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MSC INDUSTRIAL SUPPLY CO. RAYMOND JAMES CONFERENCE PRESENTATION MARCH 2025
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2investor.mscdirect.com CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements in this presentation may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of present or historical fact, that address activities, events or developments that MSC expects, believes or anticipates will or may occur in the future, including statements about results of operations and financial condition, expected future results, expected benefits from our investment and strategic plans and other initiatives, and expected future growth, profitability and return on invested capital, are forward-looking statements. The words “will,” “may,” “believes,” “anticipates,” “thinks,” “expects,” “estimates,” “plans,” “intends” and similar expressions are intended to identify forward-looking statements. Forward- looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. In addition, statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward-looking statements. The inclusion of any statement in this presentation does not constitute an admission by MSC or any other person that the events or circumstances described in such statement are material. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements. These risks and uncertainties include, but are not limited to, the following: general economic conditions in the markets in which we operate; changing customer and product mixes; volatility in commodity, energy and labor prices, and the impact of prolonged periods of low, high or rapid inflation; competition, including the adoption by competitors of aggressive pricing strategies or sales methods; industry consolidation and other changes in the industrial distribution sector; the applicability of laws and regulations relating to our status as a supplier to the U.S. government and public sector; the credit risk of our customers; the risk of customer cancellation or rescheduling of orders; our ability to accurately forecast customer demands; customer cancellations or rescheduling of orders; interruptions in our ability to make deliveries to customers; supply chain disruptions; our ability to attract and retain sales and customer service personnel; the risk of loss of key suppliers or contractors or key brands; changes to trade policies or trade relationships; risks associated with opening or expanding our customer fulfillment centers; our ability to estimate the cost of healthcare claims incurred under our self-insurance plan; interruption of operations at our headquarters or customer fulfillment centers; products liability due to the nature of the products that we sell; impairments of goodwill and other indefinite-lived intangible assets; the impact of climate change; operating and financial restrictions imposed by the terms of our material debt instruments; our ability to access additional liquidity; the significant influence that our principal shareholders will continue to have over our decisions; our ability to execute on our E-commerce strategies and maintain our digital platforms; costs associated with maintaining our information technology (“IT”) systems and complying with data privacy laws; our ability to remediate a material weakness in our internal control over financial reporting and to maintain effective internal control over financial reporting and our disclosure controls and procedures in the future; disruptions or breaches of our IT systems or violations of data privacy laws, including such disruptions or breaches in connection with our E-commerce channels; risks related to online payment methods and other online transactions; the retention of key management personnel; litigation risk due to the nature of our business; failure to comply with environmental, health, and safety laws and regulations; and our ability to comply with, and the costs associated with, social and environmental responsibility policies. Additional information concerning these and other risks is described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual and Quarterly Reports on Forms 10-K and 10-Q, respectively, and in the other reports and documents that we file with the United States Securities and Exchange Commission. We expressly disclaim any obligation to update any of these forward-looking statements, except to the extent required by applicable law.
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3investor.mscdirect.com Founded in 1941 and listed on NYSE (MSM) since 1995 Leader in highly fragmented industrial distribution market >7,000 associates 43 warehouses, 9 regional inventory centers, 5 distribution centers and 5 manufacturing locations Broad offering: 2.4 million SKUs from 3,000+ suppliers Value-add solutions: metalworking expertise, supply chain management, e-commerce, productivity improvement and training MSC INDUSTRIAL DIRECT: COMPANY OVERVIEW 1Year Ended August 31, 2024 220-Year CAGR calculated through August 31, 2024 3Over the last three fiscal years ended August 31, 2024 *See appendix for non-GAAP reconciliations 10.7%* Adjusted Operating Margin1 7% 20-Year EPS CAGR2 $3.8B Total Revenues1 7% 20-Yr Sales CAGR2 $1,350M+ Operating Cash Flows (over the last 3 years) >$800M Returned to Shareholders3 (over the last 3 years) ✓ ✓ ✓ ✓ ✓ ✓ MSC is a leading value-add industrial distributor offering products, services and solutions that enable its customers to achieve higher levels of growth, productivity, and profitability
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4investor.mscdirect.com ~$215B of the MRO market in N. America directly addressable by MSC2 Highly fragmented with ~145K distributors in the US1 ✓ ✓ The North American industrial distribution market is very large and highly fragmented both across the addressable market and the customer landscape HIGHLY FRAGMENTED INDUSTRIAL DISTRIBUTION MARKET 1MDM Analytics (figures are approximate) 2Calculation performed by MSC (figures are approximate) Customer Count 1% 2% 11% 86% Revenue Potential 39% 26% 20% 16% Simple Transactions Complex Solutions Company Size (# employees) Medium (50-249) Small (10-49) Very Small (1-9) Large (>250) Industrial Distribution Customer LandscapeTotal Addressable Market MSC ~$215B IN SALES The top 50 distributors represent ~33% of the market
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5investor.mscdirect.com Priority 1Q’25 Progress Maintain Solutions Momentum • 369 In-Plant programs at 1Q’25 end +29% YoY • 27,747 installed vending units at 1Q’25 end +10% YoY Web Enhancements • Making progress on improvements to search and product display functions • Roll-out and testing of additional functionality upgrades will remain ongoing • Encouraged by improvement in leading indicators and net promoter scores Drive Awareness • Enhanced marketing efforts underway exiting fiscal 2Q’25 end • Campaign elements include digital and search marketing, printed materials, and personal outreach Enhanced Pricing • Completed web price realignment initiative across entire assortment of SKU’s • Gross margin performance continues to trend in-line with expectations Optimize Cost to Serve • Progress on portfolio of opportunities identified in network study remain on track • Efforts to unlock rep productivity and addressable spend for Public Sector and National Accounts complete and by fiscal 3Q for Core Customer reps STRENGTHENING LONG-TERM POSITION WITH PROGRESS ACROSS MISSION CRITICAL PILLARS Target Performance Metrics Over the Cycle At Least 400 bps of Market Outgrowth Incremental Margins* of ~20% Adjusted Operating Margin* in the Mid-Teens Greater Than 20% ROIC* Driving Achievable Long-Term Targets Reenergize the Core Customer *Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations
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6investor.mscdirect.com FISCAL FIRST QUARTER 2025 BALANCE SHEET AND CASH FLOW • Strong operating cash flow during the quarter primarily driven by working capital improvement resulting in operating cash flow conversion** of 223% • Driving free cash flow* improvement of 30% YoY and free cash flow conversion* of 179% • Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations ** The Company defines Operating Cash Flow Conversion as Net cash provided by operating activities as a percentage of Net Inc ome. The Company’s management uses Operating Cash Flow Conversion to evaluate the Company’s operating performance, in particular how efficiently the Company turns its sales and profits into cash, and to assess the efficiency of the Company’s use of working capital. The Company believes O perating Cash Flow Conversion is useful to investors for the foregoing reasons and as a measure of the rate at which the Company converts its net income reported in accordance with GAAP to cash inflows, which helps investors assess whether the Company is generating sufficient cash flow to provide an adequate return Free Cash Flow* (millions) Net Debt and Financial Leverage (millions, except ratio) $62.7 $81.7 Q1 2024 Q1 2025 • Net debt decreased $50 million as a result of lower debt levels and higher cash on hand • Maintaining a healthy balance sheet with net debt to EBITDA currently at 1.09x* • Target net debt to EBITDA ratio between 1.0x and 2.0x* $512.7 $462.7 Q1 2024 Q1 2025 0.94x 1.09x Q1 2024 Q1 2025 Net Debt Net Debt to EBITDA*
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7investor.mscdirect.com 1 2 3 4 IMPROVING AND STREAMLINING THE SHOPPING EXPERIENCE 4 3 1 4 2 Search bar of our enhanced and internally developed product search platform moved to a position of prominence Allocating more real estate to ensure visitors are singed in drives personalization and greater benefits from our competitive pricing Top categories banner makes it easier for our customers to explore the products they care about most Personalized carousels like “Recently Viewed” and “Best Sellers” brings familiar products to the user instantly Personalization Search
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8investor.mscdirect.com 3 2 1 ENHANCING SEARCH NAVIGATION WITH TABLE VIEW “Your new layout for cutting tools makes shopping for the right tool at the right price so much easier”CUSTOMER FEEDBACK 1 2 3 Easy to use “toggle” allows customers to quickly choose their preferred navigation view Critical attributes refined and moved to the top for customers to easily filter specifications Columnized offering allows customers to quickly compare price across our offerings Saving Customers Time To Focus on Their Operations By Helping Them Find and Compare Products More Efficiently…
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9investor.mscdirect.com IMPROVING AND STREAMLINING THE CHECKOUT EXPERIENCE Revamped cart page layout Autofill and auto save capabilities Reduced checkout pages from 3 to 1 Reduced clicks to purchase by ~50% “I like the new checkout. Quicker and less screens to flip through. I just want to click and order. Nice Improvement”CUSTOMER FEEDBACK CART CHECKOUT
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APPENDIX
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11investor.mscdirect.com RECONCILIATIONS Non-GAAP Financial Measures To supplement MSC’s unaudited selected financial data presented consistent with accounting principles generally accepted in the United States (“GAAP”), the Company discloses certain non-GAAP financial measures, including return on invested capital (as defined below), non-GAAP operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude share reclassification costs (prior year), restructuring and other costs and tax effects, as well as free cash flow conversion, which is a measure calculated using free cash flow, which is a non-GAAP measure. These non-GAAP financial measures are not presented in accordance with GAAP or an alternative for GAAP financial measures and may be different from similar non-GAAP financial measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measure and should only be used to evaluate MSC’s results of operations in conjunction with the corresponding GAAP financial measure. This presentation also includes certain forward-looking information that is not presented in accordance with GAAP . The Company believes that a quantitative reconciliation of such forward-looking information to the most directly comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts because a reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of potential future events such as restructurings, M&A activity, capital expenditures and other infrequent or unusual gains and losses. Neither the timing or likelihood of these events, nor their probable significance, can be quantified with a reasonable degree of accuracy. Accordingly, a reconciliation of such forward-looking information to the most directly comparable GAAP financial measure is not provided. Free Cash Flow (“FCF”) and Free Cash Flow Conversion (“FCF Conversion”) FCF is a non-GAAP financial measure. FCF is used in addition to and in conjunction with results presented in accordance with GAAP, and FCF should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. FCF, which we reconcile to “Net cash provided by operating activities,” is cash flow from operations reduced by “Expenditures for property, plant and equipment”. We believe that FCF, although similar to cash flow from operations, is a useful additional measure since capital expenditures are a necessary component of ongoing operations. Management also views FCF, as a measure of the Company’s ability to reduce debt, add to cash balances, pay dividends, and repurchase stock. FCF has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, FCF does not incorporate payments made on finance lease obligations or required debt service payments. In addition, different companies define FCF differently. Therefore, we believe it is important to view FCF as a complement to our entire consolidated statements of cash flows. FCF Conversion is useful to investors for the foregoing reasons and as a measure of the rate at which the Company converts its net income reported in accordance with GAAP to cash inflows, which helps investors assess whether the Company is generating sufficient cash flow to provide an adequate return.
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12investor.mscdirect.com RECONCILIATIONS Non-GAAP Financial Measures Results Excluding Share Reclassification Costs and Acquisition-related Costs (prior year) and Restructuring and Other Costs In calculating certain non-GAAP financial measures, we exclude share reclassification costs and acquisition-related costs (prior year), restructuring and other costs and tax effects. Management makes these adjustments to facilitate a review of the Company’s operating performance on a comparable basis between periods, for comparing with forecasts and strategic plans, for identifying and analyzing trends in the Company’s underlying business and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results from the perspective of management in addition to seeing results presented in accordance with GAAP for the same reasons and purposes for which management uses such non-GAAP financial measures. Return on Invested Capital (“ROIC”) ROIC is calculated using a non-GAAP financial measure. We calculate ROIC by dividing non-GAAP net operating profit after tax (“NOPAT”) by average invested capital, a GAAP measure. NOPAT is defined as tax effected income from operations. Average invested capital is defined as net debt plus shareholder’s equity using a trailing 13-month average. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate operating performance. This method of determining non-GAAP ROIC may differ from other companies' methods and therefore may not be comparable to those used by other companies. ROIC should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The financial measure calculated under GAAP which is most directly comparable to ROIC is considered to be the ratio of Net income to Average invested capital. See below for the calculation of ROIC and the reconciliation to the comparable GAAP measure. Net Debt to Earnings before Interest, Taxes, and Depreciation and Amortization (“EBITDA”) Net debt to EBITDA is calculated using a non-GAAP financial measure, EBITDA. The Company defines EBITDA as GAAP net income adjusted for taxes, total other expense and depreciation and amortization for the preceding 12 months. Net debt, a GAAP measure, is calculated as total debt less cash and cash equivalents. The Company presents net debt to EBITDA because it more clearly represents the operating profitability of the company and is a more accurate representation of the Company's financial position and its ability to cover its net debt obligations with results from its core operations. The Company’s management uses net debt to EBITDA to evaluate the timeframe it would take to pay back its debt if net debt and EBITDA are held constant. The Company believes net debt to EBITDA is useful to investors for the foregoing reasons and as a measure of the rate at which the Company can cover its debts, which helps investors assess whether the Company has ability to grow its debt to support future growth initiatives. This method of determining non-GAAP EBITDA may differ from other companies' methods and therefore may not be comparable to those used by other companies. EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP.
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