MSC Industrial Direct Company, Inc.

Good morning and welcome to the MSC Industrial Supply Fiscal 2026 Third Quarter Conference Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. Please note that this event is being recorded. I would now like to turn the conference over to Ryan Mills, VP of Investor Relations and Business Development. Please go ahead.

Thank you and good morning, everyone. Welcome to our fiscal 2026 third quarter earnings call. Martina McIsaac, President and Chief Executive Officer, and Greg Clark, Interim 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 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 Martina.

Thank you, Ryan, and good morning, everyone. On today's call, I will briefly cover our fiscal third quarter results and will provide an update on the progress of our initiatives and the current demand environment. I will then turn the call over to Greg to provide greater detail on our fiscal 3Q performance and our outlook for the fiscal fourth quarter. Starting with our results on slide four, average daily sales exceeded expectations with year-over-year growth of 7.8%. underpinned by continued strength in the daily sales of our core customer and noticeable improvement in national accounts. Adjusted operating margin of 10.6% also performs better than expected, resulting in an incremental operating margin of 32% in the quarter. Since becoming CEO earlier this year, I have spent a portion of my time getting to know our external stakeholders at conferences and roadshows. This time has been well spent as it allowed me to ensure that the high-level KPIs we're using to drive urgency and performance in the business are aligned with the way our shareholders will evaluate our results and hold us accountable to progress. To summarize here, we are focused on sales per rep per day and sales per total headcount, year-over-year volume improvement, adjusted operating margin expansion, and adjusted incremental margin. and lastly, ROIC, which will improve naturally when the KPIs I just mentioned are firing on all cylinders. We are fully committed to restoring MSC to a mid-teens operating margin, a goal which is understood and driving action across the enterprise. While we aren't hitting any home runs yet with these KPIs as of the third quarter, I am encouraged by the singles and doubles we are producing, which I will now discuss in greater detail. Starting with sales per rep per day, we are making progress on our goals. As you recall, our Salesforce Optimization Initiative was completed in December with actions taken to streamline and professionalize our service organization, which in turn resulted in some noise in our 2Q. This headwind is largely behind us, as evidenced by the improving ADS of impacted customers and the inflection seen in national accounts during the quarter. Sales per rep per day has improved high teams year over year, suggesting that at this point in time, we are fundamentally doing more with less. With 225 fewer heads in the field, we're targeting the right customers and meaningfully increasing customer touches through disciplined sales execution. As you can see on slide four, average daily sales to our core customer once again outperform total company with volumes beginning to improve. A portion of this improvement is being driven by daily sales growth in the double-digit range on mscdirect.com. As we look at the business today post-Salesforce transition, there is still a gap in ADS between those customers who were least impacted by our changes, who are trending at growth levels comparable to our public peers, and those who did see greater change or vacancy and where relationships are still being established. Closing that gap and accelerating volume growth across all customers is now our focus. Under the leadership of Jahida Nadi, our SVP of sales, sales excellence continues to gain traction at MSC. We've rolled out an enhanced onboarding and training process for new sellers. We expect this will accelerate growth, reduce attrition, and strengthen our ability to quickly add new sales headcount where we see potential in the markets. We've also instituted new sales management processes throughout the selling organization. Guided by our sales leadership, sellers now operate to new standards with new tools and a supportive pipeline review process. Early benefits of this work and our initiatives over the last year resulted in improved cross-selling that helped contribute to OEM fastener growth of more than 15% in the quarter as sellers are guided to sell MSC's full value proposition. Added to this work, we continue expanding our bending and implant footprint. The growth of our installed base is showing the benefits of an improving macro environment that should result in higher sales across existing locations, an effect which we commonly refer to as the coiled spring. We started to see early signs of this in the third quarter, with daily sales trends on a per-unit basis showing volume improvements. I'm also pleased that the company continues making strides to improve its cost structure as demonstrated by the 150 basis point reduction in adjusted operating expenses as a percent of sales in the quarter. This is being driven by several factors, including our recent headcount actions, our new sales structure, which eliminated duplicative commissions being paid on the same dollar, lowering our selling costs by reducing commission expense in the quarter, and lower freight expense compared to the prior year despite elevated fuel costs as a result of benefits from our various optimization initiatives. Acting on our productivity pipeline and optimizing our cost structure will be at the forefront of our strategic focus as we progress towards our long-term targets. As we have said, we intend to challenge MSC's cost structure to restore the company's operating margins to the mid-teens. Our own competitive benchmarking on sales per total headcount suggests that at today's revenues, we are relatively heavy by a thousand heads. To close the gap to that benchmark, we will have to grow and aggressively target changes in the way we work with a focus on AI and automation. That focus is already being recognized. Just this month, MSC was awarded VARENT's Global Customer Award in Accelerated Insights with AI, that recognizes efforts in pushing AI beyond pilots and into real-time use. Switching to the macro environment, we are seeing further signs of an industrial recovery taking shape with positive IP readings across most of our top manufacturing and markets and five consecutive months of MBI readings above 50. Turning to slide five, average daily sales outpaced the IP index for the fourth consecutive quarter and was above our target of 400 basis points in the fiscal third quarter. Though still primarily price driven, I'm encouraged however by the trend of volume improvement in April that has continued through June and suggests that our initiatives are beginning to take hold. While there is plenty of room to further improve, when I consider our financial results, the improvements made to strengthen our performance-based culture, Increasing engagement scores from our associates and the tangible evidence of progress achieved in the quarter across our focused areas of improvement, I'm confident that MSC is headed in the right direction to enhance our long-term profitable growth algorithm and create meaningful value for shareholders. And with that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal fourth quarter.