Good day, and welcome to the MSC Industrial Supply Fiscal 2023 Fourth Quarter and Full Year Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, today's 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, and good morning, everyone. Welcome to our fourth quarter fiscal 2023 and full year 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 are providing on the website, contain forward-looking statements within the meaning of the U.S. securities 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 is noted in our earnings press release and our other SEC filings. 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 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, everyone, and thanks for joining us today. On today's call, I'll reflect on where we are by recapping our fiscal 2023 performance and our three-year Mission Critical achievements. I'll then pivot to where we're going by outlining the next chapter of MSC's Mission Critical playbook. Finally, I'll provide color on the current environment and outlook. Kristen will then provide more specifics on our fiscal fourth quarter financial performance and our initial expectations for fiscal 2024. I'll wrap things up, and we'll open up the line for questions. Before I dig into our annual performance, I'd like to thank our shareholders for their continued support. Earlier this month, we announced the completion of our share reclassification agreement and elimination of our dual-class share structure. This was voted heavily in favor by our shareholders and makes MSC shares a more attractive investment as it broadens our scope of potential investors, enhances our corporate governance practices by limiting the Jacobson and Gershwind families' voting power to 15% of shares outstanding, transitions us to a majority standard for any election of directors that is not a contested election, and replaces the two-thirds voting rule for certain significant transactions with a simple majority voting standard. Additionally, we'll add another independent board member with the selection process getting underway in short order. Lastly, it remains our intention to offset dilution from the transaction, and Kristen will discuss that later on in more detail. I'll now move on to our recent results. As you can see on slide four, we continued the trend of meaningfully outpacing the IP Index in our fiscal fourth quarter. Average daily sales improved 9.3% year-over-year, compared to flat growth for the IP Index. Zooming out from the quarter and looking at our fiscal year 2023 on slide five, we achieved average daily sales growth of 11.2%, which was over 1,000 basis points above the IP Index. As a result, we achieved a nice milestone, with annual sales exceeding $4 billion for the first time in company history. Moving to profitability for the fiscal year, our gross margin of 41% was down 120 basis points year-over-year, largely driven by headwinds related to customer mix and acquisitions, in particular, the outsized effect of the large public sector purchases. However, due to strong operating expense leverage, our operating margin was 12.1% and 12.6% on an adjusted basis, which was only a decline of 60 basis points and 30 basis points, respectively, year-over-year. I'll now spend a few minutes on slide six by illustrating our successful execution of the Mission Critical priorities. As many of you recall, our Mission Critical program was based on five growth initiatives, and here we showcase our performance across each on a three year compound annual growth rate or CAGR basis. one, solidify metalworking. Metalworking-related sales produced a three year CAGR of roughly 9%. And beyond the numbers, we strengthened our metalworking position by adding new technologies and capabilities, such as MSC MillMax and tool regrinding services. Two, leverage portfolio strengths, or what I commonly refer to as selling the portfolio, which focused on increasing share of wallet through adjacent product categories. This includes Class C consumables product sales, which improved roughly 9% on a three-year CAGR. Of note, Class C consumables product momentum continued in our fiscal Q4 as we sustained our recent double-digit growth trend. Three, expand solutions, which was primarily geared towards vending and In-Plants. Our vending installed base has grown 10% over a three-year CAGR, while In-Plant sales produced a strong three-year CAGR of roughly 35%. As a reminder, we achieved record quarterly In-Plant signings during our fiscal third quarter and maintained a strong signing rate in the fourth quarter. Looking forward, we expect strong signings to remain a trend across both solutions. four, digital, with a particular focus on e-commerce. E-commerce sales improved roughly 9% on a three year CAGR, and we see plenty of room for continued improvement. This is especially the case for our core customers, which I'll touch on in a moment. five, diversify customers and end markets with a particular focus on the public sector. Public sector sales grew at roughly 7% CAGR, despite a high starting point in fiscal 2020 due to COVID-19-driven demand. Recent performance in the public sector was particularly strong, with fiscal 2023 growth of over 45% and over 20%, even without the public sector large orders that occurred in the prior two quarters. Execution of our growth initiatives enabled us to meet or exceed all of our long-term targets associated with the program, which can be found on slide seven. This includes compound average daily sales growth of 7.7 over the three-year period, which was over 500 basis points above the IP index and ahead of our 400 basis point target. This growth drove strong returns, allowing us to meet our goal of a high teens return on invested capital. Fiscal 2023 ROIC came in at 18.6%. Progress was driven by greater than $100 million in cost savings, also exceeding our target, and helped to produce a 220 basis point reduction in adjusted operating expense as a percentage of sales over the three-year period. I'm pleased with the execution of our Mission Critical program, and I'd like to thank all of our 7,000+ associates for their efforts. However, we're not stopping here, and we're not satisfied. We aspire to continuously improve and to take MSC to new heights. So with that, let's move on to slide eight for a look at the direction we're heading. The next chapter in our Mission Critical journey is anchored in three pillars, which I'll now describe in more detail. Our first pillar will be to maintain momentum on the five existing growth drivers that I just described, and this includes maximizing the impact of our large account program. Over the past three years, we've built up a significant backlog of large account signings, including meaningful In-Plant agreements in fiscal 2023. Scaling these new wins to their full potential run rate represents significant latent revenue growth. Our second pillar will be to add a couple of significant and new elements to our growth equation to further our performance. First, we will re-energize core customer growth. Over the past three years, most of our growth initiatives were focused on larger customers through penetration of high-touch services. In other words, we outperformed our growth over IP target without generating outperformance from the largest part of our customer base, the core customer. Our next Mission Critical chapter calls for an acceleration in growth of the core customer, and we're making several critical investments in order to make this happen. We're improving pricing effectiveness, upgrading our e-commerce platform and product discovery functions, and we're investing in AI-based digital capabilities to improve our marketing effectiveness. Not only do we think this effort will improve our growth formula, but that it will also serve as a margin tailwind, because our core customers are associated with gross margins that are higher than company average. Second, we'll increase our focus on OEM fasteners. We have two strong businesses now in AIS and Tower Fasteners that form a solid foundation to build from. We have a cross-selling blueprint that was developed and proven out with CCSG, and so we will take that blueprint and apply it to the OEM fastener space. And though OEM sales are currently well under 5% of company revenues, we see significant potential to scale the business. We will begin implementing our proven process throughout fiscal 2024 and expect to see the benefits accrue in fiscal 2025 and beyond. Our third pillar will be to drive productivity improvements that continue reducing operating expenses as a percentage of sales and increasing ROIC. During the past three years, we built momentum by developing a productivity mindset across the company. We reduced adjusted operating expense to sales ratio by over 200 basis points by capitalizing on low-hanging fruit and making some bold moves, such as reshaping our branch footprint. We see plenty of room for further improvement, and so our third pillar of the next chapter of Mission Critical incorporates several new initiatives to accomplish these improvements. We will leverage investments in advanced analytics to improve supply chain performance in areas such as freight efficiency, network performance, and more. We'll build on recent momentum with Category Line Reviews and continuously optimize product and supplier portfolios and manage mix to improve profitability. And we will attack our Order-to-Cash and Procure-to-Pay processes in a way that we've not done before. We will upgrade our digital core systems and reengineer our order-to-cash and procure-to-pay value streams in order to unlock productivity in both operating expenses and in working capital, such as inventory and accounts receivable. Looking beyond fiscal 2024, we see an exciting setup unfolding. As we leverage these new initiatives, we target 400 basis points or more of growth above the IP Index and 20% incremental margins over the cycle. This yields a clear path to achieve adjusted operating margins in the mid-teens and ROIC in the 20% range over the longer term. I'll now turn to the more immediate and discuss the current macro environment and near-term trends. On our last earnings call, I described the tone on the ground as one of leveling, which was largely the case through our fiscal fourth quarter. However, we experienced a deceleration in our average daily sales in September. A portion of this was expected as the public sector capital purchases wound down at the end of our Q4, so no surprise there. However, the sequential step down went beyond this and was indicative of further softening. The softening trend is also not surprising, given IP readings, sentiment survey results, and macro news as companies and consumers deal with the effects of sustained higher interest rates and recessionary fears. However, conversations with our sales team suggest that we were more acutely impacted in September and October by the extended reach of the UAW strikes. While we have some direct exposure, this headwind is magnified when accounting for our indirect exposure, including job shops and machine shops, many of whom service the auto industry. We've since received a steady flow of reports of customers clamping down on spend and taking temporary breaks from production. We see this evidence in a sequential step down of our sales into auto-related end markets in early Q1 that is considerably larger than what happened in the rest of our business. This led to September average daily sales growing 1.3% over prior year, or down 8% on a sequential basis. Looking to October, the reach of the automotive strikes has widened, and as a result, with roughly halfway through our fiscal month, we're estimating October net sales to be up 1%-2% over prior year, which implies flat sequential performance from September levels. We estimate the impact of the UAW strike on September and October average daily sales to be in the low single-digit range. While we expect these challenges to continue throughout our fiscal first quarter, these headwinds are temporary. In fact, history tells us that during times of extended softness with customers, there's often a bounce back to some degree when normal conditions restore. In the meantime, it presents an opportunity for us to take market share from the local distributors who make up the majority of our market. Before I turn things to Kristen, I'd like to acknowledge the efforts of our entire team. During our first Mission Critical chapter, we sharpened our focus, increased the intensity inside of the company, and improved our agility. All of those are on display right now... We came out of the gates in fiscal 2024 with lower revenue growth than we would like, but I've been pleased with how the team has rallied in response. We are moving aggressively to capture market share that we believe will allow us to power through a softer environment. For instance, in the month of September, vending signings were up 57% over prior year, and VMI signings, which are largely attributable to our Class C business, were up 25%. In-Plant signings also maintained recent momentum. All of this bodes well for future growth prospects as these signings get stood up. With respect to profitability, we've taken several gross margin initiatives that were already in flight and look to accelerate near-term returns. These include discounting disciplines and a focus on moving product mix to our most profitable supplier partners. On the expense front, we've moved swiftly to reduce discretionary spending and moderate headcount. We're also embedding a continual improvement mindset across the company such that all 7,000+ of our associates are empowered to identify and act on productivity improvements. All of these actions will strengthen our ability to navigate through the previously discussed environment and drive profitable growth. I'll now turn things over to Kristen. Thank you, Erik, and good morning, everyone. Please turn to slide 9, where you can see key metrics for the fiscal fourth quarter on both a reported and adjusted basis. Before I dive into our results for the quarter, public sector growth was again particularly strong this quarter. This was partially due to greater than expected small capital purchase orders from the contract win discussed during our third quarter call, that fell below normal public sector margins. Digging into the details of our fourth quarter performance, momentum across growth initiatives resulted in continued share gains and strong cash generation. Fiscal fourth quarter sales of $1.035 billion improved 1.3% year-over-year. Our year-over-year improvement was driven by continued volume growth, more modest pricing benefits as we lap prior year actions, and a 150 basis point benefit from acquisitions, partially offset by five fewer selling days. On an average daily basis, we experienced year-over-year growth of 9.3% and outpaced the Industrial Production Index by approximately 900 basis points, continuing the trend of significant above-market growth. By customer type on a year-over-year average daily sales basis, public sector sales increased over 60%, while national accounts and core customers improved mid-single digits and low single digits, respectively. Looking at our sales through the lens of our Mission Critical growth drivers, we continued making strong progress. In metalworking, we continued seeing growth driven by our ability to provide customers outsized savings and value through our best-in-class technical expertise, product breadth and service levels. These competitive differentiators, combined with our 150+ metalworking experts, place us at the spindle with customers and has us well positioned to further penetrate high-growth end markets and address customer needs associated with the skilled labor shortage in North American manufacturing. Within our vending and In-Plant offerings, we continued capturing share and experiencing favorable levels of growth. In vending, Q4 average daily sales improved slightly more than 9% year-over-year and represented roughly 16% of total company net sales, in line with the prior year. In-Plant signings remained strong at a rate modestly below last quarter's high-water mark, and sales improved approximately 13% year-over-year. As a percentage of total company net sales, In-Plant revenue represented 13%, an improvement of roughly 110 basis points year-over-year. It's worth noting that both of these solutions would have accounted for a higher portion of total company net sales, excluding the outsized public sector growth. In e-commerce, we experienced mid-single digit growth year-over-year. Sequentially, related sales improved slightly to 61% of total company revenue, but was down year-over-year, largely due to the outsized public sector growth that transacts through different channels. Looking forward, we expect improvement in our e-commerce sales, particularly through mscdirect.com, as we start rolling out enhanced capabilities, including improved search and navigation functions. Across our other two initiatives, we continued making strong progress. In selling the portfolio to increase share of wallet, which is primarily our Class C Consumables, ADS growth was in the low teens. Progress on our diversification initiative also continued, with public sector growth in excess of 60%, representing 13% of sales, which is an improvement of 500 basis points year over year. It's worth mentioning that even excluding the small capital purchases, public sector growth was north of 20%. Lastly, and as Erik mentioned, we successfully completed the first chapter of our Mission Critical program. However, we expect to maintain this momentum in fiscal 2024 and beyond.... Looking ahead, this will help us mitigate impacts from the temporary market challenges we currently face that I'll speak to later on. Moving on to profitability for the quarter. Our gross margin of 40.5% was down 140 basis points year over year. The year-over-year decline was largely driven by a 130 basis point mix headwind, primarily due to the specific products sold in association with the previously discussed public sector contract win, which was below typical public sector margins. Looking forward, we don't expect these lower margin sales to have a meaningful impact in fiscal 2024. As expected, price cost was a larger drag on margins this quarter, driven by the combination of more modest pricing benefits and higher cost inventories working through the P&L. However, this was completely offset by combined benefits of other items such as rebates and other cost of goods sold adjustments. Reported operating expenses in the quarter were approximately $299 million, and up $9 million year-over-year. On an adjusted basis, operating expenses were approximately $289 million, a slight decrease of $500,000. This represents a decline in adjusted operating expense as a percentage of revenue of 40 basis points year-over-year to 27.9% of sales. The reduction in adjusted operating expense was primarily due to one less selling week year-over-year. Excluding the difference in business days, adjusted operating expenses would have increased year-over-year. This increase was primarily driven by variable selling expenses tied to higher volume, labor costs, digital investment and increased healthcare costs, which remain at the elevated level we experienced in fiscal Q3. This was partially offset by lower freight expense as well as Mission Critical savings of approximately $3 million, bringing total programming savings to $102 million, slightly above our stated three year target. Reported operating margin was 11.4%, compared to 14.1% in the prior year period. On an adjusted basis, operating margin of 12.6% was in line with expectations and declined 100 basis points compared to the prior year. The year-over-year decline was primarily driven by the 140 basis point reduction in gross margins, with a partial offset from the 40 basis point improvement in adjusted operating expenses as a percent of sales. We reported GAAP earnings per share of $1.56, compared to $1.86 the prior year period. On an adjusted basis, EPS was $1.64 versus $1.79 in the prior year. Turning to Slide 10, to review our balance sheet and cash flow performance. We continue to maintain a healthy balance sheet with net debt of approximately $404 million, representing 0.72x EBITDA. We have a strong liquidity position with $50 million of cash on hand and approximately $550 million currently available on our revolving credit facility. Looking forward, our balance sheet strength and cash flow generation strongly support both our capital allocation strategy and near-term intentions to offset dilution from the share reclassification, which I will speak to momentarily. Additionally, we had strong operating cash flow generation during the quarter of 152% and 204% for the full year, well above our greater than 100% target. Capital expenditures totaled $28 million during the quarter and approximately $92 million for the full year. Together, this resulted in strong free cash flow generation of approximately $607 million for the full year, an increase of over $420 million year-over-year. Moving to our capital allocation priorities on Slide 11. Our decision to deprioritize special dividends creates significant room for strategic optionality. Looking forward, this will likely be geared towards organic investment, both on M&A opportunities and further deployment to shareholders. As it relates to the ordinary dividend, we will target modest and consistent increases as seen by the recent 5% increase. As I previously mentioned, share repurchases will remain in the pecking order of our capital allocation strategy. Given our intentions to offset dilution from the share reclassification, we detailed our expectations for buybacks in fiscal 2024 for modeling purposes on Slide 12. The dilution of shares from the reclassification was approximately 1.9 million. We repurchased approximately 645,000 shares during the fourth quarter and an additional 205,000 in the current quarter as of October 13, leaving approximately 1.1 million shares remaining to fully offset dilution. As a reminder, we expect to repurchase the remaining shares by fiscal 2024 year-end. Looking forward, after completing this buyback initiative, we will have approximately 2.4 million shares remaining on our current authorization, and at a minimum, we will look to offset annual stock-based compensation dilution. Now, moving to our initial fiscal 2024 outlook on Slide 13. We expect average daily sales to improve approximately 2.5% at the midpoint, with a range of flat to up 5%. This includes an approximately 160 basis point year-over-year headwind from non-repeating public sector sales. Underlying assumptions within our sales outlook include more normalized pricing benefits year-over-year. As it relates to the current market challenges, our outlook assumes the IP Index remains roughly flat, consistent with recent readings, and that headwinds related to the UAW strike will begin to alleviate in early fiscal 2Q or before calendar year-end. Lastly, as a reminder, we have the same amount of business days year-over-year throughout the fiscal year. Within this sales outlook, we expect adjusted operating margins to be in the range of 12%-12.8%, or down 60 to up 20 basis points year-over-year. This reflects lower volume and more challenging price cost expectations in the first half of the fiscal year. However, for the full year, we expect to offset a good portion of these negative factors through Category Line Review savings, other gross margin countermeasures, and a roughly 50 basis point gross margin mix benefit from non-repeating public sector sales. The combined effect of these items are expected to result in gross margin for the full year being flat to slightly down year-over-year. Depreciation and amortization costs are expected to fall in the range of $85 million-$95 million, with the increase representing a margin headwind of 30-50 basis points year-over-year. This largely reflects the investments made in technologies and digital capabilities, as well as continued growth in vending. Other underlying assumptions include an interest and other expense of $40 million-$50 million, CapEx, including implementation costs for cloud computing arrangements of $120 million-$130 million, and a tax rate between 25% and 25.5%. Additionally, we expect strong operating cash flow generation to continue in fiscal 2024 and to be greater than 125% of net income. I will now provide some additional detail on our expectations for the first quarter and quarterly cadence throughout the fiscal year. With respect to revenues, on a sequential basis, we historically experienced low single-digit improvements in our 1Q ADS rate compared to 4Q, which isn't expected to be the case in fiscal 2024. This is primarily due to the previously discussed market challenges, as well as an approximately $30 million headwind related to non-repeating public sector small capital purchases. As a result of these factors, we expect average daily sales in the first quarter to be down sequentially in the low single-digit range and up slightly year-over-year. Looking beyond the first quarter, we expect to slightly outpace historical sequential patterns in 2Q, with stronger sequential performance in the second half. Under this scenario, we assume the previously discussed market challenges begin alleviating in early 2Q. With respect to gross margin, we expect the first quarter to tick up sequentially because of the removal of the public sector large order noise. That said, the first and second fiscal quarters are likely our most challenging due to negative price cost. As we move through the year, that gap should ease due to the cycling of our inventory and the benefits of category line reviews and other gross margin countermeasures. Finally, with respect to operating expenses, Q1 will see a sequential step-up in D&A and incentive compensation expense. That sequential step-up will not repeat itself to nearly the same degree in the following quarters of fiscal 2024. Additionally, our profitability as the year progresses, will be supported by the swift actions Erik previously outlined in response to the soft start to the fiscal year. This will come in the form of clamping down on discretionary spending, taking a hard look at key expense areas like freight and other productivity initiatives, and executing on several gross margin actions, including the category line reviews. With that, I will turn the call back over to Erik for closing remarks before we open the line for Q&A. Thank you, Kristen. Fiscal 2023 was a monumental year for MSC as we strengthened our corporate governance, successfully closed the first chapter of our Mission Critical journey, and surpassed $4 billion in annual sales for the first time in company history. I'd like to thank our entire team for their hard work in making this possible. Looking ahead, we will leverage the muscle memory gained from the past three years to further strengthen MSC's performance. Regardless of the macro environment as we enter fiscal 2024, we will remain focused on harnessing our momentum, adding new levers of growth and productivity initiatives, and executing what is in our control. Thank you again to our entire team, and we'll now open up the line for questions. Thank you. 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 are using a speakerphone, we ask that you 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. Today's first question comes from David Manthey with Baird. Please go ahead. Good morning, everyone. Good morning. For Kristen, yeah, thanks for the color on margin progression as we look year to year. But I, I'm hoping you can bridge us a little more clearly from fiscal 2023 to 2024 gross margin. We're starting at 41 even. You said 50 basis points due to the non-repeating public sector contract win. I think the last time you did a line review, it was something like 50 basis points. So I'm thinking you probably are getting a hundred basis points of good guys there on the gross margin. What are the hundred or more basis points of offsets that lead you to believe gross margin will be flat to down next year? Yeah, so you, you've got the tailwind on the purifiers, right, David? That's definitely one piece of it. And then the second thing I'd point out is on the Category Line Reviews. I'm not sure I'd go quite as high as the range that you gave, but there is a reasonable expectation, of course, that's helping to offset some of the price cost headwind that we've been experiencing and will continue to experience. So if you're starting at 40.5, let's just say you build that up to 41 as a kind of revised starting point for simplicity. I think then you could expect, let's just say somewhere between maybe 50-70 on the Category Line Reviews benefit, and then your headwind would be in your price cost spread, and that would get you back down to roughly flattish. Now, we alluded to kind of the countermeasures in the script that Erik was talking to. So obviously, there's a lot of things we're doing within gross margin, both in terms of transactional price cost, but also trying to affect other things in the, kind of, the other cost of goods sold accounts, via countermeasures. But that's kind of the color I'd give you on kind of simple building blocks to get back to the roughly flattish guidance on the GM rate. Well, shouldn't the... You're starting from 40.5, but shouldn't we start from 41.0, if we're adding back the 50 basis points for the government business? Yeah. Yeah, that's what I did. So go from 40, 40.5, then put back on 50 basis points for the government business, so that would take you to 41.0. And then, depending on how you want to assume Category Line Reviews go, I think we've communicated that we hope to do at least as good as in prior reviews, so that'd be about $20 million. I, you know, I'd say obviously we're hoping to do better than that. So depending on how you want to layer that in, I would put in $50 million-$70 million on Category Line Reviews if I'm kind of being conservative. That would get you up to 41.5-41.7, and then to drop you back down to 41.0, that's where your price cost headwind comes in. Okay. All right, we can follow up on that. And, and then on the overall sales growth outlook here, including the 400 basis points of share gain, if you take out the unusual government sales and acquisitions, it, it still seems like you're assuming industrial recession in most cases here. So first question is, is that the case? Are you looking at flatness to, to down in terms of IP for 2024 as a base case? And then second, you-- Erik, you mentioned a bounce back in auto-related sales following a period of slowness. Is that your assumption in the second quarter of fiscal 2024? Yeah, David. So I on the revenue front, what I'd say is, you're—basically what we're assuming, and I think Kristen alluded to this in going through the framework, is a roughly flat IP through the year. The reason revenues are where they are is you have two things. One is, as you mentioned, it's about 150 basis point headwind for non-recurring public sector orders. So if you take the midpoint of our guidance at 250, there's another 150 basis points or so for non-recurring orders. The other thing I'd say is, it's also in recognition, Dave, of we're coming out of the gate slower than we otherwise would have because of the UAW situation. In the prepared remarks, we talked about, you know, low single digits in terms of points to growth impact. So September and October, October, we're a little more than halfway through here, but September, we have under our belt, that half of October are going to be lower than the midpoint. So that is factoring into our equation. In terms of bounce back, that is not factored in. So what we are assuming is that the UAW situation relieves itself before the end of the calendar year, and that things restore to more of a neutral or flat IP situation. It does not account for any big bounce back. That certainly could happen. Got it. Thank you very much. Thanks, David. Our next question today comes from Stephen Volkmann with Jefferies. Please go ahead. Great. Good morning, everybody. Erik, you talked about the deceleration in September and October. It sounded to me like maybe half of that was due to UAW issues, and the other half was sort of more general. Any more color you can give us on sort of the non-UAW drivers? Yeah, Steve, certainly I'll take a shot here, and then Kristen can chime in if to fill in any dots here. But, you know, certainly if you look and you go Q4 to September, the Q4 and even August, you know, at the 9% growth number, it's certainly a big drop. I think one thing, just to sort of walk you growth rate from where we were tracking Q4 to Q1, you have a couple of things going on. So one, certainly the non-repeating public sector orders are about 3 points of that. So that brings you down to about 6%. There is a bit of a timing on a lapping of an acquisition, it's a 0.5 point or so, but basically, you're looking at somewhere in the 5-5.5 range, without those factors, down to, you know, what's in the 1-3 range for September and something similar, what we're projecting for October. Of that, what we were saying is in the low single digit range, you could add back for UAW. So yeah, I think, I think your, your back of the envelope on saying about the sequential step down, about half and half, is, is a reasonable ballpark, meaning half related to UAW, and then certainly a little bit of softening, which isn't surprising to us, given, what's going on in all of the macro indices. Right. And just any sort of end markets or, you know, themes to call out in terms of that slowing, non-UAW slowing? Is that fair assessment- Yeah, Steve, I would—I'm sorry to interrupt you, but I would call it general slowing. The real interesting thing here is it's hard to find a bright line between what's auto-related and what's not. And what I mean by that is, you know, we have some direct auto exposure. The bigger issue for MSC, of course, is what would be coded as a machine shop, a fab shop. A lot of, you know, there's a portion of their business that is auto-related. So there's tentacles to the strike that extend beyond just the direct SIC codes, if you'd look at auto. But more broadly, I would say general softening. You certainly do have some pockets of strength still, like aerospace, of course, but you know, more general softening. Again, I think consistent with what we've been tracking with the IP and the sentiment readings. Got it. Okay, thanks. And then just a quick follow-up. Kristen, are you assuming that gross price is positive in 2024? Yes, gross price will be positive in 2024, Steve. I'd assume about a 1-2 points of growth from price in 2024. Okay, thank you. You're welcome. Thank you. Our next question today comes from Tommy Moll with Stephens Inc. Please go ahead. Good morning, and thanks for taking my questions. Morning, Tommy. One follow-up on the, the 2024 discussion we've been having. Kristen, I think I heard you say, in terms of volumes, you expect them lower. I think that was a first half comment, but I just want to make sure? that we've got the right time frame there. Yeah, you, you heard that right, Tommy. Lower in the first half. Of course, Q1, we kinda talked about here with what's going on with the UAW and the general industrial softening, and then the expectation that UAW alleviates in early Q2. So what I would how I would think about kind of what changes first half to second half then is UAW headwind goes away, and then we also have, as, as we talked about in the prepared remarks, two key things coming online that drive growth in the second half. One is some changes that we're making around our pricing strategy, and then the second is, of course, the changes we're making to the e-commerce platform. And both of those are intended to really reenergize the growth rate in the core customer space, which has been lagging the growth rate we've seen for the broader company overall. So that is, that, along with just the change in the macro piece, drive sequential improvement in the second half. We've got a bunch of other growth initiatives that we're working on. I'd say there's a runway on the large account wins that we've had in the past year, particularly in the second half of 2023, that provide upside throughout the year. But those are a few things that I would point to that create the inflection first half to second half that we're expecting. That's helpful. Thank you. I also wanted to follow up on auto. If you have these numbers, it'd be great if you could provide them, just what you estimate your direct and indirect exposures are, just in terms of% of revenue. And just any more anecdotes you can give of where you may be able to discern it, it's more just general customer caution. So maybe not directly, quote-unquote, "strike impacted," but more just a sentiment headwind in that ecosystem that you've seen manifest. Thank you. Yeah, sure, Tommy. So, so to answer your first question, direct exposure, roughly in the range of 10%, maybe a little bit under 10%. Indirect exposure, as I mentioned, tough to, tough to get our arms around specifically, but it would, you know, certainly it would take, it would take that number up considerably, when we're, when we're referring to kind of MSC's bread and butter of machine shops, fab shops, and job shops. So that's in terms of the first part. In terms of the color I'd provide, I mean, we stay pretty close to the ground with our sales force, and you know, we're getting regular reports, and some of the reports are temporary halts in production, which would be sort of a more direct example of what we're talking about due to a strike, either at a customer or a customer of a customer. And then the other is, as you said, there are customers who are further down in the chain in the auto supply chain, who are expressing more caution and are just clamping down on spending. And we have examples of that, where you know, some of our vending customers, it's basically buy only what you need. We're seeing a lot of this, almost like what we described in the MSC world of clamping down on discretionary spending. We're seeing the same thing in a lot of our customers. Thank you. I appreciate it, and we'll turn it back. Our next question today comes from Ken Newman at KeyBanc. Please go ahead. Hey, good morning, guys. Morning, Ken. Good morning, Ken. Morning. To touch back onto the UAW stuff a little bit more here, obviously, you're assuming that strikes, you know, alleviate by the end of the calendar year. I'm just curious, just how much visibility do you have there in terms of, you know, what gives you comfort in making that assumption? And, you know, obviously, the range and the guidance is a bit wide for this coming year. So at the lower end, what are you kind of assuming in terms of a potential impact if that strike, you know, lasts a little bit longer than you anticipate? Well, Ken, what I'd say is, you could see, I mean, we're tracking towards the lower end of the range through September and our estimate for October, right? So that gives you a feel for if this were to continue, what would have to be the case for the lower end. We're, we're kind of in it now. And look, we had to make some assumptions. Our visibility is somewhat narrow, like all of us, as you suggested, that's why the range is slightly larger. But you know, look, if I think the punchline is, if this were extended, you're seeing what it's doing now. But, you know, certainly to the extent this alleviates itself at some point, there is a lift to come. And then, you know, as we were talking with Dave earlier, if there were a bounce in response, more of a lift. And obviously, in the meantime, all the while, Ken, we're focused on share capture. And so, you know, I was encouraged. While we can only control so much, I was encouraged right out of the gates in September, despite the lower growth. You know, our sales team's execution was strong, you know, so vending signings up over 50%, VMI signings up over 25%. Those are the things that, you know, Kristen mentioned, sort of a build in the back half, some of the initiatives coming online, in addition to some of the bigger programs. Just better execution in a tough environment when local distributors are vulnerable, gives us confidence because all of those signings will lead to new agreements, which lead to revenue, as we move along the fiscal. Right. No, that makes sense. I guess, but for my follow-up, kind of following up on that, I mean, you did increase the CapEx year for some of these digital investments. I think, Kristen, you mentioned a decent amount of that going towards cloud computing. Can you just quantify how much of that is contemplated in the new CapEx guide, and when do you expect to see those benefits start to monetize through the income statement? Yeah, Ken, happy to talk about that. So it is contemplated in the CapEx range that we gave. I would assume around $35 million of that, roughly going to the digital core initiative that we talked about. And maybe let me put a little bit more color around that than we kind of went into in the prepared remarks. But we really see this as being key to ongoing productivity generation and the ability to scale profitable growth once it goes live. So this is not, not a full-scale ERP system, just to be clear. Like, we've, we've kind of implemented parts of this along the way over the years, so our finance system's done already, PIM, web pricing. We're, we're not putting warehouse management in scope for this. And then a little bit. I guess a little bit more color on this too. We brought in a new CDIO last year, John Hill. He's led several of these implementations before, and he's got a dedicated team that's taken us through this. So it ends up being about $35 million this year. I think a similar amount then in 2025, with the program coming online towards the end of 2025. I'd expect some productivity benefits to start trickling in a little bit earlier that, just related to kind of the business process reengineering on order to cash and procure to pay, which is really what the system's targeting. So maybe some small productivity generation in 2025, but then material impacts the P&L post 2025. And of course, that's when the depreciation would start to hit, as well. Understood. Thanks. You're welcome. Our next question today comes from Ryan Merkel with William Blair. Please go ahead. Thanks. Good morning. Two questions. Ryan? First off... Hey, good morning. Hey, Ryan. Just back on the UAW, the impact of down low single digits, how did you, how did you quantify that? Was that the 10% direct down, sort of 20%-25%, or are you including sort of the indirect impact in there as well? Yeah, we're including the indirect impact in there, Ryan. So what we, what we've tried to look at was the change that we've been seeing in the IP Index markets in auto, transportation, primary metals, and fabricated metals. And as Eric mentioned, we've got some direct exposure in auto. So when we, we look at that one, that's probably a little bit cleaner to track, although there's even some things that map in there which aren't sort of perfect representations of our business. But primary metals and fabricated metals would be where we would look to try to gauge the impact that may be happening in the other spaces through, like, the job shops and the machine shops. We're basically looking at, like, what normal sequential trends would look like, for our sales in those spaces, and then we're looking at what the IP indices are doing to kind of triangulate against that low single-digit number that we gave. Okay. Am I in the right ballpark, where sort of all auto is down maybe 20%? I think that would be roughly in line with what we were seeing when we did the analysis. Yeah. Okay. Okay, that's helpful. And then just back to gross margins and the walk, just high level, it sounds like first half will be down year over year and second half, you know, up year over year. Is that roughly correct? And the reason being, in the second half, you get benefits from the line review, and then you lap the price cost headwind, right, in three Q? Yeah, maybe, maybe let me give it sequentially, Ryan, just because you get the noise from the public sector contract win in the second half. So what I would think about if you're starting with Q4 as the jump-off point on the 40.5, you're going to move up slightly sequentially into Q1. I'd expect a small inflection again in Q2, and then Q2 into Q3, with the second half being roughly level. That might be a little bit of an easier way to think about it, because there is a lot of noise in the year-over-year comps. Hopefully, that makes sense. Yeah, it does. Okay, I appreciate it. Thanks. You're welcome. Our next question today comes from Chris Dankert with Loop Capital. Please go ahead. Hey, morning. Thanks for taking the question. Hey, Chris. I guess, on the digital launch and msc.com kind of revamp here, just any additional detail on timing? Should we still expect that before calendar year end? And then maybe just any kind of contribution to sales growth we should be kind of assuming in the guidance there? Yeah, Chris. So basically, the e-commerce improvements and the heavy lifting on this is done. So, you know, Kristen mentioned in the D&A the impact of the P&L. The good news is the work is done. The rollout will be occurring really over the next quarter or so. So customers will begin to. That's when the customers will begin seeing an impact. We're pretty encouraged. What I would say is, it's factored into our guidance, for, you know, basically what Kristen described, coming out of the gates here, we're slow. We expect some sequential build, in part because of this UAW situation at some point, of course, normalizing, but in part because of the initiatives, and that's a piece of it. You know, I think what we expect to happen with e-commerce is it's not gonna be a light switch. This will build over time. It is one of the things, though, that gives us confidence beyond this year. Looking at kind of with a three-year lens, a multi-year lens, what gets us excited is we look back to the prior three-year chapter, and we achieved our growth targets, or we exceeded them with growth over IP, without really getting the engine of our core customer growing. We think this is a big piece to it. So I don't think it'll be a light switch, but I do think we're gonna start seeing benefits, you know, beyond the next quarter. Got it. Thank you. That, that's very helpful. And then maybe just to put a fine point on, on the cost front, again, seems like we're moving away from an absolute, you know, cost dollars coming out of, out of the business, you know, that $100 million that we had in the last Mission Critical program. Should we now just kind of keep our eyes on, you know, hitting that $20 million or the 20% incremental margin and think about that as kind of the, the target, for, for continuous improvement going forward? Yeah, Chris, longer term, I would say that's a fair way to think about it. 2024 is gonna be a bit challenging on hitting 20, hitting 20% incrementals, because of what's happening on price, cost, and margins, and then what's happening in terms of fixed costs and OpEx step up. So longer term, yes, I would agree with that. And then the way I would think about productivity within the year, though, and maybe this sort of just helps with kind of OpEx sequencing also, is we mentioned in the prepared remarks, there'd be a step-up in Q1 on OpEx costs related to DNA and incentive compensation. They... I would also factor in the sequential volume change and how we gave that, but so you based on what we're targeting for Q1, if you you know infer like a midpoint on what's happened in September and October, you step down based on volume-related costs in OpEx, that would be offset by the step-up in D&A and incentive compensation expense. And then I would think about OpEx dollar sequencing through the year as basically being roughly flat, with the exception of your volume fluctuations. So basically what that means is we're leveraging productivity to cover things like our merit increase, fund some of the investments, and then it just to kind of size what that's worth, our merit is typically around $20 million alone each year. Got it. That's all very, very helpful. Thank you so much, and best of luck in the new year here. Thanks, Chris. Thanks, Chris. Thank you. Our final question today comes from Patrick Baumann with J.P. Morgan. Please go ahead. Oh, hi, good morning. Thanks for taking my questions. Good morning. Hi, how's it going? First one, I guess, just a quick cleanup from the quarter. I think you said, Kristen, something about rebates and COGS adjustments offsetting price costs in the fourth quarter. What is that exactly? Yeah, so we saw favorability in Q4, Chris, related to both vendor rebates and customer rebates. And then the other item that we had in there was around us. So we've been doing a lot of work, I think we've alluded to it on previous calls, in terms of countermeasures on working capital and kind of composition of inventory, and some of that work started to yield a benefit in Q4 in terms of requiring a lower inventory provision than we've been seeing. So that was the other thing that benefited us in Q4, and those items combined allowed us to offset the price cost headwind. So it was a meaningful contribution, and, you know, we talk about countermeasures for fiscal 2024, that's the type of stuff that we're looking to as well. Can you quantify, you know, what that was in terms of basis points, that, that offset? Yeah. So if you look at Q4, we had about 130 basis points of impact tied to the public sector contract. And then price cost was down 120 basis points, and it was totally offset by the improvements in those other cost of goods sold areas. Super helpful. Thanks. Thanks for the color. And then my follow-up, maybe for Erik, is if you could give us more color around the pricing strategy, the changes you're making for that, for the core customer, like, what it entails. And, you know, after you're done with this, how should we think about gross margin for this group? Can it remain, you know, above the company average by the same spread it is today? And can you remind us how much higher the gross margin is for core customer versus, you know, what you book for large customers? I recall in the past, you know, a number given, you know, in the range of, like, 500-700 basis points, but that might have been a couple of years ago, so just wanted to confirm. Thanks. Yeah, Pat. Sure. So maybe I'll touch on the strategy. Kristen can follow up just on the growth differential, but I'll give you the punchline. So what we're doing here. And look, our pricing strategy has always been around a list price as a jump-off point to get to a net price for a customer. We feel very good about our pricing, and first, I'd say our value proposition is a high-price value prop, and we don't intend on changing that. We bring a lot of value in the way of technical expertise to our customers. We do command a premium relative to the traditional distributor. That's warranted, and that's not changing. What is gonna change is, as we look, any case where we're touching a customer consistently with a salesperson in a relationship, our pricing is competitive. What we have found, and I think we've alluded to this before, that there's cases where we're not touching a customer as regularly with a salesperson. It may be a direct marketing relationship, and there are times where our pricing is not competitive. And without. Certainly, it's not competitive without jumping through some hoops on discounting. And so what we're looking to do is identify and isolate those cases, both in terms of SKUs and customers... and make adjustments so that we're presenting out of the gate a more competitive price. The work is basically, this will be going out, the work, most of the heavy lifting again, is done. It'll be coming in flight in the next one to two quarters. Basically, we feel we're doing this as we've modeled it out with minimal, if any, margin dilution because of the way we've structured this, and the idea is just bringing a better price to the customer out of the gate. Our feeling is absolutely that along with the web improvements, this will re-energize the core customer. You are correct, we absolutely feel that post this adjustment, the core customer gross margin will still be healthily above company average, and certainly well above the growth drivers that have been driving most of the growth. So your estimate is certainly not out of the ballpark in terms of basis points. But that's one of the reasons we're excited as we move past. You know, Kristen talked about some of the challenges in the first couple of quarters. You, you get past the first couple of quarters of 2024 into the back half into 2025, this gets to be a pretty exciting picture. Yes, so- How does- It's a good range that you gave, Pat. The other thing, I'll just add a little color on what Erik said, too, in terms of profitability of sort of the, the kind of customers we're talking about here. It's also lower cost to serve, so really benefits the P&L in a couple places. So just to follow up to that, I guess that's embedded in the 1%-2% price you mentioned earlier for the year. If you reduce the price for this group of customers in you know, select instances, how do you maintain the same gross margin spread that group had in the past? Yeah, it'll be plus or minus, Patrick, and, and the answer is that in a lot of cases, it's going to be there. There's a lot of discounting that occurs when the list is high and we're not competitive out of the gate. There's a lot of discounting and oftentimes inefficient discounting that happens. So while this is going on, there's pretty tight controls around discounting disciplines because we're bringing a better price to the customer right out of the gate, and most of our modeling suggests that that will offset one another. Understood. Okay, great. Thanks. Appreciate- Thank you. Ladies and gentlemen, Oh, I think we lost you, Patrick, but thank you. Ladies and gentlemen, this concludes our question and answer session. I'd 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 2024 first quarter earnings call date is set for January 9, and we look forward to seeing you in person at the Baird and Stephens conferences in November. Thank you for joining us today. Goodbye. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.