Q3 2025 MSC Industrial Direct Co Inc Earnings Call

Operator: Excuse me, this is a conference operator. Please continue to hold. The call will begin shortly. Thank you.

Excuse me. This is the conference operator, please continue to hold the call will begin shortly thank you.

[music].

Operator: Good morning and welcome to the MSC Industrial Supply. 5 3rd quarter conference call. All participants will be in listen only mode.

Speaker Change: 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.

Operator: Should you need assistance, please signal a conference specialist by pressing star than 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 than one on your telephone keypad. To withdraw your question, please press star than two.

Speaker Change: <unk> G 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.

Operator: Please note this event is being recorded.

Ryan Mills: I would now like to turn the conference over to Ryan Mills, Head of Investor Relations. Please go ahead.

Ryan Mills: Thank you and good morning, everyone.

Speaker Change: Thank you and good morning, everyone welcome to our fiscal third quarter 'twenty 25 earnings call Erik Gershwin, Chief Executive Officer, Martina Mcisaac, President and Chief operating Officer, and Kristin Axis Grande Chief Financial Officer are on the call with me today.

Ryan Mills: Welcome to our fiscal third quarter 2025 earnings Erik Gershwind, 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 operational statistics document, both of which can be found on our investor relations website.

Speaker Change: During today's call, we will refer to various financial data and the earnings presentation and operational statistics document.

Of which can be found on our Investor Relations website.

Ryan Mills: 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 Act. 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 files.

Speaker Change: Let me reference our safe Harbor statement found on slide two of the earnings presentation.

Speaker Change: 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.

Speaker Change: Information about these risks are noted in our earnings press release, and our other SEC filings.

Ryan Mills: 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.

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 contains a reconciliation of the adjusted financial measures to the most directly comparable GAAP measures I will now turn the call over to Eric.

Erik Gershwind: I will now turn the call over to Erik. Thank you, Ryan. Good morning, everyone, and thanks for joining us.

Eric: Thank you Ryan.

Eric: Good morning, everyone and thanks for joining us.

Erik Gershwind: 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.

Speaker Change: On today's call I'll cover our fiscal third quarter performance.

Speaker Change: I'll provide an update on our strategic initiatives and the state of M. S C.

Before wrapping up with my perspective on the operating environment.

Martina Mcisaac: 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.

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.

Martina Mcisaac: And our tariff management plant.

Erik Gershwind: 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. 2. Maintaining Momentum in our High-Touch Solution. 3, optimizing our cost to serve.

Speaker Change: Christian will then review our fiscal third quarter financial performance in more detail.

Christian: And provide our outlook for the fiscal fourth quarter before opening up the line for questions.

Christian: Yeah.

Speaker Change: As a reminder.

Speaker Change: Throughout fiscal 2025.

Speaker Change: We've been focused on strengthening execution in three critical areas.

One <unk>.

Speaker Change: Reenergizing the core customer.

Speaker Change: Two maintaining momentum in our high touch solutions.

Speaker Change: And three optimizing our cost to serve.

Erik Gershwind: Our fiscal third quarter results. reflect progress across these fronts. Average daily sales, or ABS, 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. Gross margins also came in at the higher end of our expectation. as we navigated tariff driven inflation. to produce positive price cost. This resulted in reported and adjusted operating margins of 8.5%. and 9.0% 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.

Speaker Change: Our fiscal third quarter results.

Reflect progress across these fronts.

Speaker Change: Average daily sales or a D S for the fiscal third quarter declined <unk>, 8% year over year.

Speaker Change: Which was slightly above the midpoint of our outlook.

Additionally, average daily sales improved 7% quarter over quarter.

Speaker Change: Exceeding historical two Q3 Q sequential averages.

Speaker Change: Gross margins also came in at the higher end of our expectations as.

Speaker Change: As we navigated tariff driven inflation.

To produce positive price cost.

Speaker Change: This resulted in reported and adjusted operating margins of eight 5% and.

Speaker Change: At 9.0% respectively.

Speaker Change: Our adjusted operating margin was up 190 basis points sequentially.

Speaker Change: And at the midpoint of our outlook.

Speaker Change: While there are certainly plenty of room for improvement.

Erik Gershwind: Our fiscal third quarter performance reflects progress in several areas.

Speaker Change: Our fiscal third quarter performance reflects progress in several areas.

Erik Gershwind: This concludes an encouraging start to our newly launched growth initiatives. and Sustain Momentum in our high-touch solution.

Speaker Change: This includes an encouraging start to our newly launched growth initiatives.

Speaker Change: And sustained momentum in our high touch solutions.

Erik Gershwind: I'll now provide some more color. First, reenergizing 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 webinar. which as a reminder, we're aimed at making it faster and easier for customers to do business with us. enhancing our product discovery platform. Screen Lining Our Customer's 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.

Speaker Change: I'll now provide some more color.

Speaker Change: First.

Speaker Change: Reenergizing the core customer with one of our highest priorities entering fiscal 'twenty five.

Speaker Change: Early evidence began to emerge in fiscal <unk>.

Speaker Change: As core customer daily sales were down 8% year over year.

Speaker Change: In line with results for the total company.

Speaker Change: And our best performer sequentially.

Speaker Change: This was also supported by our recent web enhancements, which as a reminder, we're aimed at making it faster and easier for customers to do business with us.

Speaker Change: Enhancing our product discovery platform.

Speaker Change: Streamlining our customers' buying journey.

Speaker Change: And increasing personalization better knee meet specific customer needs.

Also as a reminder.

Speaker Change: These upgrades were rolled out towards the end of our fiscal second quarter.

Erik Gershwind: 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 up salesforce optimization efforts.

Speaker Change: Since that time direct Traffics MFC direct dot com.

Speaker Change: Grew low double digits year over year.

And mid single digits quarter over quarter.

Additionally.

Speaker Change: We're seeing encouraging progress in our site conversion rate metrics.

Speaker Change: These improvements were supported by our enhanced marketing and sales off sales force optimization efforts.

Erik Gershwind: 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 and OEM improved low single digits year over year.

Martina Mcisaac: Which martina will cover in more detail momentarily.

Martina Mcisaac: Second as.

Martina Mcisaac: As I mentioned earlier.

Martina Mcisaac: We are maintaining momentum and high touch solutions.

Martina Mcisaac: On a year over year basis, we improved our implant program count by 23%.

Martina Mcisaac: 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.

Speaker Change: Average daily sales in OEM.

<unk> low single digits year over year.

Speaker Change: Yeah.

Erik Gershwind: Moving on from the numbers. I'll highlight another priority. which is building out our leadership.

Speaker Change: Moving on from the numbers.

Speaker Change: I'll highlight another priority.

Speaker Change: Which is building out our leadership depth.

Erik Gershwind: During the quarter, we added John Reichelt to the MSC team as our Senior Vice President and Chief Information Officer. John joins Brian Bellow and the rest of our existing technology leadership. 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.

Speaker Change: During the quarter, we added John Rikeld to the MSC team as our senior Vice President and Chief Information Officer.

Speaker Change: John joins Brian Belo.

Speaker Change: And the rest of our existing technology leadership team.

Speaker Change: As they continue to deploy our portfolio of systems initiatives that improve operational efficiency and.

Speaker Change: And enhance the customer experience.

This includes areas such as the web improvements supply chain opportunities.

And the digital core initiative.

Erik Gershwind: 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 capability.

Speaker Change: Given jon's track record at try Marc USA, Aramark, and Procter and Gamble I'm confident that he will play a successful part in advancing M. A c's business technologies.

Speaker Change: And our overall capabilities.

Erik Gershwind: Switching now to the macro environment. As you can see on slide four. Conditions in our manufacturing and markets remain subdued. Most of our primary end markets remain soft. Including automotive and fabricated metals. which continue to contract as reflected in the IPM.

Speaker Change: Switching now to the macro environment.

Speaker Change: As you can see on slide four.

Speaker Change: Conditions in our manufacturing end markets remain subdued.

Speaker Change: Yeah.

Speaker Change: Most of our primary end markets remained soft.

Speaker Change: Including automotive and fabricated metals.

Speaker Change: Which continue to contract as reflected in the I P index.

Erik Gershwind: 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 time. Conversations in the field suggest that our customers took a temporary pause in activity as they contemplated the impact of tariffs on their business.

Speaker Change: Aerospace remains a bright spot with continued growth in.

Speaker Change: Our strong outlook.

Speaker Change: The more broad based softness we're seeing is reflected in sentiment readings such as the M. B I.

Speaker Change: After turning positive in March for the first time in nearly two years and.

Speaker Change: N V I readings returned to negative numbers in April and May.

Speaker Change: Reflecting customer caution around tariffs.

Speaker Change: And general uncertainty.

Speaker Change: And we saw this reflected in our own sales numbers.

Speaker Change: We experienced a soft April that went beyond Easter timing.

Speaker Change: Conversations in the field suggest that our customers took a temporary pause in activity.

Speaker Change: They contemplated the impact of tariffs on their business.

Erik Gershwind: 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.

Speaker Change: While the short lull in activity was followed by improving trends in may.

Speaker Change: And those that continued into June.

Speaker Change: There remains hesitancy and caution among our customer base around future production levels.

Erik Gershwind: 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 condition. We remain confident in the opportunity in front of us. Steadfast in the commitment to our plan.

Speaker Change: That said.

Speaker Change: We are encouraged to see our performance gap improve against the overall IP index.

Speaker Change: We outperformed in three of our top five end markets.

Speaker Change: Regardless of the macro conditions.

Speaker Change: We remain confident in the opportunity in front of us.

Speaker Change: And steadfast in our commitment to our plant.

Martina Mcisaac: With that, I'll now turn the call over to Martina. Thank you, Erik, and good morning, everyone. I will begin by covering our growth initiatives in greater detail. As Erik mentioned, the expansion of our solutions footprint continued in the fiscal third quarter. We are also starting to see positive early indicators from our seller effectiveness and coverage initiatives. Public sector, which was the first portion of the business to complete our coverage initiative, continues to grow. The biggest change in our fiscal third quarter was in the expanded coverage in core field sales. The number of customer location touches logged by field sales grew low double digits year over year and low single digits quarter over quarter.

Martina Mcisaac: With that I'll now turn the call over to Martina.

Martina Mcisaac: Thank you, Eric and good morning, everyone.

Martina Mcisaac: I will begin by covering our growth initiatives in greater detail.

Martina Mcisaac: As Eric mentioned the expansion of our installation split print continued in the fiscal third quarter.

Martina Mcisaac: We are also starting to see positive early indicators from our stellar effectiveness and coverage initiatives.

Martina Mcisaac: Public sector, which was the first portion of the business to complete our coverage initiative continues to grow.

Martina Mcisaac: The biggest change in our fiscal third quarter with any expanded coverage in core field sales.

Martina Mcisaac: The number of customer locations touches loved by field sales grew low double digits year over year, and low single digits quarter over quarter.

Martina Mcisaac: Improvement in these areas is reflected in our sales per rep per day trend, which was down low single digits year over year compared to down high single digits in the first half of the fiscal year. Our marketing campaign, which encompasses both digital and personal outreach, is also off to a positive start. The return on digital product marketing spend showed an improvement in the 20% range, quarter over quarter. This is also reflected in the performance of certain KPIs on MSCDirect.com, such as stronger direct traffic and conversion rates, as previously mentioned by Erik. I'm also encouraged by the daily sales trend on the web as we began to see the year-over-year performance improve in fiscal 3Q compared to trends over the past several quarters.

Martina Mcisaac: Improvement in these areas is reflected in our sales per rep per day trend, which was down low single digits year over year compared to down high single digits in the first half of the fiscal year.

Martina Mcisaac: Our marketing campaign, which encompasses both digital and personal outreach is also off to a positive start.

Martina Mcisaac: The return on digital product marketing spend showed an improvement in the 20% range quarter over quarter.

Speaker Change: This is also reflected in the performance of certain Kpis on MSC direct dotcom, such a stronger direct traffic and conversion rates as previously mentioned by Eric.

Speaker Change: I'm also encouraged by the daily sales trend on new wind as we began to see the year over year performance improved in fiscal <unk> compared to trend over the past several quarters.

Martina Mcisaac: On slide five, you can see our tariff mitigation plans and our direct COGS exposure across the globe. While the situation remains fluid, we are confident in our ability to mitigate the potential impacts of terror. We intend to continue to work extremely closely with our suppliers and customers while maintaining our core pricing principles. Since our tariff related price increase in late March, we took minimal further actions during the quarter. In the last couple of days, we took a more broad-based price increase, and we will evaluate additional moves as warranted. We continue to view tariffs as an opportunity to strengthen our relationships with customers and MSC's position in the marketplace.

Speaker Change: On slide five you can see our tariff mitigation plan.

Speaker Change: Our direct Cogs exposure across the globe.

Speaker Change: While the situation remains fluid we are confident in our ability to mitigate the potential impact of tariffs.

Speaker Change: We intend to continue to work extremely closely with our suppliers and customers, while maintaining our core pricing principles.

Speaker Change: Since our tariff related price increase in late March we took minimal further actions during the quarter.

Speaker Change: In the last couple of days, we took a more broad based price increase and we will evaluate additional news as warranted.

Speaker Change: We continue to view tariff, if there's an opportunity to strengthen our relationships with customers and M. S. Six position in the marketplace.

Martina Mcisaac: We have a proven track record of identifying opportunities that deliver meaningful productivity to customers. We're doubling down on this by increasing the number of cost savings assessments performed in the field for both existing and new customers. We are also providing alternative solutions for products impacted by tariffs, which plays well to the depth and breadth of our product assortment. As a result, our Made in USA offering is beginning to gain traction as the daily sales of these products were up year over year and outperformed total company sales on a sequential basis. We intend to continue using this as a lever to gain share of wallet and attract new customers.

Speaker Change: We have a proven track record of identifying opportunities that deliver meaningful productivity to customers.

Speaker Change: We're doubling down on this by increasing the number of cost savings assessments performed in the field for both existing and new customers.

Speaker Change: We are also providing alternative solutions through products impacted by tariffs, which plays well to the depth and breadth of our product assortment.

Speaker Change: As a result, our made in USA offering is beginning to gain traction as the daily sales of these products were up year over year and outperformed the total company sales on a sequential basis.

Speaker Change: We intend to continue using this as a lever to gain share of wallet and attract new customers.

Speaker Change: Yeah.

Martina Mcisaac: And lastly, we continue to make progress on our network optimization initiative. As a reminder, this work is focused on ensuring we have the right inventory close to customers. We seek to optimize working capital, freight, and our distribution footprint. We remain on track to deliver $10 to $15 million in annualized savings by fiscal year 26.

Speaker Change: And lastly, we continue to make progress on our network optimization initiatives as.

Speaker Change: As a reminder, this work is focused on ensuring we have the right inventory close to customers, we seek to optimize working capital free and our distribution footprint.

Speaker Change: We remain on track to deliver 10 to 15 million in annualized savings by fiscal year 'twenty six.

Kristen Actis: And with that, I will turn the call over to Chris. Thank you, Martina. And good morning, everyone. Please turn to slide six, where you can see key metrics for the fiscal third quarter on both the reported and adjusted basis. Fiscal third quarter sales of 971 million declined 0.8% year over year, as lower volumes were largely offset by benefits from price of 80 basis points and acquisitions, which contributed another 60 basis points. On a sequential basis, average daily sales improved 7% quarter over quarter, and outperformed historical sequential average. The primary drivers of our strong sequential performance were higher volumes and a small benefit for price.

Christian: And with that I will turn the call over to Christian.

Christian: Thank you Martina and good morning, everyone.

Christian: Please turn to slide six where you can see key metrics for the fiscal third quarter on both a reported and adjusted basis.

Christian: Fiscal third quarter sales of 971 million declined 8% year over year as lower volumes were largely offset by benefits from price of 80 basis points.

Christian: Good acquisitions, which contributed another 60 basis points.

Christian: On a sequential basis average daily sales improved 7% quarter over quarter and outperformed historical sequential averages.

Christian: The primary drivers of our strong sequential performance were higher volumes.

Christian: Small benefits from price.

Kristen Actis: Looking at average daily sales by customer type, we were encouraged to see improvement in both the year-over-year and two-year stack performance of our core and national account customers. Core customers declined 0.8% year over year, while national accounts declined 1.7%. Public sector continued its trend of delivering year over year growth and improved 2.4% in the quarter. As a reminder, sales in the public sector can be lumpy in nature.

Christian: Looking at average daily sales by customer type, we were encouraged to see improvement in both the year over year and two year stack performance of our core and national account customers.

Christian: Core customers declined 8% year over year, while national accounts declined one 7%.

Christian: Public sector continued its trend of delivering year over year growth improved to 4% in the quarter.

Christian: As a reminder, sales in the public sector can be lumpy in nature.

Kristen Actis: However, we expect growth Sequentially, Core and other customers was the best performer, with 8.3% growth, followed by improvement of 6.2% in the public sector and 5.8% in national accounts.

Christian: However, we expect growth.

Christian: Sequentially core and other customers with the best performer was eight 3% growth.

Christian: Followed by improvement of six 2% in the public sector, and five 8% and national accounts.

Kristen Actis: Moving to our performance in vending and implants. We continue to expand the install base of both solutions to 399 in-plant programs and more than 28,700 vending machines at quarter end. Average daily sales through vending in the third quarter were up roughly 8% year over year and represented approximately 19% of total company net sales. Sales to our customers with an implant program grew 10% year over year, and coincidentally also represented approximately 19% of total company net sales. Moving to profitability for the fiscal third quarter, gross margin of 41% improved 10 basis points year over year as benefits from price inclusive of mixed more than offset headwinds from higher cost inventories working through the P&L and lower margin acquisition.

Christian: Moving to our performance and then Dana.

Christian: We continue to expand the installed base of solutions Q3 hundred 99 implant programs.

Christian: More than 28700 vending machine at quarter end.

Christian: Average daily sales through vending in the third quarter were up roughly 8% year over year and represented approximately 19% of total company net sales.

Christian: Sales to our customers with an implant program grew 10% year over year.

Christian: Coincidentally also represented approximately 19%.

Christian: That's helpful.

Christian: Moving to profitability for the fiscal third quarter gross margin of 41% improved 10 basis points year over year.

Christian: As benefits from price inclusive of mix more than offset headwinds from higher cost inventory working through the P&L at a lower margin acquisitions.

Kristen Actis: Sequentially, this resulted in flat gross margins quarter over quarter. Operating expenses in the quarter were approximately $312 million in a reported basis. On an adjusted basis, operating expenses stepped up approximately 22 million year over year to 311 million for the quarter. The primary driver of the year over year increase was higher personnel related costs. Combined with slightly lower sales year over year, this resulted in a roughly 250 basis points step up and adjusted operating expense as a percentage of sales per quarter. Sequentially, adjusted operating expenses were approximately $9 million higher compared to 2Q. approximately 7 million of this was driven by higher variable expenses associated with the increase The remaining balance of approximately $2 million was driven primarily by the combination of higher medical plan expenses and increased outbound freight costs associated with certain public sector customers, which offset benefits from higher productivity.

Christian: Sequentially. This resulted in flat gross margins quarter over quarter.

Christian: Operating expenses in the quarter or approximately 312 million on a reported basis.

Christian: On an adjusted basis operating expenses stepped up approximately $22 million year over year to $311 million for the quarter.

Christian: The primary driver of the year over year increase was higher personnel related costs.

Christian: Combined with slightly lower sales year over year. This resulted in a roughly 250 basis point step up in adjusted operating expense as a percentage of sales for the quarter.

Christian: Sequentially adjusted operating expenses were approximately 9 million higher compared to Q.

Christian: Approximately $7 million this was driven by higher variable expenses.

Christian: The increase in sales.

Christian: The remaining balance of approximately 2 million was driven primarily by the combination of higher medical plan expenses and increased outbound freight costs associated with certain public sector customers.

Christian: Offset benefits from higher productivity.

Kristen Actis: On a percentage of sales basis adjusted operating expenses decreased 180 basis points. Reported operating margin for the quarter was 8.5% compared to 10.9% in the prior year. On an adjusted basis, operating margin came in at the midpoint of our outlook at 9% and declined 240 basis points compared to the prior year. We delivered GAP EPS of $1.02 compared to $1.27 in the prior year quarter. On an adjusted basis, EPS was $1.08 compared to $1.33 in the prior year.

Christian: On a percentage of sales basis, adjusted operating expenses decreased 180 basis points sequentially.

Christian: Reported operating margin for the quarter was eight 5% compared to 10, 9% in the prior year.

Christian: On an adjusted basis.

Christian: Operating margin came in at the midpoint of our outlook at 9%.

Christian: And declined 240 basis points compared to the prior year.

Christian: We delivered GAAP EPS of $1, two compared to $1 27 in the prior year quarter.

Christian: On an adjusted basis EPS was $1 eight compared to $1 33 in the prior year.

Kristen Actis: Now let's turn to slide 7 to review our balance sheet and cash flow performance. We continue to maintain a healthy balance sheet with net debt of approximately $449 million. representing roughly 1.1 times EBITDA.

Christian: Now, let's turn to slide seven to review, our balance sheet and cash flow performance.

Christian: We continue to maintain a healthy balance sheet with net debt of approximately $449 million.

Christian: Representing roughly 1.1 times EBITDA.

Kristen Actis: Capital expenditures declined approximately 8 million euro per year to 21 This resulted in free cash flow conversion of approximately 134% in the fiscal third quarter and 129% fiscal year-to-date. Turning to capital allocation on slide eight, our highest priority remains organic investment to fuel growth and operational We repurchased approximately 117,000 shares during the quarter and approximately 494,000 shares fiscal year to date. Combined with the dividend, we returned approximately $56 million to shareholders in fiscal 3Q and $181 million fiscal year-to-date.

Christian: Capital expenditures declined approximately $8 million year over year to $21 million.

Christian: This resulted in free cash flow conversion of approximately 134% in fiscal third quarter.

Christian: 129% fiscal year to date.

Christian: Turning to capital allocation on slide eight.

Christian: Our priority remains organic investment to fuel growth and operational efficiency.

Christian: We repurchased approximately 117000 shares during the quarter.

Christian: And approximately 494000 shares fiscal year to date.

Christian: Combined with the dividend, we returned approximately $56 million to shareholders in fiscal <unk>.

Christian: And 181 million fiscal year to date.

Kristen Actis: Moving to our expectations for the fiscal fourth quarter on slide nine. With preliminary sales for the fiscal month of June trending approximately flat, we expect average daily sales to be down 0.5% to up 1.5% compared to the prior year. and to be approximately flat compared to 3q at the midpoint. Our expected range takes into consideration benefits from price and early momentum in our growth initiatives continuing into the fiscal fourth quarter, coupled with continued caution with respect to demand as the tariff deadline approaches. Under this revenue scenario, we expect our adjusted operating margin in the fiscal fourth quarter to be between 8.5% and 9%.

Christian: Moving to our expectations for the fiscal fourth quarter on slide nine.

Christian: With preliminary sales for the fiscal month of June trending approximately flat.

Christian: We expect average daily sales to be down 5% to up one 5% compared to the prior year and to be approximately flat compared to three <unk> at the midpoint.

Christian: Our expected range takes into consideration benefits from price and early momentum in our growth initiatives continuing into the fiscal fourth quarter, coupled with continued caution with respect to demand as the tariff deadline approaches.

Christian: Under this revenue scenario, we expect our adjusted operating margin in the fiscal fourth quarter to be between eight 5% and 9% driven by the following assumptions.

Kristen Actis: driven by the following assumption. fiscal Q4 gross margins to perform better than the historical seasonal decline of 40 basis points. and to be 40.9% plus or minus 20 basis. and a sequential decline in adjusted operating of approximately $2 to $4 million, largely driven by lower variable expenses, lower sales.

Christian: Fiscal Q4 gross margins to perform better than the historical seasonal decline of 40 basis points.

Christian: And to be 49%, plus or minus 20 basis points.

Christian: And a sequential decline in adjusted operating expenses of approximately $2 million to $4 million largely driven by lower variable expenses lower sales.

Kristen Actis: increasing productivity and lower outbound freight which will be partially offset by an increase in medical plan Moving to our guided metrics for the full year. There are a few tweaks to assumptions as we move closer to the end of the depreciation and amortization expense is likely to be at the lower end of the 90 to 95 million Capital expenditures are also expected to be at the lower end of the 100 to 110 million range. And lastly, given strong cash generation fiscal year to date that is expected to continue into the fiscal fourth quarter, we now expect free cash flow conversion to be approximately 120% for the full year compared to our prior expectation of approximately 100%.

Christian: Increasing productivity and lower outbound freight expense.

Christian: Which will be partially offset by an increase in medical plan expense.

Christian: Moving to our guided metrics for the full year.

Christian: There are a few tweaks to assumptions as we move closer to the end of the fiscal year.

Christian: Depreciation and amortization expense is likely to be at the lower end of the $90 million to $95 million range.

Christian: Capital expenditures are also expected to be at the lower end of the $100 million to $110 million range.

Christian: And lastly, given strong cash generation in fiscal year to date that is expected to continue into the fiscal fourth quarter.

Christian: We now expect free cash flow conversion to be approximately 120% for the full year compared to our prior expectation of approximately 100%.

Ryan Mills: And with that, we will open the line for Q&A. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you'd like to withdraw your question, Press Star than two.

Christian: And with that we will open the line for Q&A.

Christian: We will now begin the question and answer session.

Christian: To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to us.

Ryan Mills: At this time, we will pause momentarily to assemble our roster.

Christian: Our roster.

Ryan Cooke: The first question comes from Ryan Cooke with Wolf Research. Please go ahead. Good morning and thank you for taking my question. Morning, Ryan.

Speaker Change: The first question comes from Ryan Cook with Wolfe Research. Please go ahead.

Ryan Cook: Good morning, and thank you for taking my questions today.

Speaker Change: Good morning, Ryan.

Christian: Great I'm, hoping we could start with the price outlook for <unk> and into next year, you called out 80 basis points of contribution this quarter. So how should we be thinking about incremental price from those actions that you took late in <unk> and I think that the tariff exposures you share on slide five would pencil out to roughly a mid single digit increase.

Erik Gershwind: I'm hoping we could start with the price outlook for 4Q and into next year. You called out 80 basis points of contribution this quarter. So how should we be thinking about incremental price from those actions? Transcripts provided by Transcription Outsourcing, LLC. So I'm curious if that's the right way to be thinking about price. Yeah, right. Good morning. You jump in. Yeah, you go. You start. You got it. So right.

Christian: <unk> across the portfolio to offset current tariff rates. So I'm curious if that's the right way to be thinking about price acceleration from here.

Ryan Mills: Yeah, Ryan good morning.

Ryan Mills: Hello.

Ryan Mills: Well you can jump in here Chris.

Christian: Yeah. You go you start you.

Erik Gershwind: So I'll talk about the outlook. And then Kristen, give some of the numbers. So, look, overall, what you're hearing from us is, since we last spoke to you, which, if you remember, was right on the cusp of Liberation Day, we had taken some surgical increases. And obviously, there's been a lot of toing and froing since then. But in general, we are seeing inflationary pressures build from our suppliers. And Martina mentioned, just in the last few days, a more broad based increase, which is the first time we've taken a more broad based increase in terms of outlook beyond that.

Chris: You got it right. So I'll I'll I'll talk about the outlook and then Christian give some of the numbers.

Christian: Look overall.

Christian: What what Youre hearing from US is since we last spoke to you, which if you remember it was right on the cusp of Liberation day, we had taken some surgical increases and obviously theres been a lot of tooling and Froing since then but in.

Martina Mcisaac: In general we are seeing inflationary pressures build from our suppliers and Martina mentioned just in the last few days a more broad based increase which is the first time, we've taken a more broad based increase.

Christian: In terms of outlook beyond that so obviously that will have an impact on Q4 that will carry into Q1.

Kristen Actis: So, obviously, that will have an impact on Q4. That will carry into Q1.

Kristen Actis: It's so tough to give you a longer term perspective, because it does feel like things change regularly. We're staying in constant contact with customers and suppliers. And what you heard is we're going to continue to be agile. And if there is opportunity and or need to move again, we will. In terms of size, I'll let Kristen add any color. But it's more like a, in terms of the increase we just took, if that's what you're referencing, more like a low single digit increase as opposed to mid single digit. Yeah, and Brian, I agree. That's totally agree with everything Erik said.

Christian: It's so tough to give you a longer term perspective, because it does feel like things change regularly we're staying in constant contact with customers and suppliers and you know what you heard is what we're going to continue to be agile and if there is opportunity Andrew or need to move again, we will in terms of size I'll, let Christian to add any color.

Christian: But it's.

Christian: It's more like a you know in terms of the increase we just took if that's what you're referencing more like a low single digit increase as opposed to mid single digit.

Martina Mcisaac: Okay.

Speaker Change: Yeah, and Brian I agree.

Christian: Totally totally agree with everything Eric said, the other thing I would just add maybe zoom out for the topline guide overall for Q4 and talk about how price fits within that like if you look at the midpoint of the guide that's up 50 bps year over year and then it's about flattish sequentially. So ahead of the historical Q3 to Q4 <unk>.

Kristen Actis: The other thing I would just add, maybe to zoom out for the top line guide overall for Q4, to talk about how price fits within that. Like, if you look at the midpoint of the guide, that's up 50 bps year over year, and then it's about flat or sequentially, so ahead of the historical Q3 to Q4 averages. And then a couple points to add some detail to that. If you look at the op stats, you'll see that June was flat or down 1% if you're looking at the month over month sequentials. And then at the midpoint, what that means for July and August is we're up 1% sequentially, and that's about in line with the historical averages.

Christian: Bridges, and then a couple of points to add some details of that if you look at the op stats, you'll see that June was flat.

Christian: Down 1%, if you're looking at the month over month sequential and then at the midpoint what that means for July and August were up 1% sequentially and that's about in line with the historical averages.

Kristen Actis: So with respect to the price that Erik referred to, then you would see a slight increase in contribution for that as you move through the fourth quarter. Although in addition to sizing at low single digits, you know, somewhere in that range, depending on where you put the guide, I would caution that we don't get a full two months of price realization on that. Some of our contracted customers have like a holding period. So I definitely recommend being cautious about the amount you assume for price in the fourth quarter.

Christian: So with respect to the price that Erik referred to then you would see a slight increase in contribution for that as you move through the fourth quarter. Although in addition, deciding at low single digits somewhere in that range, depending on where you put the guy and I would caution that we don't get a full two months of price realization on that some of our contracted customers have like a holding peer.

Christian: So I definitely recommend being cautious about the magazine for price in the fourth quarter.

Kristen Actis: And then I guess the last thing I would just add is that with respect to volume, then if you think about where that puts volume in the guide, we're very encouraged by what we saw in Q3. We're going to talk, you know, we talked in the prepared remarks about some of the green shoots that we're seeing, but definitely trying to take sort of an overall cautious approach given the broader uncertainty that's out there. That's very clear and all makes sense.

Christian: And then I guess the last thing I would just add is that with respect to volume than if you think about where that puts the volume in the guide.

Christian: We're very encouraged by what we saw in Q3.

Christian: And I talk we talked in the prepared remarks about some of the green shoots that we're seeing but definitely trying to take sort of an overall cautious approach given the broader uncertainty that's out there.

Speaker Change: Okay now that's very clear and all makes sense and then I guess, maybe we could pivot over to the <unk> margin outlook, which implies a bit better than usual seasonality with op margins flat to down 50 basis points Q over Q I think the historical trend is down at least a point and it seems like this is mainly from the better gross margin performance.

Kristen Actis: Then I guess, you know, maybe we could pivot over to the 4Q Margin Outlook. Transcripts provided by Transcription Outsourcing, LLC. Margin Tailwind, flip the other way once COGS flows through P&L. Yeah, sure. Yeah, so to your point, 40.9% plus or minus 20 basis points, so kind of flattish to the Q3 gross margin number of 41 even. And that is, to your point, better than the historical sequential decline we see, which is about 40 bits down. A few points within that to think about. So one of the drivers of why we're typically down sequentially is customer mix, specifically the public sector business, which we are expecting to be strong in the fourth quarter.

Speaker Change: Youre expecting so maybe you could just talk about the moving pieces there anything we need to think about in terms of timing for price versus cost like does this margin tailwind flip the other way when it's Cogs flows through P&L or any detail there would help.

Speaker Change: Yes, sure, yes, so to your point 40, 49% plus or minus 20 basis points of kind of flattish to the Q3 gross margin number 41 event and that is to your point better than the historical sequential decline, we see which is about 40 bps down.

Speaker Change: A few points within that to think about one of the drivers of why we're typically down sequentially is customer mix, specifically the public sector business, which we are expecting to be strong in the fourth quarter.

Kristen Actis: With respect to core, we're expecting to see continued sequential improvement, but not yet big enough that it's kind of moving the needle against that public sector change in performance Q3 to Q4. And then we talked about price, of course, so you're going to pick up a bit of increased contribution from price sequentially. But I heard you mention cost in your question. We are absolutely starting to see cost increases come online in the fourth quarter. So a pretty big increase. So I said a lot, but to summarize, you've got a mixed headwind, you've got some small price cost improvement.

Christian: With respect to core we're expecting to see continued sequential improvement, but not yet big enough that it's kind of moving the needle against that public sector change in performance Q3 to Q4, and then we talked about price of course, you're going to pick up a bit of increased contribution from price sequentially, but I heard you mentioned costs in your <unk>.

Christian: <unk>, we are absolutely starting to see cost increases come online in the fourth quarter, So a pretty narrow price cost spread sequentially from Q3.

Christian: So I said a lot but to summarize you've got a mix headwind you got some small price cost improvement and then the last thing I would add is that we're assuming some productivity that would come online sequentially within the fourth quarter in the and that would be in the gross margin line. So to whatever extent those three main drivers move that'll dictate where we fall in.

Kristen Actis: And then the last thing I would add is that we're assuming some productivity that would come online sequentially within the fourth quarter that would be in the gross margin line. So to whatever extent those three main drivers move, that'll dictate where we fall on the guide.

Christian: The guide.

Christian: That's great and thank you very much for the detail there I'll turn it back over.

Kristen Actis: That's great, and thank you very much for the detail there.

Thomas Moll: The next question comes from Tommy Moll with Stevens. Please go ahead. Good morning, and thank you for taking my question.

Christian: The next question comes from Tommy Moll with Stephens. Please go ahead.

Tommy Moll: Good morning, and thank you for taking my questions.

Erik Gershwind: Morning, Tommy. You referenced supplier price increases a few times. And I'm just curious if you can share more there. There's been a lot that's changed since you referenced Eric there in late March where you announced first round of increases. But what what are those conversations look like today? And do you feel like you kind of know what you need to know about what's coming? Or There are a lot still in flux and you could look up and we have this conversation a quarter from now and there's a whole new round of supplier increases to come.

Speaker Change: Good morning, Tommy.

Speaker Change: Yes.

Speaker Change: You referenced supplier price increases a few times and I'm just curious if you can share more there there's been a lot that's changed since you referenced Eric.

Speaker Change: March where you know the first round of increases.

Speaker Change: What what are those conversations look like today and do you feel like you kind of know what you need to know about what's coming or.

Speaker Change: Is there a lot still in flux and you could look up and we have this conversation a quarter from now and there's a whole new round of supplier increases to contend with.

Erik Gershwind: Yeah, Tommy, I'll start and then certainly Martina can fill in anything that I don't cover. I, the first thing I'd say, I hesitate at any point during this process to say that we have clear line of sight into what's coming or have it all figured out. I don't think we do. What I would say is that the discussions with suppliers are ongoing, and they're fluid. It's not like it's a it's a one and done. This is an ongoing topic, you know, given the headlines, as you could imagine. What I would say, and what we tried to get across in the prepared remarks, and Martina put some color on this, but if you go back to where we were a quarter ago, we were looking at more surgical increases, specifically by surgical, what we mean is specifically products related to direct sourcing from tariff driven companies, countries, i.e.

Speaker Change: Yeah, Tommy I'll I'll I'll start and then certainly Martina can fill in.

Speaker Change: Anything that I don't cover.

Christian: The first thing I'd say I'd I'd hesitate at any point during this process to say that we have clear line of sight into what's coming or has it all figured out I don't think we do what I would say is that the discussions with suppliers are ongoing and their fluid. It's not like it's a it's a one and done this is an ongoing topic given the headlines as you could imagine.

Christian: What I would say and what we tried to get across in the prepared remarks, and Martina put some color on this but if you go back to where we were a quarter ago. We were looking at more surgical increases specifically by surgical what we mean is specifically products related to direct sourcing from tariff driven companies.

Christian: Our countries I E. China, what's happening now is we are seeing more general inflationary pressures you know many of our suppliers or manufacturing all over the world, they're sourcing products all over the world and so they are feeling cost pressures and so there's.

Erik Gershwind: China. What's happening now is we are seeing more general inflationary pressures, you know, our suppliers are manufacturing all over the world, they're sourcing products all over the world. And so they are feeling cost pressures. And so there's, you know, just a broader base, we're seeing more of kind of what we would see in a typical inflationary cycle with list price increases, as an example. And that's what we've just brought to market in the last couple of days. Hey, how was your follow-up?

Christian: Just a broader base, we're seeing more of kind of what we would see in a typical inflationary cycle with list price increases as an example, and that's what.

Christian: We've just brought to market in the last couple of days.

Speaker Change: Okay was there a follow up.

Kristen Actis: Sure, I'll ask follow up here, probably for Kristen on this one.

Speaker Change: Sure Oh, I'll ask follow up here, probably for Kristen on this one.

Kristen Actis: We're a quarter ahead of when you'll guide for fiscal 26, Kristen, but to the extent you can level set us on margin compares for 26 over 25, that's always helpful, whether quantitative or qualitative, but I'm just thinking in terms of the gross margin percentage, and then in particular, any big OpEx drivers positive or negative that you can already identify for next year. Thanks.

Speaker Change: We're a quarter ahead of when you'll guide for fiscal 'twenty, six Kristen, but to the extent you can level set us on margin compares for 26 over 25, that's always helpful, whether quantitative or qualitative, but I'm just thinking in terms of the gross margin percentage and then in particular any big.

Christian: Opex drivers positive or negative that you can already identified for next year. Thank you.

Kristen Actis: Yeah, Tommy, maybe I'll start here. And I'll let Kristen add color specifically on gross margin, but but, you know, sort of like if I zoom out from gross margin, and just look at the drivers, and, again, what I would say is, we're cautious right now to not give too much color on anything that could happen even a quarter out, given how much how murky it is, and how much uncertainty. So we'll, we'll give a lot more color next quarter. But if I sort of walk down the P&L lines, and, and, you know, give you some perspective there, you know, I think what you're seeing from us, right now on the revenue line, I characterize it as stabilization.

Christian: Yeah, Tommy maybe I'll start here and I'll, let Christian add color, specifically on gross margin, but it still looks like if if I zoom out from gross margin and just look at the drivers and again, what I would say is.

Christian: We're cautious right now to not give too much color on anything that could happen, even a quarter out given how much how murky it is and how much uncertainty. So we'll give a lot more color next quarter, but if I sort of walk down the P&L lines.

Christian: And give you some perspective, there you know I think what you're seeing from US right now on the revenue line I'd characterize it as stabilization and that stabilization more or less sequentially year over year.

Erik Gershwind: And that's stabilization, more or less sequentially year over year. You know, look, we were encouraged, as we said, around some green shoots that we're seeing, particularly the core customer, Tommy, we did see a nice sequential improvement there that we can track back to things that, that we've been talking about that are that are in flight. So we're encouraged, but you know, it's still early. So on the revenue line, it's stabilization, you know, between the core customer, the initiatives, and then maybe the dust settling on the macro, there is some opportunity, and we hope we can do better.

Christian: Look we were encouraged as we said around some green shoots that we're seeing particularly the core customer taught me we did see a nice sequential improvement there that we can track back to things that.

Christian: We've been talking about that are that are in flight. So we're encouraged but you know it's still early.

Christian: So on the revenue line at stabilization.

Christian: The core customer the initiatives and then maybe the dust settling on the macro there is some opportunity and we hope we can do better but right now. It's stabilization you would mentioned gross margin and I think it's kind of a similar right now a similar theme what you've seen from us through the year as it is.

Erik Gershwind: But right now, it's stabilization, you would mention gross margin. And I think it's kind of a similar, right now, a similar theme, what you've seen from us through the year is, it's a pretty stable picture. You know, again, given what we just took in pricing, that could be an encouraging data point. There could potentially be more behind it, depending upon how things go. And then, you know, the other thing on margin that we're going to keep our eye on is mix. Certainly, if progress that we saw in Q3 continues on the core customer, that could help relieve what's been a historic mix headwind.

Christian: Pretty stable picture you know again, given what we just took in pricing that could be an encouraging data point there.

Christian: There could potentially be more behind it depending upon how things go.

Christian: And then you know the other thing on margin that we're going to keep our eye on is mix certainly if if progress that we saw in Q3 continues on the core customer that could help relieve what's been a historic mix headwind so cautiously.

Kristen Actis: So, you know, cautiously optimistic on gross margin, but a lot of moving parts. And then on the OPEX front, you know, what we've been talking about for a while now is, you know, we've had some pretty heavy step ups in OPEX over the last two fiscal years. And what we had said is that as we looked to 26, we expected some of those line items that were driving the increases to moderate. And so, you know, increases, but moderating, and that's still how we see it. And then, of course, the added element there is the initiatives that Martina touched on that are starting to build.

Christian: Optimistic on gross margin, but a lot of a lot of moving parts and then on the Opex front what.

Christian: Well, we've been talking about for a while now is we've had some pretty heavy step ups in opex over the last two fiscal years and what we had said is that as we look to 'twenty six we expected some of those line items that were driving the increases to moderate and so you know increases, but moderating and that's still how we see it and then of course the.

Christian: The added element.

Speaker Change: Element there is the productivity initiatives that Martina touched on that are starting to build so we talked about the 10 to 15 million in annualized run rate, where we're on track. There. We have talked about that there is you know quite a bit in the pipeline behind that that the team Martina and team are executing upon so we do see opportunity there.

Kristen Actis: So, we talked about the 10 to 15 million in annualized run rate. We're on track there. We have talked about that there's, you know, quite a bit in the pipeline behind that, that the team, Martina and team are executing upon. So, we do see opportunity there to level out the rate of OPEX increase as compared to the last couple of years. So, you know, you put that together, and again, it's really early, and we'll come back with more, but we would expect. Starting in 26 that you know that you could expect a more typical kind of incremental margin picture for the company Thank you.

Christian: To level out the rate of Opex increase as compared to the last couple of years. So you put that together and again, it's really early and we'll come back with more but we would expect.

Christian: Starting in 2006.

Christian: You could expect a more typical kind of incremental margin picture for the company.

Speaker Change: Thank you I appreciate the insight I'll turn it back.

Kristen Actis: I appreciate the insight.

Ryan Mills: I'll turn it back.

Speaker Change: Yeah.

Ryan Merkel: The next question comes from Ryan Merkel with William Blair, please go ahead. Hey, good morning. Thanks for the question. Hey, Ryan.

Speaker Change: The next question comes from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel: Hey, good morning, Thanks for the question.

Speaker Change: Hey, Ryan.

Erik Gershwind: So the first question I have is just on the average daily sales trends, and this might be hard to answer, but when I look at April down three and then July, August, kind of guidance implies up one. This is average daily sales. You know, the pieces that drove the improvement, how much of it was the macro, Erik, I think you said in April and May was slow, but has since improved a bit. And then you have pricing and then you have initiatives. It'd be helpful just to hear from you the sources and how much each is contributing.

Christian: So the first question I have is just on the average daily sales sales trends and this might be hard to answer but when I look at April down three and then July August kind of guidance implies up one this is average daily sales.

Speaker Change: The pieces that drove the improvement how much of it was the macro Erik I think you said in April and May was slow but has since improved a bit and then you have pricing and then you have initiatives. It would be helpful. Just to hear from you the sources and how much each has contributed.

Erik Gershwind: I'll start, Ryan. I mean, I, and it's tough to, this is a tough one to break apart. You know, what I'll tell you of the three, as you move through, so we had talked about a price on our last call that we took in a late March pricing, a price increase. Other than that, price was not really a variable in the last. So if you're looking at sort of the growth rate the last couple of months, pricing wouldn't be a major variable. We're talking about the last couple of days for a, any sort of meaningful movement.

Ryan Mills: I'll I'll I'll start Ryan.

Ryan Mills: It's tough to say this is a tough one to break apart.

Ryan Mills: What I will tell you over the three.

Speaker Change: As you move through so we had talked about it.

Speaker Change: Last call that we had taken a late March pricing.

Speaker Change: Our price increase other than that price was not really a variable in the lab. So if you're looking at sort of the growth rate the last couple of months.

Speaker Change: Pricing wouldn't be a major variable.

Speaker Change: We're talking about the last couple of days for a any sort of meaningful movement. So really what you are left with if pricing is not a a wild swing there youre looking at macro and initiatives and we tried to give you some color on the initiative progress it's.

Erik Gershwind: So really what you're left with, if pricing is not a wild swing there, you're looking at macro and initiatives. And, you know, we try to give you some color on the initiative progress. It's, you know, not a perfectly straight line, but it's been encouraging. We do think that there has been some influence on those numbers on the macro, you know, not, it wasn't surprising to us that post liberation day uncertainty for customers is generally not their friend or our friends and people pause. So not shocking that April would have been soft on top of that.

Speaker Change: Not not a perfectly straight line, but it's been encouraging.

Christian: We do think that there has been some influence on those numbers on the macro not it wasn't surprising to us that post liberation day uncertainty for customers is generally not their friend or our friends and people pause. So not shocking that April would have been soft on top of that.

Christian: Remember, we did have an Easter timing.

Erik Gershwind: Remember we did have an Easter timing headwind in April and then begin to ease May and June. So, you know, I would expect it, you know, the swings month to month, as much as anything macro as it was the initiatives, which are kind of like a build in the numbers.

Christian: Headwind in April and then begin to ease may and June so I would expect that the swings month to month, probably as much as anything macro as it was the initiatives, which are kind of like a built in the in the numbers.

Ryan Merkel: Okay, yeah, I knew that was a hard question. So thanks for entertaining it.

Christian: Okay, Yeah, I know that was a hard question. So thanks for entertaining it.

Erik Gershwind: And then my second question on the core accounts, it's great to see some of the improvement there. You know, how aggressively have you started to market the web pricing yet? And, you know, I've asked you this question before, but where do you think core account growth can get to?

Speaker Change: And then my second question on our core counts, it's great to see some of the improvement there how aggressively have you started to market the web pricing yet and you know I've asked you. This question before but where where do you think core account growth can get to and then remind us how much higher the gross margins are versus the national accounts.

Erik Gershwind: And then remind us how much higher the gross margins are versus the So, you know, marketing, and I'll touch on marketing, Ryan. Marketing, you know, we're in full swing there. And, you know, remember for us that you'd reference the web pricing realignment, Ryan, that we did last year. You know, for us, that was really an enabler because we have a value proposition that's focused on saving our customers time, money, improving their production process. We don't wanna win business on price, but it was an enabler to take price away as a headwind. So, you know, check on the web pricing realignment, check on the website upgrades.

Christian: So.

Christian: Marketing and I'll touch on marketing right in marketing.

Christian: We're we're we're in full swing there.

Christian: Remember for US you would.

Christian: References the web pricing realignment Ryan that we did last year, you know for us that was really an enabler.

Christian: Because we have a value proposition that's focused on saving our customers time money improving their production process, we don't want to win business on price, but it was an enabler to take price away as a headwind.

Christian: So check on the web pricing realignment.

Christian: Check on the.

Christian: The website upgrades and you know you're you're now seeing our marketing pretty much in swing I mean that will continue to build.

Erik Gershwind: And, you know, you're now seeing our marketing pretty much in swing. I mean, that will continue to build, but we are seeing it. And, you know, Martina mentioned, it's a combination of digital programs. It's a combination of personal outreach. And some of the metrics that we cited there, you know, in terms of, for instance, you know, the direct traffic increases to mscdirect.com, as much as anything are a reflection of the marketing program. So, you know, we feel like it's in market. We still feel like, Ryan, look, we're encouraged, as you said, by progress in Q3 on the core.

Martina Mcisaac: But we are seeing it and you know Martina mentioned, it's a combination of.

Martina Mcisaac: Digital programs, it's a combination of purchase personal outreach and some of the metrics that we cited there.

Martina Mcisaac: In terms of for instance, the direct traffic increases to MSC direct dotcom as much as anything a reflection of the marketing program. So we feel like it's in market, we still feel like Ryan look we're encouraged as you said by progress in Q3 on the core we have a ways to go.

Erik Gershwind: We have a ways to go. You know, ultimately where we'd like to see it, given, you know, how low our share position is and how fragmented the core customer, that small to medium sized customer base is, ultimately, we'd like to get that customer base growing consistent with company average, which happened this quarter, but obviously getting company average up to our goal of 400 bps or more in terms of outgrowth above IP. And there, we still have work to do.

Martina Mcisaac: Ultimately, where we'd like to see it given.

Martina Mcisaac: How low our share position is and how fragmented the core customer that small to medium sized customer base is ultimately we'd like to get that customer base growing consistent with company average, which happened this quarter, but obviously getting company average up to our goal of 400 bps or more in terms of outgrowth above.

Martina Mcisaac: IP in there we still have work to do.

Ryan Merkel: Got it. All right. Thank you.

Martina Mcisaac: Got it alright, Thank you pass it on.

Ryan Mills: Pass it on.

Ken Newman: The next question comes from Ken Newman with KeyBank Capital Markets. Go ahead.

Speaker Change: The next question comes from Ken Newman with Keybanc capital markets. Please go ahead.

Erik Gershwind: Take care, guys. Hey Ken. Hey Ken, good morning. Morning. So first question for me, maybe just going back to the comments that Martina touched on on the USA product set, you know, the outperformance you saw in the ADS growth from your U.S. ready product set.

Ken Newman: Hey, good morning, guys.

Martina Mcisaac: They can they can good morning.

Speaker Change: Good morning.

Speaker Change: So first lesson for me, maybe just going back to the the comments that Martina touchdown on the USA products that the outperformance you saw in the <unk> growth from your U S ready product set how confident are you that that is a reflecting a pull forward ahead of price increases just given it sounds like.

Martina Mcisaac: How confident are you that that isn't reflecting a pull forward ahead of price increases, just given it sounds like you're being a little bit more constructive on on further price increases as we move into fiscal 2020. I think that I mean, I we really have not, it's obviously hard to hard to measure, but we haven't seen a lot of meaningful pull forward in any of the months since the tariff activity has started. So we're actually seeing the growth come more directly from our cost out programs that we conduct with customers. So there we are seeing a lot of pull to say, come and do an assessment, look at my overall portfolio, bring my overall cost down, let me anticipate, you know, how I can move ahead of tariff.

Speaker Change: You are being a little bit more constructive on on further price increases as we move into fiscal 'twenty six.

Speaker Change: I think that I mean.

Speaker Change: We really have not if it's obviously hard to hard to measure, but we haven't seen a lot of meaningful pull forward in any of the mine since the terrorist activity has started so we're actually seeing the growth come more directly from our cost out programs that we conduct with customers. So what they are.

Speaker Change: We are seeing a lot of Paul to say come and do an assessment look at my overall portfolio, bringing my overall cost down let me anticipate.

Speaker Change: Can move ahead of tariffs so it seems to be a legitimate shifts based on our optimization work that we do in the field with customers on a regular basis, so I wouldn't attribute it to and to pre buy.

Martina Mcisaac: So it seems to be a legitimate shift based on our optimization work that we do in the field with customers on a regular basis.

Martina Mcisaac: So I wouldn't attribute it to pre-buy. Understood. Okay.

Speaker Change: Understood, Okay, and then for my follow up Chris.

Kristen Actis: And then for my follow up, you know, Kristen, I think we've and Eric, you mentioned this, like kind of moving back towards this more normalized incremental margin, I think your target is 20%. I know it's still kind of hard in terms of visibility on the volume side, but While we're also kind of throwing in this opportunity for price, is there a way to kind of help us think about what is the right level of volume growth to kind of keep margin stable or growing relative to the flow through on price? Yeah, I would say that there are so many moving parts right now.

Speaker Change: Chris I think we've and Eric you mentioned this like kind of moving back towards this more normalized incremental margin I think your target is 20% ish.

Speaker Change: I know, it's still kind of hard in terms of visibility on the volume side, but.

Speaker Change: Well, we're also kind of throwing in this opportunity for price is there a way to kind of help us think about what.

Speaker Change: What is the right level of volume growth to kind of keep margin stable or growing relative to the flow through on price.

Speaker Change: Yeah.

Speaker Change: I would say that there are so many moving parts right now.

Kristen Actis: What I'd rather do is come back. Look, we'll give you full color next quarter in terms of specifically for 26. What we did want to give you, though, is a little bit of like sort of walking line by line revenue margin OPEX to say that we do see, you know, absent major shifts in the environment, a more normalized, especially on the OPEX line, a more normalized, you know, so stable on revenues, more or less stable on margin pending what happens on pricing and a more normalized OPEX view between a couple of these big line items leveling and then the productivity moving in.

Speaker Change: What I'd rather do is come back we'll look we'll give you full color next quarter in terms of specifically for 26, but we did want to give you, though is a little bit of like sort of walking line by line revenue margin.

Speaker Change: Opex to say that we do see.

Speaker Change: Absent major shifts in the environment, a more normalized especially on the Opex line are more normalized so stable on revenues more or less stable on margin pending what happens on pricing and a more normalized opex view between a couple of these big line items leveling and then the productivity moving in so youre right.

Kristen Actis: So you're right. Look, what we've said is our goal on incremental margins is 20 percent plus over a cycle. That's where we want to be. But we'll come back with more detail next quarter to give you a better feel for 26. Got it.

Speaker Change: Look what we've said is our goal on incremental margins as 20% plus over a cycle.

Speaker Change: That's where we want to be but we'll come back with more detail next quarter to give you a better feel for 'twenty six.

Speaker Change: Got it thanks guys.

Kristen Actis: Thanks, guys.

Patrick Baumann: The next question comes from Patrick Baumann with J.P. Morgan. Please go ahead. Oh, hi. Thanks for taking my question. ...etc. Hi, on the website metrics, just going back to that you quoted, I think you said direct traffic upload double digit. And that's year over year, and then mid single digits and see enhancements. And then I think you said site conversion improving.

Speaker Change: The next question comes from Patrick Baumann with Jpmorgan. Please go ahead.

Speaker Change: Oh, hi, thanks.

Patrick Baumann: Thanks for taking my questions.

Speaker Change: Hi on the website metrics just going back to that you quoted I think you said direct traffic up low double digits.

Speaker Change: And that's year over year, and then mid single digits and see enhancements.

Speaker Change: And then I think you said site conversion improving.

Erik Gershwind: Can you talk about the marketing that that's required to drive that and and whether you're seeing that list? in the quarter sustained, or did you see kind of an initial boost from any marketing that you did on the changes that then faded a bit? Just kind of curious on how that performance looked. you know, through the quarter relative to when you, you know, started marketing it to your customers. And then along those lines, Are you seeing this more effective with your existing customers or are you seeing any progress on? on new customers. What have been the pushback on changes that like people still want to see that you haven't done?

Speaker Change: Can you talk about the marketing.

Speaker Change: That's required to drive that and.

Speaker Change: And whether youre seeing that list.

Speaker Change: In the quarter sustained or did you see kind of an initial boost from any marketing that you did.

Speaker Change: On the changes.

Speaker Change: That then faded a bit just kind of curious on how that performance.

Speaker Change: Correct.

Speaker Change: Through the quarter relative to when you started marketing it to your customers and then along those lines.

Speaker Change: Are you seeing this more effective with your existing customers or are you seeing any progress on.

Speaker Change:

Speaker Change: New customers.

Speaker Change: Yes, Pat I'll start here, so I think in terms of the portfolio of marketing efforts and you were right to connect the website performance and the marketing performance specifically as it relates to traffic when we wanted to evaluate how is the site doing in terms of enhancing the customer experience, making it easier to find.

Speaker Change: <unk> bye et cetera, et cetera, where we are really looking at conversion rates and we're seeing some encouraging green shoots there was we referenced the marketing influences getting customers.

Speaker Change: To the site and you were quoting the metrics so in terms of a portfolio.

Speaker Change: Of activities, it's along the lines of what we've been describing to date and it's a combination of digital personal outreach, even some print believe it or not.

Speaker Change: And in terms of the timing no. It's it's it's it's been fairly consistent it has not been like a.

Speaker Change: Kind of this mad rush at the beginning and then either a dissipation of leveling off which has been encouraging it's been more or less and it's not exactly a straight line, but fairly consistent and then in terms of the makeup yes, no. We're seeing it both in terms of and you can imagine we're tracking.

Speaker Change: Performance of our existing customers how are they doing and how are we doing generating new customers and I would say progress and again I call. It we call. It a progress there's still a ways to go here, but progress would be along both dimensions, new and existing.

Speaker Change: What have been the pushback on changes that people still want to see that you haven't done like what if people said like.

Erik Gershwind: Like what have people said, like Okay, like, good, you've done this, that or the other thing, but like, you still need to do this or that.

Speaker Change: Okay like good you've done this that or the other thing, but like you still need to do that.

Speaker Change: That.

Erik Gershwind: Oh, I think we have a ways to go. And you know what, one of the things we're constantly speaking to customers, we're constantly benchmarking both inside and outside of the industry of, you know, who does certain elements really well. And you could go through any portion of our site, and we have a team that's focused on getting better every day, Pat. So we've made significant strides in terms of the personalization of the experience. We've made significant strides in the ability to click and find stuff and the presentation once you find it. And we've made significant strides in getting on and off the site really quickly.

Speaker Change: Oh, I think we have a ways to go and one of the things. We're constantly speaking to customers were constantly benchmarking both inside and outside of the industry of who does certain elements really well and you could go through.

Speaker Change: Any portion of our site and we have a team that's focused on getting better everyday Pat. So we've made significant strides in terms of the personalization of the experience. We've made significant strides in the ability to click and find stuff in the presentation. Once you find it and we've made significant.

Speaker Change: Strides in getting on and off the site really quickly.

Erik Gershwind: That said, we can be better in all areas.

Speaker Change: That said, we can be better in all areas and again, we've got a team focused on constant improvement.

Erik Gershwind: And again, we've got a team focused on constant improvements, you know, really, on a weekly, monthly basis, And then on the new hire in tech that you called out. Well, you mentioned something about digital core. I think that was something that you paused like, a year ago, while you were doing the website redesigned, remind us what digital core is. And is that Initiative like moving ahead now remind us kind of what what that entails. Yeah, Pat. So first of all, we're really excited that John has joined the team. You know, we've talked about the team internally, on a few of these calls, we've got a strong team internally, John brings even more strength and depth to the to the to the group.

Speaker Change: Really on a weekly monthly basis.

Speaker Change: And then on the on the new hire and tech that you called out.

Speaker Change: You mentioned something about digital core I think that was something that you pause like a year ago, while you were doing the website.

Speaker Change: Redesigned remind us with digital core is.

Speaker Change: And is that.

Speaker Change: Initiatives like moving ahead, now remind us kind of what that entails.

Pat: Yeah, Pat So first of all we're really excited that John has joined the team.

Pat: We've talked about the team internally on a few of these calls we got a strong team internally John brings even more strength and depth to the group.

Erik Gershwind: Yeah. So the digital core, if you remember, is intended to be an upgrade to our core order to cash procure to pay systems. And the intent was we see a lot of productivity unlock from legacy systems and legacy processes. You're correct, we really slowed it down. Given, you know, some of the issues we had beginning last year, particularly with the website, we were in triage mode and saying we're putting first things first. So progress on the digital core slowed. With John, you know, we're now feeling good about progress on the website, as I described, still work to do, but good progress on getting a few other key projects over the finish line.

Pat: Yeah. So the digital core if you remember is intended to be an upgrade to our core order to cash procure to pay systems and the intent was we see a lot of productivity unlock.

Pat: From legacy systems and legacy processes.

Speaker Change: Youre correct, we really slowed it down.

Speaker Change: Given some of the issues, we had beginning last year, particularly with the website, we were in triage mode, and saying, we're putting first things first so progress on the digital core slowed.

Speaker Change: With <unk>, we're now feeling good about progress on the website as I described still work to do but good progress on getting a few other key projects over the finish line. So.

Erik Gershwind: So, you know, we have reshaped the digital core initiative and are gearing it back up at a faster pace now to move at a faster pace. And again, the the idea there is it's going to be part of our productivity unlock, not just 26, but beyond 20, beyond 26, 27, 28, by attacking some of the core value streams in the business.

Speaker Change: We have reshaped the digital core initiative and are gearing it back up at a faster pace now to move at a faster pace and again. The idea. There is it's going to be part of our productivity unlock just 26, but beyond 'twenty.

Speaker Change: <unk> 26, 27, 28 by attacking some of the core value streams in the business.

Erik Gershwind: And then last one, quickly, if I can, can you talk about, like, the trends you saw through the month of June? Like, did the month start better than it finished? Was it consistent? Did it finish better than it started? I don't know. Any color on trends through June? Yeah, nothing specific that I would note there, Pat. Fairly consistent through the month.

Speaker Change: And then last one quickly if I can can you talk about like the trends you saw through the month of June like did the month start better than it finished with the consistent finished better than it started I know any any color on trends through June.

Speaker Change: Yeah, nothing specific that I would note, they're probably fairly consistent through the month.

Erik Gershwind: Okay, thanks for listening. And just a reminder too, Pat, we're still in our fiscal June, just as a reminder. Yep, got it. Thanks.

Speaker Change: Okay. Thanks, so much so just a reminder to work Pat we're still in our fiscal June just as a reminder.

Speaker Change: Yep got it thanks.

David Manthey: The next question comes from David Manthey with Baird. Please go ahead. Good morning, everyone. Thanks for taking my question.

Speaker Change: The next question comes from David Manthey with Baird. Please go ahead.

David Manthey: Good morning, everyone. Thanks for taking my question.

Erik Gershwind: First off, Erik, why is 20% the incremental target today? I look back historically, you touched that level back in 2022, but that was with sort of mid-single-digit pricing. What about the business structure today gives you confidence that you can get back to that level of contribution margin when growth resumes? I guess focusing primarily on op-ecs, assuming growth margin might be up a little bit, but primarily I'm thinking on the cost structure.

Speaker Change: First off Eric.

Speaker Change: Why is 20%.

Speaker Change: The incremental target today, when I look back historically, you touched that level back in 2022, but that was with sort of mid single digit pricing.

Speaker Change: What about the business structure today. It gives you confidence that you can get back to that level of contribution margin when growth resumes I guess focusing primarily on on.

Speaker Change: On Opex, assuming gross margin might be up a little bit, but primarily I'm thinking on the cost structure.

Kristen Actis: Yeah, sure, Dave, and I'll start and then and then either Kristen or Martina can can fill in, you know, so first of all, what what I wanted to reinforce is that, you know, the 20% or better is over the cycle that that's our goal. We absolutely still feel it's achievable, Dave, and I think a few things I'd point to number one, and I'll get to your op ex, but number one is gross margins. You know, I've been relatively stable now, and that certainly helps.

Speaker Change: Yeah sure David I'll start and then and then either Kristen or Martina can fill in so first of all what I wanted to reinforce is that yes.

Speaker Change: Yes, the 20% or better is over the cycle that that's our goal we absolutely still feel it's achievable David I think a few things I'd point to number one and I'll get to your Opex, but number one is gross margins no. It's been relatively stable now and that certainly helps but let me address opex I.

Erik Gershwind: But let me address op ex. I think a few points I hit point number one, you look at what's happened over the over the last couple of years, and we've layered in some fixed cost investments into the business at a time when revenues drop. So right out of the gate, we do feel like at some point, as progress continues internally and our self-help on the share gain side, the core customer, et cetera, and markets restore and look, our outlook for the manufacturing sector remains positive long-term, there ought to be a lot of latent leverage and we see a lot of latent leverage in the business.

Speaker Change: A few points I'd hit point number one you look at what's happened over the over the last couple of years and we've layered in some fixed cost investments into the business at a time when revenues dropped.

Speaker Change: So right out of the gate, we do feel like at some point as progress continues internally in our self help on the share gain side, you know the core customer et cetera, and markets restore and look our outlook for the manufacturing sector remains positive long term.

Speaker Change: There ought to be a lot of latent leverage and we see a lot of latent leverage in the business. So a great proof point that we have talked to was our implant and our vending installations, where you look and we're expanding our footprint and our potential for share capture at a time when customers spend is suppressed. So I think the first thing I'd say is we see a lot.

Kristen Actis: So a great proof point that we have talked to was our implant and our vending installations where you look and we're expanding our footprint and our potential for share capture at a time when customer spend is suppressed. So I think the first thing I'd say is we see a lot of leverage to be had to just leverage the fixed costs that have been added into the business as revenues restore. That's point one. I think point two, and I'd really lean on the changes that Martina and Kristen are driving in the company, there is a greater focus on productivity and even beyond productivity, I'd refer to it as sort of a cultural enhancement on continual improvement and constantly looking at sharpening our performance edge, sharpening the lens.

Speaker Change: Of leverage to be had to just leverage the fixed costs that had been added into the business as revenues restore that's 0.1, I think 0.2 and I'd really lean on the changes that Martina and Kristen are driving in the company.

Speaker Change: There is a greater focus on productivity and even beyond productivity I'd refer to it as sort of a cultural.

Speaker Change: Enhancement on continual improvement and constantly looking at sharpening our performance edge sharpening the lens. So Martina has been touching on the 10 to 15 million.

Kristen Actis: So Martina has been touching on the 10 to 15 million in productivity projects, but from our standpoint, that's just the beginning of what we see in terms of opportunities to get better. So I think that's a new kind of tool in the tool belt relative to where we were years ago, Dave.

Speaker Change: Million in productivity projects, but from our standpoint, that's just the beginning of what we see in terms of opportunities to get better. So I think that's a new kind of tool in the tool belt relative to where we were years ago Dave.

Kristen Actis: Okay, thank you.

Speaker Change: Okay. Thank you and then the second for Kristen just a couple of modeling questions.

Kristen Actis: And then second for Kristen, just a couple of modeling questions. Is it correct, I think the 60 basis points of acquisitions in the third quarter were Premier and App Tech, and those were sort of lapped now. So unless you do something here perspectively, fourth quarter acquisition contribution should be zero, I believe. So just checking that. And then second, on other expense net, I think that line item usually runs about $5 million-ish. This quarter was like $2 million. But you didn't change your interest in other guidance of $45 million for the full year. Could you just talk about that dynamic as well?

Speaker Change: Is it correct I think the 60 basis points of acquisitions in the third quarter were premier in App Tech and those were sort of lapped now so unless you do something here prospectively fourth quarter acquisition contribution should be zero I believe so just checking that and then second on <unk>.

Speaker Change: Other expense net.

Speaker Change: The debt line item, usually runs about $5 million ish. This quarter was like 2 million, but you didn't change your interest in other.

Speaker Change: Guidance of $45 million for the full year could you just talk about that dynamic as well.

Kristen Actis: Yeah, Dave, on the first question, yes, you're you're you've got it absolutely right on the acquisition. And then on the other expense line, we had a reevaluation on the balance sheet primarily tied to the Mexican peso, which is what you're seeing that made that sort of anomalous this quarter. But but no change in the full year. Is there a catch up in the fourth quarter? It doesn't sound like it. No, no, no, no. Yeah, right.

Speaker Change: Yes, Dave on the first question, yes, you're you've got it absolutely right on the acquisition and then on the other expense line.

Speaker Change: Had a revaluation on the balance sheet, primarily tied to the Mexican peso, which is what youre seeing that made that sort of anomalous this quarter.

Speaker Change: But no change in the full year is there a catch up in the fourth quarter it doesn't sound like it.

Speaker Change: No no no okay.

Kristen Actis: Thank you.

Speaker Change: Alright, thank you.

Christopher Dankert: And the last question today will come from Chris Dankert with Loop Capital Markets. Please go ahead. Hey, good morning. Thanks for taking the question.

Speaker Change: And the last question today will come from Chris Dankert with loop capital markets. Please go ahead.

Chris Dankert: Hey, good morning, Thanks for taking the question.

Martina Mcisaac: I guess just quickly for Martina, maybe on the sales force efficiency and productivity gains, maybe can you talk through what some of the actual actions are being taken there? Is this, you know, 80-20 customer focused? Maybe just some flavor that would be helpful. Yeah, absolutely. Thanks for the question. So just to go back, this is the first step of a bigger program around sales excellence and sales effectiveness. But what we're talking about right now is coverage. So what we have done over the past couple of quarters is taken a look at where the customer potential is relative to how our sellers are deployed.

Chris Dankert: I guess just quickly for Martina maybe on the sales force efficiency and productivity gains maybe can you talk through what some of the actual actions are being taken there is this 80 20 customer focus maybe just some flavor there would be helpful.

Chris Dankert: Yeah, absolutely. Thanks for the question. So just to go back. This is the first step of a bigger program around sales excellence and sales effectiveness, but what we're talking about right now is coverage. So what we have done over the past couple of quarters is taken a look at where the customer potential is relative.

Chris Dankert: Two how our sellers, they're deployed and obviously respecting existing relationships that we have have redesigned territory. So it's basic sales hygiene to make sure that we're covering that that's potential with it. That's trained people. So from then you you know we have.

Martina Mcisaac: And obviously, respecting existing relationships, we have have redesigned territory. So it's basic sales hygiene to make sure that we're covering the best potential with the best trained people. So from then you, you know, we have to obviously build relationships, gain access and start to develop a pipeline of opportunities. So what we look at is, you know, how often are we touching these customers with these new in these new relationships? How is the pipeline developing? And then how is the sales per rep per day starting to grow? So we completed the public sector redesign first that was completed in our first fiscal quarter, then we went into national accounts did the same thing to make sure we were touching the right locations with the right frequency and we did our core redesign as well.

Chris Dankert: <unk>, obviously built relationships gain access and start to develop a pipeline of opportunities. What we look at is you know how often are retouching. These customers with these new in these new relationships. How is the pipeline developing and then how is the sales per rep per day, starting to grow. So we completed the public sector redesign first.

Chris Dankert: That was completed in our first fiscal quarter than we went into national accounts did the same thing to make sure we weren't touching the right locations with the right frequency and we did our core a redesign as well so it's a it's a step one and its feeling about.

Martina Mcisaac: So it's, it's a step one. And it's really about account coverage for the best potential.

Chris Dankert: Account coverage for the best potential.

Martina Mcisaac: Thanks so much for the detail there.

Speaker Change: Got it thanks, so much detail there in.

Kristen Actis: And just as a follow-up, you know, for Kristen, sorry I missed it earlier when you were talking about the moving parts for fourth quarter margin. What was your comment on the price cost spread into the fiscal fourth quarter? Yeah, Chris just said it would be pretty narrow. So we are going to have more price stepping up sequentially. We won't get a full two months of realization from the increase that just happened a few days ago. And then the other thing to note is that we are seeing a step up in cost Q3 to Q4. So overall, it's a pretty narrow, favorable, though favorable price cost spread Q3 to Q4.

Chris Dankert: Just as a follow up for.

Chris Dankert: Kristen I'm, sorry, I missed it earlier when you were talking about the moving parts for fourth quarter margin. What was your comment on the price cost spread in the fiscal fourth quarter.

Speaker Change: Yes, Chris just said it would be pretty narrow so we are going to have more price stepping up sequentially. We wont get a full two months of realization from the increase that just happened a few days ago.

Chris Dankert: And then the other thing to note is that we are seeing a step up in costs Q3 to Q4. So overall, it's a pretty narrow.

Chris Dankert: Those favorable price cost spread in Q3 to Q4.

Kristen Actis: So it should be fairly neutral, because you had a positive price cost this quarter as well, correct? We did. Yeah, I wouldn't model like a significant benefit from bottom line, I wouldn't model like a significant benefit from price in Q4. It will be up but it will be offset a healthy amount by the increased cost. Got it. Thanks so much for the call there.

Chris Dankert: So it should be fairly neutral sequentially, you had a positive price cost this quarter as well correct.

Chris Dankert: We did yeah I wouldn't model like a significant benefit from bottom line I wouldn't model like a significant benefit from price in Q4, it will be up but it will be offset.

Chris Dankert: A healthy amount by the increased cost.

Chris Dankert: Got it thanks, so much for the color there.

Ryan Mills: This concludes our question and answer session. I would like to turn the conference back over to Ryan Mills for any closing remarks. Thank you for joining us. Okay, his line is disconnected. So this conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Chris Dankert: This concludes our question and answer session I would like to turn the conference back over to Ryan Mills for any closing remarks.

Chris Dankert: Thank you for joining us.

Chris Dankert: Okay.

Chris Dankert: Okay. His line is disconnected.

Chris Dankert: So this conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Chris Dankert: Okay.

Chris Dankert: [music].

Chris Dankert: Yes.

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Chris Dankert: Okay.

Chris Dankert: [music].

Chris Dankert: Yeah.

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