Good morning, and welcome to the MSC Industrial Supply Fiscal 2023 Third Quarter Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Ryan Mills, Head of Investor Relations. Please go ahead. Thank you, good morning, everyone. I'm excited to have joined MSC just last week, and I look forward to getting to know each of you over the coming months. Welcome to our third quarter fiscal 2023 earnings call. Erik Gershwind, our Chief Executive Officer, and Kristen Actis-Grande, our Chief Financial Officer, are both on the call with me today. 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 our Investor Relations webpage. Let me reference our safe harbor statement, a summary of which is on slide two of the accompanying presentation. Our comments on this call, as well as the supplemental information we're providing on the website, contain forward-looking statements within the meaning of the U.S. security laws. 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 are noted in our earnings press release and our other SEC filings. 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 presentations or on our website, 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, Ryan. Good morning, everybody. Thanks for joining us today. On today's call, I'll begin with some perspective on our recent performance and our longer-term outlook. I'll provide color on the current environment. Kristen will provide more specifics on our fiscal third quarter mission-critical accomplishments, our financial performance, and updated expectations for the balance of the fiscal year. I'll wrap things up before we open up the line for questions. Before I dig into our performance, though, I'd like to discuss two topics. The first is to welcome Ryan Mills, our new Head of Investor Relations, who joined us earlier this month. He brings several years of investor relations and sell-side experience, including the coverage of MSC and our peers. We're thrilled to have Ryan on the MSC team as we continue striving to increase shareholder value. The second topic is the recent agreement with the Jacobson and Gershwind family to eliminate the company's high-voting Class B shares. The details of the agreement and the associated shareholder benefits are outlined in the press release that we issued last week. More information will be provided in a proxy statement that will be filed with the SEC later on this summer. At a high level, though, we're confident that this will make MSC a more attractive investment and broaden its scope of investors through several aspects, such as replacing the 2/3 voting rule to approve mergers, asset sales, and other significant transactions to instead a simple majority of votes outstanding standard, limiting the family's voting to 15% of shares outstanding, adding a new independent director, and exploring share repurchases to offset dilution from the transaction. I'd also note that our family's receipt of the premium in shares increases our economic ownership position and reinforces our belief in the long-term outlook of this business. The reclassification is subject to a number of closing conditions, most importantly, the approval of the transaction by the company's shareholders. We look forward to completing the process and successfully closing the transaction. I'll now move on to our quarterly performance. Ongoing share gains and successful execution of our mission-critical initiatives were the primary drivers behind our strong growth. They resulted in fiscal third quarter sales growth of approximately 10%, despite one less selling day, or nearly 12% on an average daily sales basis. This continues the trend of outgrowing the IP, or Industrial Production Index, in excess of our long-term target. As a reminder, our five growth priorities include metalworking, solutions, digital, selling the portfolio, and diversified end markets, with an emphasis on the Public Sector. Today, I'll highlight a few of these, beginning with the Public Sector. We've described for the past several quarters now that we see a building momentum in our Public Sector business. This quarter was particularly strong, with Public Sector growth of more than 80% year-over-year. That was driven by penetration of existing contracts, along with the addition of some significant wins. In particular, approximately 2/3 of the Public Sector growth this quarter benefited from a large number of small capital purchases from a recent contract win. While wins of this nature are below company average margins, they provide near and long-term benefits. Starting with the near term, these wins require modest investments in working capital. They bolster our cash flow. This allows us to accelerate investments in other areas to further strengthen our market position, and I'll touch on that momentarily. Over the longer term, we believe these wins improve our position for additional share gains and higher margin opportunities across the sector, which helps to diversify our business. Looking forward, we expect revenues from the recent contract win to continue in Q4 and into fiscal 2024, albeit at a lesser pace. On the solutions front, we continue to achieve strong growth across our In-Plant, Vending, and Vendor-Managed Inventory offerings. These high-touch, high-retention solutions continue to grow double-digits, and we see plenty of runway for future share gains, given the market size and the customer's appetite for value-added solutions. In fact, our fiscal third quarter represented our high watermark in terms of new In-Plant signings. That bodes well for continued sales growth in the future. Moving to e-commerce, we strengthened our position for future growth through an exclusive agreement with MachiningCloud, which was announced earlier this quarter. This partnership brings a great deal of excitement to MSC, to MachiningCloud, and to the end user community. It gets MSC closer to the early stages of the manufacturing process, which expands MSC's reach to new decision makers, such as engineers and programmers, who are key influencers in the procurement process. The customer will benefit from MSC's brand offering, which will save time and money when selecting the ideal tools needed for their jobs. While we're still in the integration process, the end user community's excitement is building as visits to MachiningCloud's site have increased significantly since announcement. I'll now turn to the external environment. As expected, when we outlined our framework for the fiscal year, conditions have moderated as we move through the quarters. This is consistent with contractionary readings from the sentiment indices, such as the Metalworking Business Index and declining IP Index readings. We have seen some more softening across some areas of the business during the fiscal third quarter, but the tone on the ground is one of leveling rather than significant declines. We're seeing stable volume and customer activity levels. We see favorable conditions in several end markets, such as automotive and aerospace. On the pricing front, conditions have also moderated as expected. We continue to achieve benefits from pricing, but this has narrowed as we lap high price increases in the prior year, while higher product costs continue to work through our P&L. As supply chains have normalized, customers are increasing their focus on achieving competitive prices, just as we are doing with our suppliers. Overall, we would describe the environment, both on the demand and the pricing fronts, as leveling. Regardless of the environment, I remain confident about our prospects for continued growth. In the near term, as I described earlier, many of our growth drivers are just starting to hit their stride. Our value proposition, which is anchored in our technical and high-touch approach, is yielding customer wins at a higher rate than we've seen in the past. Many of these wins are not close to full maturity or revenue run rate, so we're not yet seeing the full benefits in our numbers. This has given us confidence to accelerate strategic investments despite market uncertainty, to further strengthen our position. For example, we're accelerating investments in our e-commerce platform, including an advanced search and product discovery function. We expect these enhancements to increase future growth, particularly with smaller customers and spot buys. Looking beyond the near term, there are several dynamics that we believe will benefit MSC over the longer term. First, the reshoring trend continues as we see an increased number of new plant construction projects that will drive incremental domestic manufacturing activity. Second, elongated production backlogs in commercial aerospace, driven by increased post-COVID demand, provide a long runway of growth in that end market. Third, we see opportunities to further penetrate new, higher growth end markets, such as medical and electric vehicles, by leveraging our technical expertise and new capabilities from recent acquisitions. Moving on to productivity. I'm also encouraged by the outlook for continued progress, which we believe will be driven by several factors. First, as I mentioned before, our mission-critical program is transitioning to a continuous improvement mindset and initiative under the leadership of our COO, Martina McIsaac and Kristen. Second, and related, we'll continue evaluating our business for structural cost opportunities. Lastly, we're making nice progress on our category line reviews. We're now winding down the first two waves of product categories, and we're pleased with supplier responses. In some cases, we're getting cost reductions on the heels of market indices pulling back, and in others, we're having exciting growth discussions. For example, we're seeing early success with consolidation of suppliers and SKUs, where a broad assortment isn't as necessary through the eyes of our customer. This approach will simplify our search, find, and buy experience, increase engagement and share gain with the select suppliers who partner with us, streamline our DC operations, should also drive meaningful savings in fiscal 2024. In summary, I'm excited to see MSC becoming the mission-critical partner on the plant floor that we envisioned years ago. We're gaining momentum on growth above the IP index, we're translating that growth into profitability improvements. I'll now turn things over to Kristen. Thank you, Erik, good morning, everyone. Please turn to slide five of our presentation, where you can see key metrics for the fiscal third quarter on a reported basis. Slide six reflects the adjusted results, which will be my primary focus this morning. Before I dive into the numbers, as Erik mentioned, Public Sector growth was very strong this quarter, primarily driven by a recent contract win related to small capital purchases. Wins like these are dilutive to margins, have strong cash flow attributes. This is causing some compression in growth and operating margins during the back half of our fiscal year. As a result, I will provide some color on the impacts from related sales as I walk through our results and updated outlook. Moving on to third quarter performance, successful execution across our mission-critical initiatives resulted in ongoing share gains and strong cash generation. Combined with a 4% contribution from bolt-on acquisitions and more modest benefits from price due to actions taken in the prior year, average daily sales improved 11.7% year-over-year to $1.054 billion. That compares favorably to the IP Index, which grew just 30 basis points year-over-year during the quarter. By customer type, on a year-over-year average daily sales basis, Public Sector sales increased over 80%, while national accounts, as well as core and other customers, grew in the mid-single digit range. Despite the sequential step down in national accounts growth since last quarter, we feel good about our prospects for ongoing growth based upon new customer wins. Looking at our sales through the lens of our mission-critical growth drivers, we continue to make strong progress. Erik mentioned the five growth initiatives earlier. I will run through each of them briefly. In Metalworking, our ability to improve customer productivity levels through our best-in-class technical expertise, product breadth, and service levels continues to drive competitive differentiation. This places us at the spindle with our customers, where we play a critical role in helping them optimize production and increase productivity. Additionally, as our manufacturing customers face an aging and shrinking skilled labor workforce, our value proposition is more important than ever. Looking ahead, our competitive strengths position us well to take share and further penetrate high-growth end markets. We continue to capture share with our Vending and In-Plant solutions. Vending machine ADS continued to grow 10% year-over-year and represents 15.3% of total company sales, compared to 15.5% in the prior year. In-Plant signings remained strong in Q3 and sales grew 13% year-over-year, representing 13% of total sales, an improvement of 40 basis points sequentially. It's worth noting that the Vending and In-Plant percentage of total sales would have been higher without the impact of the strong Public Sector performance, as much of the growth among those customers did not transact through our solutions. In e-commerce, which includes all aspects of MSC's digital engagement, we continue to experience solid growth. As a percent of total sales, e-commerce sales declined year-over-year to 60%, but would have increased over prior years, 62%, if not for Public Sector growth that transacted through different channels. Looking ahead, we are positioning ourselves to capture additional digital and small customer growth with a portion of our accelerated investments being focused on strengthening our digital capabilities, as Erik mentioned. We continue to successfully execute across our other two initiatives. In selling the portfolio to increase share of wallet, Vendor-Managed Inventory, which is primarily our Class C consumables, experienced ADS growth in the low double-digit range. Progress on our diversification initiative continues with Public Sector growth in excess of 80%, as I previously mentioned. Our growth margin for the quarter was 40.7%, down roughly 220 basis points compared to the prior year. The year-over-year decline was driven by a 160 basis point headwind, primarily attributable to the recent contract win discussed previously, and to customer mix related to Public Sector growth. Acquisitions drove another 40 basis points of headwind. The remaining 20 basis points reflects more modest pricing benefits from prior year actions and higher cost inventories working through the P&L. Sequentially, without the impact of the Public Sector contract, gross margins improved nicely as expected. Reported operating expenses in the quarter were approximately $292 million, versus $271 million in the prior year quarter. On an adjusted basis, operating expenses were approximately $290 million and declined 80 basis points year-over-year to 27.5% of total sales. In dollar terms, the increase was primarily driven by variable selling expenses tied to higher volume, labor costs, higher than expected healthcare costs, and accelerated digital investments to drive revenue growth. With respect to healthcare costs, we are self-insured, and this past quarter, we experienced roughly $2 million more in claims than we have been running. This is primarily a result of our associates undergoing increased elective procedures, which we believe reflects deferred demand. These increases were partially offset by mission-critical related savings of approximately $4 million in the quarter. This brings fiscal year-to-date savings to $14 million and total cumulative savings to $99 million, positioning us to exceed our target of $100 million by fiscal year-end. Reported operating margin was 12.8%, compared to 14.3% in the prior year period. On an adjusted basis, operating margin of 13.1% declined approximately 150 basis points compared to the prior year. The year-over-year decline was driven by lower gross margin, with a partial offset from decreased operating expenses as a% of sales. We reported GAAP earnings per share of $1.69, compared to $1.78 in the prior year period. On an adjusted basis, EPS was $1.74, versus $1.82 in the prior year. Turning to slide seven, to review our balance sheet and cash flow, we continue to maintain a healthy balance sheet with net debt of approximately $406 million, and a net leverage ratio of approximately 0.7 x at quarter end. Our liquidity position remains strong, with cash on hand of $58 million and nearly all of our $600 million revolving credit facility is available. Additionally, we made progress on inventory levels, which ended the quarter at $727 million, down $20 million from Q2 levels. Strong operating cash flow conversion during the quarter of 158% and 104% fiscal year- to- date, has us well on track to achieve the 100% target for the fiscal year. Capital expenditures of approximately $24 million during the quarter resulted in third quarter free cash flow of $127 million, up nearly 100% year-over-year. Our solid balance sheet and cash generation support our capital allocation strategy, including our desire to offset dilution from the reclassification of Class B shares. We will continue to focus capital on creating value for shareholders by reinvesting into the business, shareholder returns in the form of ordinary dividends and share buybacks, as well as pursuing high return tuck-in acquisitions. As a reminder, we have 4.4 million shares remaining on our current repurchase authorization. Let's turn to our updated fiscal year 2023 outlook on slide 10. Given strong sales performance fiscal year to date, we are raising our annual average daily sales growth guidance to a range of 10%-11%. This compares favorably to the prior range of 5%-9%. As a reminder, we have five fewer selling days year-over-year in the fourth quarter. We now expect adjusted operating margin to be around 12.7% for the full year. Our updated outlook includes two factors that were not part of our original outlook. First, the margin dilution related to the in-year acquisitions of Buckeye Supply and Tru-Edge. Second, the impact of the outsized Public Sector growth in the second half. Lastly, we continue to expect strong cash generation for the full year, with operating cash flow conversion above 100% in fiscal 2023. With that, I will turn it back to Erik for closing remarks. Thank you, Kristen. We are nearing the end of our three-year mission-critical program, and I'm pleased to see how our team has performed. We remain on track to meet or exceed all goals we outlined nearly three years ago. As we look to the future, we view the next quarter not as the end of the journey, but rather as the first base camp along our march to fulfill our mission of being the best industrial distributor in the world, as measured by all four of our stakeholders. I thank all of our associates for all their hard work, and I'll now open up the line for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from David Manthey with Baird. Please go ahead. Thank you. Good morning, everybody. Hey, Dave. Good morning. First question on the new business. You talk about this as a contract win, but then you said it's a large number of small capital purchases. If you could give us details on what that means, and then any concrete numbers you can give us in terms of revenues. I think Kristen, based on what you said, I'm thinking maybe it's $20 million in the current quarter, but, what does that look like in the fourth quarter? Kind of run rate in 2024, if you can help us there. Hey, Dave. Yeah, sure. I'll take the first part, Kristen. I'll answer the follow-up. Yeah. You got it. Just, yeah, a little more color, Dave, I'll put the caveat that we're going to be a little bit nondescript here. This is, as you can imagine, competitively sensitive in terms of the contract win itself. Just to put some more color on it, by a contract win, what we mean is there's an ongoing relationship with an entity here, as opposed to just a one and done or a one-time order. Inclusive in the contract, though, were a number of specific items that we described as small capital purchases. What I mean by a small capital purchase is something akin to a small machine as opposed to a consumable. The reason that's relevant is those the capital purchases, capital-like purchases, tend to come with lower gross margins than consumables do. What, what you're gonna see is you saw a pretty big, healthy clip of that in the third quarter. I'm infringing a little bit on Kristen's part of the question. You'll see some more in the fourth quarter, probably at around somewhere around half of what we saw in the third quarter, and then there'll be some continuation into fiscal 2024. I think, you know, a couple of points, Dave, on the benefits here. Obviously, there's an immediate revenue impact on the machines. There's also higher margin business that follows along it, consumable type of business that follows along. I think most importantly, you know, what I see happening with the Public Sector team is we're using these contract wins to establish a relationship with customers or entities that we may have not had a big relationship with before, and that creates the opportunity for creating an ongoing permanent revenue stream with more general MRO products. Dave, just to add on to your question about kind of sizing it, the way I would suggest thinking about it, if you refer to the Op Stats, the Public Sector growth as a percentage of revenue, for Q3 2023 and Q3 2022, I would take about 2/3 of that and attribute it to the win that Erik is discussing. Then you can apply similar logic. We mentioned in the prepared remarks about 160 basis points of gross margin headwind from mix. I would apply a similar 2/3 logic to that to try to size gross margin. Then in terms of how to translate it to profit, the orders do come with a lower cost to serve. I wouldn't put the normal variable OpEx rate on that. I would, I would assign, you know, maybe half-ish or so to the number you come up with on the top line. That'll kind of frame for you what happened in the third quarter with the noise from that win out of the picture. Perhaps a simpler way to say it is, if you take the impact of that win out and the noise it created in the margins, we performed as we would have expected to, the one sort of unanticipated item being the healthcare costs that we discussed in the prepared remarks. Then for the fourth quarter, I would think about the impact being about half the size of what we saw in the third quarter. Okay. That's helpful. Thank you. Just along the same lines here of the operating income and the change in guidance, just a couple of thoughts there. If I take the midpoint of the new guidance and compare it to the midpoint of the old guidance, it looks like operating income dollars are up just slightly. As you said, if you assume a low margin on the government business, that would tell me that expectations underlying that new government win would be roughly the same. I'm just checking, because, Erik, when you talked about leveling, I'm not sure if that was your expectation 90 days ago or if that's gotten worse from what you thought. I'm just trying to gauge what the expectation is in the underlying business based on the guidance you gave, excluding this government win. Yeah, Dave, good question. I look, I would say that essentially, the underlying business, our outlook is unchanged, is the punchline. If you go back even beyond 90 days ago, Dave, from the start of the year when we outlined the framework, you know, given that we saw IP coming down, the sentiment indices, et cetera, you know, we said, look, we project the growth rates to moderate. It doesn't mean that anything's dropping, it's just that the growth rates would moderate between the leveling in the environment, the lapping higher comps, lapping pricing, and that's what's playing out. No real surprises. Dave, on your question on the guidance, you're spot on. Like, if you think about the midpoint of what we had indicated, when we spoke to you after the second quarter, the change is really two things. If you think about moving from the midpoint to the approximately 12.7%, it's roughly the impact of the Public Sector mix, 20-ish basis points, and then the increased healthcare costs, which is about 10 basis points. Okay, thank you very much. You're welcome. The next question comes from Tommy Moll with Stephens. Please go ahead. Good morning. Thanks for taking my questions. Hey, Tommy. Hi, Tommy. I want to start on price costs. You've addressed it a bit, but any more context you could provide there on where you sit today, and based on what you know now, how that should unfold over the next few quarters would be helpful. Thank you. Sure, Tommy. In the prepared remarks, we mentioned about a 20 basis point growth margin headwind for price costs. We're still positive in price costs on a dollar basis, but it was a headwind to growth margins in the third quarter. We would expect that headwind to grow in the fourth quarter, more so from the decelerating benefit of price. Cost, I think we mentioned last quarter, costs had peaked in Q2, and it's. I think a peak sort of implies you come down right away. I'd say we've entered a plateau on the cost inflation that's rolling off the balance sheet and 2024, we'll size some more when we get to the next quarter, but probably unsurprisingly, that pressure continues, particularly in the first half of fiscal 2024, as we continue to unwind those higher product costs off the balance sheet. More to come on 2024. Hopefully, that helps color Q3 and Q4 a bit more. Thank you. That's helpful. Then maybe one for Erik here on the reclassification agreement. In terms of timing there, Erik, do you have any sense for when the shareholder vote may occur? Presuming it passes, how long it would be until the change becomes effective? If I could make this a two-parter, hopefully, that's not too greedy. I was just curious, from a very high level of capital allocation or business strategy perspective, could we imagine there may be a change resulting from the reclassification, or should we think of this more as a distinct issue? Thanks a lot. Tommy, I'll take that one. I'm gonna answer the first part of your question. I might ask you to just repeat the second part. We were having a little bit of trouble hearing you at the end. Let me start on the timing part of your question. Next steps, we have to submit an S-4 to the SEC. That's followed by the proxy. You can sort of assume late summer is a reasonable ballpark for the proxy to be issued. If everything goes according to plan, you can expect a vote probably in the fall as a reasonable expectation on timing. Assuming that vote is approved by shareholders, the reclassification would close a few days after that. Can you just clarify the second part of your question? Again, I want to make sure I caught that right. Yes. Thank you, apologies for the noise. My question was regarding the reclassification and the extent to which it may have an impact on capital allocation and/or business strategy at the company, or if we should think of those as, for the most part, distinct issues. Thank you. Gotcha. Yes. I'd say think of them as distinct issues, or maybe another way of saying that is that if we are able to move forward with the share repurchase and offset the dilution of about $2 million, which we're working through that now, we would absolutely be able to accommodate that and not compromise on our other capital allocation priorities. We've got plenty of room in terms of available funding. We're doing some different scenario planning now, we don't see anything that would prevent us from committing to the capital allocation priorities we've outlined previously. Tommy, the only color I'll add is I think Kristen answered the capital allocation portion. On business strategy, look, we feel really good about the direction of the company. I mentioned in prepared remarks that the family, if this goes through, would receive the premium in the form of shares, which is a sign of the confidence in the strategy that we have. I think you can feel good that we are going to continue forging ahead on the direction that we've been on. Great. Thank you. I'll turn it back. The next question comes from Stephen Volkmann with Jefferies. Please go ahead. Hi. Good morning, folks. I'm gonna go back to. Good morning. Good morning. Go back to the price cost kind of question, and I'm curious how this sort of plays through. Kristen, you mentioned maybe the pricing is still a little higher, I think you said in the first half of 2024. Is this a situation where you have sort of deliveries that are coming in, containers that are coming in, that were sort of at higher rates, and that we sort of just have to work through that, and then we would expect the cost side to come down after that? Or is it that the cost is sort of unlikely to come down, and that that's sort of a new, higher level that we'll have to live with? Yeah, I can take that, Steve. The way I would think about it, you've got kind of two parts that are relevant if you're thinking about price costs, like for Q4, but then into 2024. The first part of it is what's really already sitting on the balance sheet. Because of the average costing method, we've been absorbing higher priced items onto the balance sheet, you know, since this inflationary period began, and there, the impact of that rolls off onto the P&L, depending on how fast the item sells, what the inventory terms are, et cetera. There's a big portion of this is really about how quickly, the impact of what's on the balance sheet hits the P&L. That's a little bit easier for us to size and model now because it's in there. We know what it is. We just have to make some assumptions about the timing of the impact. The second thing that complicates estimating 2024 is the impact of additional cost increases that may come online from our suppliers and how we would choose to respond to those through price. That's where it gets a bit complex, especially as you start thinking later into 2024. Steve, the one other color I'll add here is just having been in the business for a long time, over two decades now, what we're going through now is very typical of in the inflation cycle, early stages of the cycle. When we take price, we get it right away, and the cost, because of our average costing system, will work its way through the P&L, whereas later in a cycle, the costs are working their way. This is largely timing and is very typical of other cycles. Understood. Thanks. Erik, I think in past calls, you've been kind enough to give us your sense of sort of the cadence of business as the quarter progressed. You know, how was May? How does June feel? Anything to call out there? Yeah, I think, Steve, I... You know, the words that we used in the prepared remarks of leveling are probably the most appropriate. I mean, certainly, look, we've seen a moderation. No surprise there, given IP, a moderation from where we were six, nine months ago, but not a big change. You know, interestingly, if you look at our numbers and the one thing that is the biggest change from Q2 to Q3 was there was a step down on our national accounts growth rate. I have to tell you, the feeling on the ground there is probably the best it's been in a long time. You know, sometimes it's what's tough to tease out there is how much of that is macro, meaning how our customers are doing, and how much of that is micro, because I know our team is feeling good about a number of recent wins that haven't yet hit the numbers. It's hard to tease that out. In general, we're not feeling like things are falling off. You know, a lot of this, what we're seeing is the growth rate in June certainly is gonna be less than it was in Q3, but we're lapping an acquisition, we're lapping higher comps, that there's, you know, sequentially, not a ton of change. Great. I appreciate it. The next question comes from Patrick Baumann with JP Morgan. Please go ahead. Hi. Good morning, Erik. Good morning, Kristen. Thanks for taking my questions. Good morning, Pat. Good morning. Just first one, to clarify on the Public Sector win. You said 2/3 of the 80% growth in that customer group is from, I guess, those capital purchases. If I were to line up your prior expectations on gross margins, which I think were to kind of improve quarter-over-quarter by, like, 30 to 40 basis points, it kinda suggests this revenue came in at 15%-20% gross margin, all else equal. You're saying only 2/3 of the 160 year-over-year gross margin compression is from that Public Sector win. Can you just help kinda tie that all together? Like, am I way off on my 15%-20%, or is there some other part of the business that's a little bit below where you thought it would be? You're a little high on the volume number, Pat, and you're a little bit high on the gross margin impact. Maybe the simplest way to put it, you mentioned the guidance we gave previously on gross margin improving 30 to 40 basis points sequentially. If you take out the impact of the contract win, that is exactly what happened. Right. I'll think my math is pretty close, but okay. If I move on to the next question, if I make kind of, you know, various adjustments related to the growth you're seeing in the mission-critical programs, you know, Vending, VMI, et cetera, and also the government business growth, I back into kind of sales for the rest of the business that were down maybe high single-digit, you know, that 35% of sales that is kinda non-public, non-solution subset of customers. Can you just address the... You mentioned strategic investments you're making focused on the website, in terms of, you know, driving better results in that subset, and then any other initiatives maybe to reinvigorate growth in that bucket of business? Any color you can give on any of that stuff would be helpful. Yeah, Pat, sure. Look, I think a few years back, we made a pivot, and the pivot was to enhance the value proposition to become higher touch and more technical on our customers' plant floors. A lot of the programs that you're talking about are aimed at just doing that. We're really encouraged because we're winning there. You know, I think what you're referring to, and I don't know, I didn't follow all the numbers, and so I can't confirm or deny exactly the numbers, but directionally, yeah, where we're touching customers with the new value proposition, we're growing at much higher rates than where we're not. You asked about where we're not touching customers, what are we doing? We mentioned digital investments. There's a couple of kind of pillars to our digital investments. One is e-commerce, for sure. There's a lot of work going on right now, and we've always felt like we had a strong e-commerce program, but we also have always felt that you never stand still, and we're gonna be enhancing our platform, we're enhancing our product discovery. Work to make the transaction with MSC even better. That's one. two would be digital partnerships that extend the reach of MSC and allow us to bring our high touch and technical value proposition to a larger and larger audience of customers. You know, certainly in the past, we've talked about MillMax, which has become a key ingredient now in our value proposition. We mentioned MachiningCloud. Extending the reach of MSC through digital partnerships would be the second pillar. Both of those are key areas where we've been investing and intend to drive growth in the smaller customers. Understood. Any thought, just to follow on to that, to any tweaking approach to the list price plus discount approach that you continue to have? Yeah, look, Pat, we always evaluate. You know, if you're talking about pricing, look, there's always a trade-off to be had between pricing and volume. We've designed a value proposition that is high value add, higher cost, because it's high touch and more technical. You know, we believe, appropriately, that we should charge for that value, and we do. We focus on customers that are looking for a total cost of ownership reduction and not just gonna price shop. I would say in general, that's our approach, is the pricing we go with is commensurate with the value that we bring to customers. I'd also say that anywhere we're touching customers in those higher touch models, we're priced competitively. I think what you're referencing is for customers either who are new to MSC or who don't have one of these programs in place, yes, there are times where our prices are gonna look high. We evaluate it all the time. I think you could expect to see us tweak, but I would say, when I say tweak, taking more surgical approaches as opposed to anything massive and broad-brushed at one time. Understood. Thanks a lot for the color. Best luck. Thanks, Pat. The next question comes from Ryan Merkel with William Blair. Please go ahead. Hey, good morning, everyone. Hey, Ryan. I wanted to ask on gross margin, just high level, just given it sounds like there's some puts and takes. Sort of over the next three to four quarters, could you talk about the high-level tailwinds and then the high-level headwinds? It sounds like net-net, you typically talk about gross margins mix being down, like, 30 to 50 bps. It sounds like it might be in that range, maybe a little worse. Correct me if I didn't hear that right. I think, Ryan, you're talking about, like, the kinda typical way we would size the margin mix headwind from the different growth through the areas where we have margin tailwinds, like if Public Sector growth, solutions. I think that's what you're referring to, right? Right. It sounds like with the Public Sector wind, the price cost, it just feels like there's a little more incremental pressure. Just want to make sure. Yeah I sort of understood the puts and takes, high level, just the next couple of quarters for modeling purposes. Yeah. Yeah. You're, you're spot on. That mix impact was definitely exacerbated in the third quarter. Public Sector in general tends to be a margin headwind for us, because of the nature of a good portion of that Public Sector growth in Q3 coming from that large contract win, which was at lower growth margins, yes, that mix was absolutely higher than we would normally expect that being. In Q4, there will be a similar dynamic, but on a lower amount of revenue for the fourth quarter, probably about half the size of what you saw in Q3. I think we touched on this earlier, but the, there's a lot of moving parts in Q4. The other thing on margin, I would just reiterate, is you have decelerating price benefit. The cost levels will stay relatively flat-ish to Q3, such that the price cost headwind on gross margin is worse than the 20 basis points that we saw in Q3. Going into 2024, it's a little hard to say still. We'll put more color on that next quarter. Because of how the costs roll off and what the inflationary period looks like, it's reasonable to think that the first half is gonna be tougher on margins than the second half. Got it. Kristen, the one other thing I'd weigh in with is just Ryan. Kristen summarized it perfectly. Two other potential tailwinds that, to Kristen's point, we've got to size all of this before giving a 2024 outlook, would be the category line reviews, which will. If price cost is negative and worse in the first half than the second half, category line reviews should hit into that. Second is some benefit from freight as that moves through our P&L. Putting that all, those are kind of the puts and the takes, and then, you know, by next quarter, we'll put it together for you. Perfect. Okay. Just high level back on the macro, conditions have moderated. You know, we can all see the IP is down slightly now. What are you hearing from customers in terms of the drivers? Is it destocking? Is it higher interest rates is causing people to, you know, tighten up a bit? Are small and medium customers a little bit slower? Maybe any end market color you'd throw in there. I'm just trying to, you know, figure out what are the drivers here of sort of this moderating conditions. Yeah, Ryan, you know, look, I would say it's definitely not a surprise, to your point, given the indices. I think things have actually held up pretty well, considering what the headlines in the indices show. You know, as we probe into it, I would say, first of all, the leveling, the moderation, the pockets of softness, this is not across the board, because you have pockets where things are softer. I mean, oil and gas would be one example. You have pockets where things are booming. Aerospace is doing well, automotive is doing well, medical is doing well. This is not across the board at all. We didn't see, you know, it's always hard to gauge destocking, we didn't see a ton of destocking. I think, you know, part of this, no question, the higher interest rates, having some impact. You know, overall, Ryan, I mean, moderating is the word I'd use as opposed to anything that would, you know, we don't see signs of, like, things falling off a cliff. I don't know if that's helpful color. No, it is. I appreciate it. I'll pass it on. Thanks. The next question comes from Ken Newman with KeyBanc Capital Markets. Please go ahead. Hi, this is Katie Fleischer on for Ken today. Hey, Katie. Hi, Katie. Hi. Good morning. I know you guys really aren't ready to give any full year 2024 guidance yet, but I'm wondering just if high-level we can talk about EBIT margins for next year. If you're able to keep sales up low to mid-single digit, just given some of these mix impacts and price cost headwinds, can operating margins be up or flat in fiscal 2024? Yeah, Katie, I'll take that. Definitely still too early to definitively answer the question. The price cost piece is a big driver we've got to get our arms around, and then, as Erik mentioned, we're really aggressively moving on the line reviews, sizing those, sizing other productivity opportunities that we have, and looking at the horizon for when those would come online. There are a lot of moving parts. What I, what I would say, higher level, if you zoom out, we're still targeting 20% incrementals over a cycle, and more to come on the specifics of 2024. We're really trying to get our arms around those moving pieces, do some scenario planning and model the sequencing for the year. Okay. Yep, that makes sense. Going back to some price questions here. On the Public Sector, is that typically a headwind to price? Just trying to get a sense of, like, without the impacts from that win, would prices have been up more than 3.5% in the quarter? No. It's probably maybe a little bit higher, Katie. Like, the way I would say we think about Public Sector impact on gross margins, it's a little bit lower generally than the core. Like, when we talk about the big growth initiatives that are margin headwinds, Public Sector is definitely one of them because the average growth margin, like, you know, taking the one win out, on, in general, the Public Sector margins are below the average of the rest of the business. We would call that a gross margin headwind on a typical basis. Okay, great. Thank you. You're welcome. Our last question today comes from Chris Dankert with Loop Capital. Please go ahead. Hey, morning. Thanks for taking the questions. Erik, earlier you'd mentioned, you know, medical and EV as some pretty exciting opportunities going forward here. Maybe if you could touch on just what does customer engagement look like there today? Can these be, like, much more meaningful markets quickly, or is this something that we're gonna really see moving the needle, say, like, five years out? Chris, look, I, I would say both. I think you're starting to see the impact. Medical, certainly we're seeing the impact now. You know, EV, I would say we are beginning to see a bulge right now with the infrastructure for the electric vehicles and the hybrid vehicles builds out. By infrastructure, I don't just mean charging, but batteries, et cetera. I think we are beginning to see benefit now. I... You know, I would say the other one that we called out, Chris, is aerospace, that we think has, no pun intended, a long runway with the kind of backlog that we've seen there. All of those, I think we're beginning to see benefit now, but we would expect good things to come for the next quarters and years. Got it. By the way, the one other point I'd make, Chris, is we mentioned MachiningCloud. Partnerships like that. I talked about the reason behind the partnerships is to extend our reach and bring our value proposition to more customers. We do try to line up and partner with customers, with partnerships and entities that are gonna bring us closer to those end markets, those higher, more sophisticated end markets, and MachiningCloud would be a great example of that. Perfect. Yeah, thanks so much for that, Erik. I guess on In-Plant, growth has been really strong there. Any update or comment on just kind of where you see that as a percent of sales, kind of the dot plot for growth there going forward? We, you know, it's been going at a nice clip. I mean, look, we would say if you look at the total addressable market, for customers with an In-Plant, you know, we'll look at it by size and complexity of customer, Chris, this is going, you know, if you go out five years, 10 years, this should be a pretty healthy chunk of our national accounts business that ends up with whether it's full In-Plant or the full suite of solutions, it makes so much sense. You know, we're seeing the benefit for MSC is obviously the penetration, the growth, and the high retention rate. It's a real win for the customer, especially as the labor market remains challenged, the skills gap remains. Customers are putting a premium on being able to essentially outsource lower value add functions, so they can focus on the core operations, which is manufacturing. You know, I would tell you that over the long run, a good chunk of national accounts ought to end up with an In-Plant, if not the whole, suite of services. Got it. Thanks so much for the color there. This concludes our question and answer session. I would like to turn the conference back over to Ryan Mills for any closing remarks. Thank you for your time and interest this morning. As a reminder, our fiscal 2023 fourth quarter earnings date is set for October 25th, we look forward to seeing you in person at investor conferences or on the road in the coming months. Thank you for joining us today. Goodbye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.