Sir, are we good to start on the webcast? Okay, great. All right, well, thank you, everyone, for your interest in our conference here in Nashville this week. I'm Tommy Moll, research analyst here at Stephens. I also want to thank you for your interest specifically in MSC Industrial Direct. Today, I'm joined on the stage by two members of the company management team. To my immediate right, Kristen Actis-Grande, the company's CFO. To her right, Ryan Mills, who runs the investor relations program. Kristen, Ryan, thank you for your time and taking a day or two out of your week to come travel to Nashville this week. Thanks for having us, Tommy. So, as you may recall from last year, this conference attracts both specialist and generalist investors. So, I always like to start with a few questions to give the generalists a sense of what it is you do. They may be familiar with the name of the company and a couple of aspects, but it's really good to start with kind of a 360 of what is MSC. So, maybe to start that conversation, Kristen, let's just unpack the strategy in terms of moving from more of a spot-buy supplier to a mission-critical partner. What is that all about? Yeah, happy to start there. So, MSC's history, really, and our rapid growth was as a spot-buy provider. So, think catalog house that grew rapidly through acquisition, eventually became a national distributor, and we anchored around a value proposition that was really built on the depth and the breadth of the offering, a really strong customer service value proposition, and overnight delivery, which, at the time we were growing very rapidly, was actually highly unusual. In, like, the early 2010s, we started to experience something that was really affecting the industrial distribution space holistically, which was the impact of increased price transparency as B2B e-commerce became very prominent. And that caused us to really look at our value proposition, look at our business, and decide how we needed to evolve to respond to that change. You know, it's one thing when your customers are ordering out of a one-foot-high Big Book, they're likely to just keep picking your product over and over again. But now, when you're going online, you see our product and you can price it against competitive products, it really changes the whole dynamic. So, around that time, we kind of picked our head up and said, "All right, what are we uniquely good at? How can we support our customers?" And our customers were experiencing similar pressure. They needed more help running their operations more profitably. And that was really the spirit of the mission-critical transformation. So, MSC had already really created a unique space in the market through the expertise that we had around our products, particularly the metalworking products. We realized pretty quickly that total cost of ownership supporting our customers and getting more productivity themselves was something we were uniquely able to do. We do this through something that's called a Business Needs analysis, which is a very structured process our sellers follow. They typically identify up to 60 ways we can save a customer money. We're leveraging unique things like technical expertise. We can actually help the customer on their production line, run their lines more efficiently, reduce scrap output, energy utilization, labor cost, and through lower labor utilization. Those are things that we're very uniquely good at. That was really the whole spirit behind the mission-critical change. You didn't mention the company's historically strong product category yet, Kristen, so I want to make sure to talk about metalworking. Sure. For those who are not in the weeds on B2B distribution, that may be a new term or a term that there's not a lot of familiarity around. So, what are you referencing there? And if you just compare and contrast to other pieces of distribution, just talk about the real value proposition and how you go to market there. Sure. So, metalworking for us is about 45% of our revenue. And what that looks like is everything from cutting tools, measuring instruments, to actually, like, large capital purchases that support metalworking operations. Like, we would even sell CNC machines if that's something that our customer may be interested in purchasing from us. So, that's sort of our sweet spot, our bread and butter as a distributor. Again, it's about 45% of our sales. And one of the things that really benefits us in the industrial distribution space by leading with metalworking is that it puts us on the production line with the customer. Or if you're talking to one of our sellers, we call it being at the spindle. So, we're technically categorized as an indirect provider to a manufacturing operation, except that the cutting tool is being used in the customer's direct output. To come in and have a conversation with them about their production is a much higher-trust conversation. Again, technical expertise is one of the areas we differentiate. It's a lot different to go into the customer's production line and then work backwards to win other business with that customer. We're already in the most complex part of their operation. It's a lot easier to get the safety business, the janitorial business. We are also unique in that we have kind of four lanes of our business where we are very competitive. It's metalworking, MRO, which I just described two examples of, and safety and janitorial. We also have a Class C business, which is participating in sort of the maintenance of the factory. And then an OEM fastener business, which is getting more into the design of the customer's output, whatever it is that they're manufacturing at that location. And we have a large focus on capturing share of wallet across all four of those lanes. Kristen, before we dive into some of the more specific dynamics in play, I want to ask about the election results and what, if anything, you see as a potential impact both to your business and then also to your customers' businesses? Sure. So, I think just in general, the fact that the election is over is a nice thing that's gotten out of the way. We know that it has sort of created hesitancy with our customers, so happy to be on the other side of it. I'll maybe talk, like, near-term and then longer-term. So, for the end of calendar 2024, we don't see a tremendous amount of change that's likely to happen. So, for us, one of the things that we spend a lot of time looking at is the impact of the holidays, specifically because our customers tend to shut down and run maintenance at those times. And post-COVID, we've seen even more of that behavior that has sustained. So, we're looking a lot about what that will look like on our demand in November and December. We don't see customers changing that because of the outcome of the election. The other thing, probably the biggest thing that we've been navigating is 2024. Calendar 2024 was pretty soft for a lot of our customers, and I think the phenomena of kind of folding and calling it done for 2024, waiting for the calendar year rollover is still very much in play. Our latest pulse with our sellers has indicated a lot of optimism around 2025, although I'll say the setup seems eerily similar to what I heard going into calendar 2024, which is, it's going to be great, but it's not going to be January 1st. It's going to be like late Q1, very similar to what we're hearing right now, but maybe longer-term, to your question, Tommy, things we're looking at, impact of domestic oil and gas, we don't have a lot of exposure there. It's like low single digits, maybe indirectly double that, but that would be a tailwind to the extent there's a pickup there. You know, if we see lower corporate tax rates, that could be a tailwind to customer buying behavior. I don't think the interest rate environment is likely to change much, but to the extent there's some stability there, I think people are used to operating in that environment now. On the auto side, this sort of pattern around EV production being slower than expected to the extent that continues, not a huge benefit to us, but ICE and hybrid are heavier metalworking content. That would be a plus. What am I missing, Ryan? Oh, onshoring. We see that trend continuing. [crosstak Okay. Before we move on, I want to discuss tariffs, potential tariffs, really, and specifically around China. Yep. Can you frame for us roughly what percentage of your cost of goods is tied back to China? And if there were a new tariff regime put in place, how quickly can you as a distributor react to either, A, find alternative sources of supply in other jurisdictions, or, B, take pricing measures to pass through any increased expense? Yeah, sure. So, about 10% of our spend is coming out of China, and we are already looking at how we might react to that. Certain things that we would do would be buy-aheads. We feel very confident that that tariff situation creating inflation is a plus for us as an industrial distributor, so you know, we'd look at how can you pass price to cover that. We might also be looking at places where we benefit from having a larger domestic manufacturing base. Maybe there's some areas where we would get strategically more competitive on price. Reallocating the buys to other countries, we did a lot of that after the last tariff increase, so not to say there's not more opportunity there, but a lot of those migrations would have happened in the previous round of tariffs. But generally, I would say it's a favorable development for us, although the watch-out, of course, would be to the extent tariffs drive inflation and that lowers organic demand. That's something we'll be keeping a careful eye on. And, Tommy, back to your previous question, the one thing we didn't mention is we have a public sector business. It's more weighted towards the federal side. But any increase in defense or military, you know, we would benefit from that as well. Noted. Thank you. Kristen, I want to talk about the current operating environment, specifically on demand. During your last earnings call, some of the descriptions you've offered were further softening. That was one of the takeaways I recall. This is driven in large part by some weakness in heavy manufacturing markets, which has been pretty consistent this entire year. You have highlighted, though, the potential for extended shutdowns, holidays, belt tightening at the end of the year. Maybe that is kind of shaping up to be a greater headwind than it was a year ago. Maybe it's not. Just what more anecdotes can you share about why this year appears to be setting up for a pretty slow finish? Yeah, the holiday shutdown dynamic, I would say, is likely to be similar to what we've seen the past few years, although the difference in this calendar year is that you have only three weeks between Thanksgiving and Christmas, and then Christmas and New Year's both fall midweek, which we know, based on history, is typically the weakest setup we have for holiday, the purchasing around the two holiday weeks. So, watching that one, to me, the thing that seems to be the most different is just the deceleration that we saw kind of mid-second half, which I would really chalk up to some cautiousness approaching the election. But then I touched on it earlier, just this phenomena sort of throwing in the towel for 2024 and assuming 2025 has more positive days ahead in terms of the macro environment. Especially for customers, I think that had a decent first half of 2024. If you're doing okay, you've got a shot at holding your budgets, probably going to lock it down and wait for 2025 to kick in. Yeah. On automotive, you mentioned it earlier, Kristen. Just help the investor community unpack the dynamics there because the SAAR has been fairly strong. The investment in terms of your revenue opportunity has not been strong. So, what explains the delta there? And if you think about your opportunity to sell into that end market, what is something that could turn positively? Yeah, it's an interesting one. I think if you go back to pre-COVID levels, we're still not up to the levels of auto production we saw pre-COVID. You've got inflated dealer inventory still. I think broadly, we still feel really good about the opportunity in the space. Like, obviously, there's a large demand for metalworking tools, cutting expertise there, and in that whole value chain. But I think things for us that we'd be looking at to potentially unlock opportunity, you know, I think people aren't buying because cars are really expensive, interest rates are really high, so you're not getting a loan at a reasonable price. And the cost to repair cars even is starting to climb. So, I think it's just creating this very unfavorable environment for people purchasing vehicles. So, I think interest rates is one to watch. That's probably the biggest one. It's really the interest rates. We're getting into the heavy incentive season. Whatever that spurs from an end-user demand, you know, that might right-size dealer inventories and give the OEMs, you know, some more confidence to increase production heading into 2025. Yeah, that's a good point. An adjacent market there would be heavy machinery, Kristen, which has also been pretty weak lately. Yeah. What are you seeing there, and it's kind of the same question. What things could happen to finally set a floor there in that end market where you could return to growth at some point? Yeah, that one's interesting. You know, if you think to the extent that that has been impacted by interest rates, we're going to be in this environment now. Like, I think we're kind of in the new normal, you know. So, I don't see there being any further deceleration there. I think for us now, it's really around how fast things can ramp back up. And we've seen some positive, you know, indicators of production schedules stepping up, shifts going back into place. But of course, that was following a period where the exact opposite was happening. So, you know, hoping that is an indicator that we're at trough there. But that's the most cyclical part of our business. So, watching that very carefully. Yep. Price-cost, I want to make sure to get your latest and greatest there, Kristen. Maybe just discuss a little bit in terms of the cadence of supplier price increases and how hard or easy has it been to pass those through lately? Yeah, so taking tariffs out of the equation or potential tariffs out of the equation, I would say we're pretty much back in a normalized price-cost environment, which for us is like probably between one to two points of price a year. The cadence with which suppliers are passing increases to us has normalized. And we're probably, I think it'd be fair to say, back into an environment where we're passing the price through in a more normal manner. There's less pushback because it's so much lower now relative to what we were dealing with in that inflationary environment. So, you know, cautiously saying, I think we're back at whatever a normal price-cost looks like. The exception I would give to MSC specifically on the cost side, for folks that aren't familiar with this, we do use average costing. So, we're running the cost through at a pace that is misaligned with the timing of our price increase. So, we are still burning off some higher-cost inventory from our balance sheet, which is what makes the first half a little bit of a tougher price-cost setup for us. So, I would expect our first half 2025, which is our fiscal year ending August 31st, if you're new to the company. We're seeing more favorable price-cost than we saw at the end of 2024, and that will continue to improve throughout our fiscal 2025. So, let's roll this forward a couple of months, Kristen, and imagine a scenario in early January where you'll have the pleasure of updating your guidance right after the holidays. It's a favorite time of year to do that. In your base case, I'll call it scenario that you just laid out, that the calendar is going to be fairly tricky to navigate. Yeah. Late November into December. So, how do you approach that? Because, you know, in your business, it's short cycle. You oftentimes don't have too much visibility, even on a good day. Yep. But here, you're going to be, it's going to be pre-inauguration, post-holidays. How do you think about that? You're really characterizing why it's my least favorite time of year to do an earnings release, Tommy. I mean, you could change your fiscal calendar. That would. That is on the list of projects, I will tell you. That's, yeah, so we always have the privilege of being one of the first companies to release in calendar 2025. There's a lot of fun attention on our earnings release, and we're often like the, I think people look at us as like the canary in the coal mine sometimes for our market commentary, so one of the, a lot of the things you touched on that make it difficult were very much the setup for us heading into fiscal 2025 with our guidance we gave on our Q4 release. So, we've historically given like an annual range, kind of wide, but we would set an annual range for growth and operating profit, or excuse me, operating margin. We backed off of that this year. You know, I think it'd be one thing if we were just dealing with end market uncertainty, but dealing with end market uncertainty, and then also an inflection that we are waiting on specific to things we're doing inside of our own business around share gain. Having a lot of unpredictability around both of those elements really prompted us to just be very transparent that we don't know how to call a year right now. You know, obviously, we'd expect a macro tailwind. We feel confident in our share gain initiatives, but where we would put that range was proving to be really challenging. So, we actually went back to quarterly guidance, which we will refresh for Q2 when we meet in January, and I expect to have really no more line of sight to anything than I did in the Q4 release. You know, share gain initiatives are going well from our end, but we won't even have had the benefit of really understanding the pace of core customer growth from the web enhancements at that point. So, not a whole lot that we're going to know that's different. Fair enough. Let's talk about some of those internal initiatives starting on the web enhancements. Put us in the position of a customer doing business with MSC. What are going to be some of the big early changes to, for example, search capabilities and display that we would notice? Yeah, so we've, over the last several years, we've made a really heavy investment in the dot-com site for our business, which at the start of that was really just upgrading the technical stack, all the infrastructure behind the website. So, to Tommy's point, not really things that the customer would necessarily like see or, quote, feel if they're interacting with the site. The things that will much more directly benefit the customer and for us drive the, like equation we're trying to optimize all these changes is improved top-of-funnel conversion times, improved bottom-of-funnel conversion times, higher average order value. That's sort of like the secret sauce. And we're targeting improvements in all three of those areas that ultimately grow our web business, which is particularly important for small customer growth for us, where the customer's more likely to interface with us in a strictly digital manner. So, in terms of things that the customer will kind of see being different, the number one thing is really our search engine improvement. So, we made some changes here that were not favorable for the customer initially, and that has to do with, really, caused by the complexity of the operation that we have. So, we sell 2.5 million SKUs on average on the website. We're constantly adding things to it. And particularly on the metalworking side of the house, because that's a very technical product, you might attribute that SKU like 200 different ways, and the customer may literally search for it differently on any of those attributes. So, the search engine was not keeping up with that demand. You know, when you're coming to the site, you need to know that you need to quickly find what you're looking for and have the confidence that the thing you found is the right thing and that it's fairly priced. The number one thing is the search engine change. We're also making improvements on the bottom-of-funnel experience, less clicks, more seamless experience for the customer. You know, the hope is that fixing the web experience, which we're working on right now, changing our web pricing, which we finished in fiscal 2024, and then finally actively remarketing all three of those things, that will also then drive average order value up and bring small customer business back at a faster pace than we've seen. On that remarketing, you've got a marketing campaign, I think, slated for the second fiscal quarter. Is that correct? Yes. Which is the first calendar quarter. How quickly can you start to measure the ROI on those incremental sales and marketing dollars that you put in the funnel? And sitting in the CFO seat, what are the tools and the frequency with which you will use those tools to ensure it's effective spend? Yeah, so we already have changed a lot of the things that we're monitoring, and we have like very clear KPIs where we're looking for inflection, and they have to do all with like how is traffic coming in, what does top-of-funnel conversion look like, bottom-of-funnel, what are customers buying, how many product categories do they buy, how often are they coming to the site, so we're looking for green shoots in really any of those metrics. Different enhancements will target different areas, but you know, we look all the way at the top first, which is the inbound traffic to the site. Is it growing? Is it new customers? Is it returning customers? What does that behavior look like? So, we don't often talk anymore about seller territory changes. That was a big topic a number of years ago, but it's crept back into the conversation lately. It has. So, just frame for us, is this a 2.0 or a 3.0 kind of overhaul here, or are we more doing some tweaks around the edges? What's going on? Yeah, if you're familiar with the MSC story at all, it is not a Customer-First 3.0, which is what Tommy's referring to as some changes we made in like between 2016 and 2018 that were really not done well or quickly enough. So, what you heard us articulate in the prepared remarks in the last call and what Martina spoke to in the Q&A is really, I would characterize this as more good seller hygiene. So, some things that really we would have hoped to have been doing in a more robust and structured manner leading up to this, but changes that Martina has seen as opportunistic for us that I absolutely agree with. Really think about this as focusing on improved productivity and efficiency of the seller. So, how is their coverage model optimized? What is their territory? How big is their book of business? Can we ultimately drive more revenue through the existing seller base? So, we've been doing all the data work now and piloting to sort of understand what these changes look like. We see about $300 million of opportunity that we can go after with the same number of sellers or same number of outside sellers that we have today. So, that's a really big unlock for us without having to dramatically scale OpEx to get it. One of the questions we get a lot is like, okay, well, what if, you know, what if you have a really important relationship between a seller and a customer? If that's the case, we're not touching that. What this is really looking at is, you know, sellers may have a portion of their book of business that they can't get to as often as we need to, and therefore we're not maximizing the opportunity with that customer. So, can we shift that part of that book to a different seller? Can we put the book of business that the seller has physically closer to them so they can cover more ground? It's not complex stuff. It's seller hygiene is really the best selling process. Hygiene is the best way I can categorize it. But what relieves me about this as the CFO is lower risk by far than what we went through in the Customer-First 1.0 and 2.0 projects. So, let's move on to operating expenses. You framed last quarter some of the headwinds when you just think about the year-over-year comparisons for fiscal 2025 versus fiscal 2024. Yep. Two key components there are the incentive compensation, where the accrual resets for your new base plan, and then also a merit increase. To the extent you can share details on how large of an impact you expect from each of those, and then the timing when you realize it, please do so for us today. So, the first item that Tommy mentioned is the biggest headwind we have, and this is, think about your variable incentive programs. We're coming off a really bad fiscal 2024. Those paid out either not at all or very minimally. So, when we roll over a fiscal year, those programs kind of reset. You have to start accruing them at a normal level, assuming the performance is achieved. That's about a $30-$35 million step up for us, and that's a level loaded accrual. So, you see it, you know, as soon as the year rolls over. The other item specific to 2025 is that we have another step up in our depreciation amortization expense. And this is a combination of the growth we've seen in Solutions and then also the e-commerce investment we've made. That's about a $5 million step up, or excuse me, $10-$15 million this year, and then we have another $5 million step up specific to 2025, which is just increased OpEx carryover from acquisitions that were made mid-year in our fiscal 2024, so those are kind of things unique to this year. There's another bucket that Tommy mentioned that we typically see every year, and that's just inflation in our salary-based salary costs, our people inflation, and benefits inflation, that's about $20-$25 million, so we have this like very large, pretty fixed step up in OpEx that we're seeing this year. We're doing a lot of things to offset that, of course, through productivity. We have at least $11 million of carryover coming from projects that were executed in the second half of fiscal 2024. It's the shutdown of our Columbus DC, some changes we made in the staffing structure in the second half of fiscal 2024, and then we had articulated a large body of productivity opportunity on our last call around network optimization. That will start to come online in fiscal 2025. And the projects that we went into a little bit more detail on are worth about $10-$15 million in productivity. That will start in fiscal 2025 and then carry into 2026. To the extent we can get more productivity to offset that, that's a plus. We do have some other investment that will go in this year. What we sort of coached people on from a modeling perspective, since this is a lot of puts and takes, is if you kind of make your assumptions about our revenue growth sequentially first half to second half, and then you tag about 8%-10% variable cost on that for our variable selling expenses, that should get you to a reasonable first half to second half sequential OpEx number. It's a lot more complex underneath that, but we have a lot of puts and takes. That math would be roughly right for how we're thinking about the year, and maybe tell me one more thing I'll touch on with OpEx, so we've seen large OpEx step ups the last several years, a lot of investment going into the business. Of course, this year we've got some unusual things we're dealing with. One of the things that we've been looking at very carefully is what does the setup going into 2026 look like. And we're very comfortable saying that we will not see the same degree of step up in 2026 that we've seen the past several years. We will have the typical salary inflation headwind that we're dealing with. We know the D&A is going to have a small step up again in 2026, but not nearly the extent to what we're seeing this year. And as we bring productivity online, it will chip away at that. So, we definitely will be looking at a lower OpEx step up regardless of what happens on the top line. And Kristen, the productivity point leads to the last topic I want to discuss today, which is really some of the different initiatives that roll up to you in the CFO seat. And so, there's a cultural component I want to unpack, but before we go there, just the continuous improvement mindset and a repeating framework for trying to extract productivity from the business. Yep. Where are you on that journey today? Yeah, so one of the things that I was kind of charged with when I came into the company four years ago was to really help to drive performance and more of an operating CFO role. And one of the things that we started to work on pretty early on was implementing a business operating system inside the company. I came from a company that ran a really tight business operating system. So, think of like a Danaher Business System. There's different versions of this that people are familiar with. Obviously, Toyota is the original king of the operating system, I'll say. But what we're trying to do is sort of a light version of that that is kind of designed to meet MSC where we are on our journey, which is not having a lot of the executional rigor and discipline at the time that you would ideally want and expect from companies that run an operating system. So, we kind of went in with sort of like a light version of process and tools that you would see in a more mature company. And we've been gradually improving upon that. You know, on a scale of one to 10, we started at like a zero. And I'd say we've improved that a little bit each year. We're probably at a four or a five right now. So, we have a lot of runway, but the benefits we've been able to extract from that have really helped us already. For those of you that aren't familiar, it's really not rocket science. It's just being much more thoughtful about how are you deploying strategy throughout the year and how do you manage to that. So, how do you sort of set up your initiatives to ensure that you have the right leading indicators? How are you tracking things through that? How does the business and the leaders coach and manage against the progress on those initiatives, which is, you know, a very simplified way of breaking it down. But the approach has worked well for us because the culture of the company did not spit that out. If we had tried to go, you know, in pushing like a level 10, it would never have worked. So. Yeah. Well, you mentioned culture, so maybe we end there, and to the extent you want to bring in other senior personnel changes, specifically, I'm thinking about your Chief Operating Officer who joined the company, I believe, a little bit after. Two years ago. Yourself. Yep, yep. She's also added the president role to her title, which, you know, from a day-to-day perspective means something. Maybe we just unpack some of those cultural and senior personnel shifts as well. Yeah, absolutely. So, there's some really uniquely great things about the MSC culture, and some of that has to do with, I think, the family ownership element that was in the business for a long time, still is, that make the focus on the associate, like the employees in the company and the focus on the customer really, really unique, and it's a really powerful advantage for us. What we have tried to layer on top of that is much more discipline around performance at the same time, hence the operating system. But there were some really honest conversations inside the company around the time that I joined and we started transformation about, you know, do we have the right people in the right seats? Do we have the right leaders to take us into the future? And we definitely recognized some changes that needed to be made. So, we've changed over almost all of the leadership team since we started transformation. To Tommy's point, we created the COO role. I think in late 2022, Martina McIsaac joined us, and she's been a wonderful addition. And having the COO role was really important to us, not just to continue to improve like the performance management discipline in the company, but really to break down a lot of functional silos that we were dealing with. So, creating that role was a great step for us. And then Martina was just announced as the President recently, too, which put a few more things into the scope of her role. And I love partnering with her. She's got a great mind for both growth and productivity and really very thoughtful about how you drive culture and performance together at the same time. So, she's been a great partner for me in that journey and a wonderful addition to the company. Kristen, Ryan, thank you for your time and insight, and to those who joined us today, we appreciate your interest. Take care, everybody. Thanks, everyone. Thanks.