MSC Industrial Direct Company, Inc.

Good morning and welcome to the MSC Industrial Supply Fiscal 2025 Third Quarter Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ryan Mills, Head of Investor Relations.

Please go ahead. Thank you and good morning, everyone. Welcome to our fiscal third quarter 2025 earnings call. Eric Gershwin, Chief Executive Officer, Martina McIsaac, President and Chief Operating Officer, and Kristen Actis-Grande, Chief Financial Officer, are on the call with me today. During today's call, we will refer to various financial data in the earnings presentation and and operational statistics document, both of which can be found on our investor relations website. Let me reference our safe harbor statement found on slide two of the earnings 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 are noted in our earnings press release and our other SEC filings. Lastly, 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 will now turn the call over to Eric.

Thank you, Ryan. Good morning, everyone, and thanks for joining us. On today's call, I'll cover our fiscal third quarter performance. I'll provide an update on our strategic initiatives and the state of MSC, before wrapping up with my perspective on the operating environment. I'll hand the call over to Martina, who will give a progress update with our sales optimization initiative, our productivity efforts to lower our cost to serve, and our tariff management plan. Kristen will then review our fiscal third quarter financial performance in more detail and provide our outlook for the fiscal fourth quarter before opening up the line for questions. As a reminder, throughout fiscal 2025, we've been focused on strengthening execution in three critical areas. One, re-energizing the core customer. Two, maintaining momentum in our high touch solutions. And three, optimizing our cost to serve. Our fiscal third quarter results reflect progress across these fronts. Average daily sales, or ADS, for the fiscal third quarter declined 0.8% year over year, which was slightly above the midpoint of our outlook. Additionally, average daily sales improved 7% quarter over quarter, exceeding historical 2Q to 3Q sequential averages. Gross margins also came in at the higher end of our expectations as we navigated tariff-driven inflation to produce positive price costs. This resulted in reported and adjusted operating margins of 8.5 percent and 9.0 percent, respectively. Our adjusted operating margin was up 190 basis points sequentially, and at the midpoint of our outlook. While there's certainly plenty of room for improvement, our fiscal third quarter performance reflects progress in several areas. This includes an encouraging start to our newly launched growth initiatives and sustained momentum in our high touch solutions. I'll now provide some more color. First, Re-energizing the core customer was one of our highest priorities entering fiscal 25. Early evidence began to emerge in fiscal 3Q as core customer daily sales were down 0.8% year over year, in line with results for the total company and our best performer sequentially. This was also supported by our recent web enhancements, which, as a reminder, were aimed at making it faster and easier for customers to do business with us, enhancing our product discovery platform, streamlining our customers' buying journey, and increasing personalization to better meet specific customer needs. Also as a reminder, these upgrades were rolled out towards the end of our fiscal second quarter. Since that time, direct traffic to MSCDirect.com grew low double digits year over year and mid single digits quarter over quarter. Additionally, we're seeing encouraging progress in our site conversion rate metrics. These improvements were supported by our enhanced marketing and sales force optimization efforts, which Martina will cover in more detail momentarily. Second, as I mentioned earlier, we are maintaining momentum in high-touch solutions. On a year-over-year basis, we improved our in-plant program count by 23% and the installed base of our vending machines by 9%. Additionally, expanding our OEM product line remains a focus area where we continue making progress. Average daily sales in OEM improved low single digits year-over-year. Moving on from the numbers, I'll highlight another priority, which is building out our leadership depth. During the quarter, we added John Reichelt to the MSC team as our Senior Vice President and Chief Information Officer. John joins Brian Bello and the rest of our existing technology leadership team as they continue to deploy our portfolio of systems initiatives that improve operational efficiency, and enhance the customer experience. This includes areas such as the web improvements, supply chain opportunities, and the digital core initiative. Given John's track record at Trimark USA, Aramark, and Procter & Gamble, I'm confident that he will play a successful part in advancing MSC's business technologies and our overall capabilities. Switching now to the macro environment, as you can see on slide four, conditions in our manufacturing end markets remain subdued. Most of our primary end markets remain soft, including automotive and fabricated metals, which continue to contract as reflected in the IP index. Aerospace remains a bright spot with continued growth and a strong outlook. The more broad-based softness we're seeing is reflected in sentiment readings, such as the MBI. After turning positive in March for the first time in nearly two years, MBI readings returned to negative numbers in April and May, reflecting customer caution around tariffs and general uncertainty. And we saw this reflected in our own sales numbers. We experienced the soft April that went beyond Easter timing. Conversations in the field suggest that our customers took a temporary pause in activity as they contemplated the impact of tariffs on their business. While this short lull in activity was followed by improving trends in May and those that continued into June, there remains hesitancy and caution among our customer base around future production levels. That said, we are encouraged to see our performance gap improve against the overall IP index, as we outperformed in three of our top five end markets. Regardless of the macro conditions, we remain confident in the opportunity in front of us, and steadfast in the commitment to our plan. With that, I'll now turn the call over to Martina.