines, our website, our whole digital experience with the customer to constantly improve. I think some of this is around technology, and then some of it is flat out just around customer experience and reducing friction and creating a better experience, a stickier experience for the customer. That's really what's going on. It'll happen. We're beginning to put things into market in flight this quarter. That'll continue. We'll continue to launch sort of iterations along the way. It won't be big bang into the first couple of quarters of 2022, and obviously we'll be watching carefully for performance. I think this all goes back to the idea of raising the bar on what we expect out of ourselves and for our customers. What do you use to track the progress? It sounds like some voice of customer, maybe. There's got to be some metrics. You mentioned stickiness, like is it site visits? Is it sales metrics? Is it revenue per visit? I don't know. What do you use to track that? Yeah. One of the things that are new, and we've really upgraded our digital team as a strong group, and one of the things they've implemented is a weekly business review process where they're managing through a whole bunch of metrics. A couple of them you've mentioned, whether that's average order value, whether that's number of unique visits, whether that's conversion from the top of the funnel, meaning people coming to the site to the bottom of the funnel ordering, and looking at all points along the funnel. There's a bunch of metrics. They're meeting weekly, and literally, when they see metrics move one way or another, they're adjusting by week. If it's going, doubling down on it, if they see sort of a negative trend, getting to root cause and then making adjustments real time. That's happening on a weekly basis. Great. Helpful color, Erik. Maybe one for Kristen really quick, a follow-up on OpEx. You mentioned variable comp and incentives as positive sequentially in the fourth quarter. Do you also expect any sequential net savings from the various programs that you have in flight? What about freight costs? Any update on what you're seeing in the P&L there going into year-end? Sure. Sequentially for Mission Critical, no impact from investments and savings on a net basis. It'll be flat sequentially. On the freight side, sequentially not really seeing any headwinds. Freight is a bit more of a story for us on a year-over-year basis, and that really has more to do with lower freight rates that we saw in the second half of 2020 last year due to how we were shipping the PPE out to our customers, where the customers were taking possession of that product. We are seeing a bit of freight inflation creep in. Sequentially, it's not an impact. It's maybe $1 million-$2 million on a year-over-year basis in the fourth quarter. We feel like freight is relatively well controlled given what's happening in the macro environment. We do a lot of small parcel shipment, and the sort of terms of how we pay for that are pretty well bound by our contracts. Expect to see a little bit more pressure coming in from our LTL shipments next year. I think given what could be happening with freight, from what we know of the macro environment, we're in a pretty good position. Great. Helpful color. Thanks a lot. I really appreciate the time, and best of luck. Thank you. Thank you, Patrick. Yeah, ladies and gentlemen, with that, we'll conclude today's question and answer session. I'd now like to turn the floor back over to John Chironna for any closing remarks. Thank you, Jamie. Before we end the call, a quick reminder that our fiscal fourth quarter and full year 2021 earnings date is now set for October 20th, 2021. We'd like to thank everyone for joining us today, and we certainly hope you enjoy a fun, healthy, and safe summer. Take care, everyone. Ladies and gentlemen, with that, the conference call has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.