Q1 2026 MSC Industrial Direct Co Inc Earnings Call

January 7, 2026

Participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Please note this conference is being recorded.

I will now turn the conference over to your host Ryan Mills vice, president, investor relations and business developments. You may begin.

Thank you and good morning, everyone. Welcome to our fiscal 2026 first quarter earnings call Martina mcisaac president and chief executive officer and Greg Clark interim, Chief Financial Officer or on the call with me today.

During today's call, we will refer to various financial data in the earnings presentation and operational, statistics documents, both of which can be found on our investor relations website.

Let me reference our Safe Harbor statement, found on slide 2 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 US security, its laws.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated. By these statements,

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

During this call, we may refer to certain adjusted Financial results which are non-gaap measures. Please refer to the gaap versus non-gaap. Reconciliations in our presentation, or on our website, which contain the reconciliations of the adjusted Financial measures to the most directly comparable. Gaap measures, I will now turn the call over to Martina

Speaker #1: Greetings . Welcome to the MSC reports fiscal 2026 first quarter results . this At time , participants all are in a listen only mode .

Thank you, Ryan and good morning everyone. As many of you know, this marks my first week as CEO of MSE.

Speaker #1: A question and answer session will follow the formal presentation . If anyone should require operator assistance during the conference , please press Star Zero on your telephone keypad .

before we dive into our fiscal first quarter performance, I would like to share some thoughts since we last spoke

First and foremost, it's an honor and privilege to serve as the fifth CEO in msc's, 80 plus year history.

Speaker #1: Please note, this conference is being recorded. I will now turn the conference over to your host, Ryan Mills, Vice President, Investor Relations and Business Development.

As part of the transition, over the last couple of months, I've spent time engaging, with our people, our suppliers and our customers.

Speaker #1: You may begin .

This time has reaffirmed our Direction.

Speaker #2: Thank you and good morning , everyone . Welcome to our fiscal 2026 first quarter earnings call . Martina McIsaac President and Chief Executive Officer And Greg Clark , Interim Chief Financial Officer , are on the call with me today .

And I would like to share more about those near-term priorities on our path to creating incremental value.

First.

Speaker #2: During today's call, we will refer to various financial data in the earnings presentation and operational statistics documents, both of which can be found on our Investor Relations website.

We are reconnecting and growing with our core customer and we must remain steadfast in our Focus to execute on the initiatives that have restored this growth.

Speaker #2: Let me reference our Safe Harbor statement 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.

Most of these initiatives have been in flight for less than a year and tremendous opportunity remains ahead.

Operator: Greetings. Welcome to the MSC Reports Fiscal 2026 First Quarter Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Ryan Mills, Vice President, Investor Relations and Business Development. You may begin.

Speaker #2: Securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements.

In addition to our work on pricing website and marketing, our highest priority over the last year has been to optimize the design of our sales organization to better match, resource to potential and put us closer to the core customer.

Speaker #2: Information about these risks are noted in our earnings press release and other SEC filings. During this call, we may refer to certain results, which are adjusted financial non-GAAP measures.

At the end of the first quarter, we turned our attention to our service model. Now applying the same principles and aligning those teams to our more efficient Geographic territory design.

Speaker #2: Please refer to the GAAP versus non-GAAP reconciliations in our presentation or on our website, which contain the financial measures of reconciliations adjusted to the most directly comparable GAAP measures.

Will lead to an improved customer experience and enabled us to further. Optimize our cost structure in early 2q.

Ryan Mills: Thank you and good morning, everyone. Welcome to our Fiscal 2026 First Quarter Earnings Call. Martina McIsaac, President and Chief Executive Officer, and Greg Clark, Interim Chief Financial Officer, are on the call with me today. During today's call, we will refer to various financial data in the earnings presentation and operational statistics documents, both of which can be found on our Investor Relations website. Let me reference our Safe Harbor Statement found on slide two of the earnings presentation. Our comments on this call, as well as the supplemental information we are providing on the website, contain forward-looking statements within the meaning of the US securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks is noted in our earnings press release and other SEC filings.

Speaker #2: I will now turn the call over to Martina.

Speaker #3: Ryan , and Thank you , good morning , everyone . As many of you know , this marks my first week as CEO of MSC .

We now look forward to driving sales Excellence. As we leverage, our recent organizational changes and our new leadership structure that balances long-term msse tenure with new thinking from the outside.

Speaker #3: Before we dive into our fiscal first quarter performance , I would like to share some thoughts since we last spoke . First and foremost , it's an honor and privilege to serve as the in fifth CEO MSCs 80 plus year history as part of the transition over the last couple of months , I've spent time engaging with our people , our suppliers , and our time has customers .

I am particularly excited now that Jaiden Natty is on boarded in her role as SVP of sales.

She will continue to strengthen our sales execution in the field as Kim shacklett moves, fully into her new role as SVP customer experience.

By decentralizing and streamlining decision-making. In this new structure, we will amplify the impacts of these changes and strengthen our position to achieve our long-term vision.

Speaker #3: We reaffirmed our direction, and I would like to share more about those near-term priorities on our path to creating incremental value. First, we are reconnecting and growing with our core customer, and we must remain steadfast in our focus to execute on the initiatives that have restored this growth.

To enhance customer experience and accelerate our ability to capture greater share of wallet.

To truly outperform. We must leverage our supplier Community as a strong partner in these efforts as well.

Ryan Mills: During this call, we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations in our presentation or on our website, which contain the reconciliations of the adjusted financial measures to the most directly comparable GAAP measures. I will now turn the call over to Martina.

During this call, we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations in our presentation or on our website, which contain the reconciliations of the adjusted financial measures to the most directly comparable GAAP measures. I will now turn the call over to Martina.

Over a year ago, we created a supplier Council that we meet with regularly to share ideas and opportunities.

Speaker #3: Most of these initiatives have been in flight for less than a year , and tremendous opportunity remains ahead . addition In work on to our pricing , website and marketing , our highest priority over the last year has been to sales the our optimize design of to organization better match resource to potential , and put us closer to the core customer .

These discussions are now evolving to the development of joint strategies to accelerate msc's growth.

Operator: Thank you, Ryan, and good morning, everyone. As many of you know, this marks my first week as CEO of MSC. Before we dive into our fiscal first quarter performance, I would like to share some thoughts since we last spoke. First and foremost, it's an honor and privilege to serve as the fifth CEO in MSC's 80-plus year history. As part of the transition over the last couple of months, I've spent time engaging with our people, our suppliers, and our customers. This time has reaffirmed our direction, and I would like to share more about those near-term priorities on our path to creating incremental value. First, we are reconnecting and growing with our core customer, and we must remain steadfast in our focus to execute on the initiatives that have restored this growth.

Martina McIsaac: Thank you, Ryan, and good morning, everyone. As many of you know, this marks my first week as CEO of MSC. Before we dive into our fiscal first quarter performance, I would like to share some thoughts since we last spoke. First and foremost, it's an honor and privilege to serve as the fifth CEO in MSC's 80-plus year history. As part of the transition over the last couple of months, I've spent time engaging with our people, our suppliers, and our customers. This time has reaffirmed our direction, and I would like to share more about those near-term priorities on our path to creating incremental value. First, we are reconnecting and growing with our core customer, and we must remain steadfast in our focus to execute on the initiatives that have restored this growth.

For example, turning to slide 4, I'm pleased to announce that in late February. We will be hosting an inaugural growth Forum where approximately 1400 MSC. Associates in customer-facing. Roles will come together with our supplier community.

Speaker #3: At the end, we turned our attention to our service model. Now, we are applying the same principles and aligning those teams to our more efficient geographic territory.

For maximum, Effectiveness and impact.

Speaker #3: Design . This will lead to an improved customer experience and enabled us to further optimize our cost structure in early to Q . We now look forward to driving sales as we leverage our excellence recent organizational changes and our new leadership structure that balances long term MSC new tenure with thinking from the outside .

Using data to pair Sellers and suppliers in pursuit of a pipeline of customer opportunities. This, highly curated 3-day industry-leading event will be unlike our previous or other supplier conferences, in its level of focus and partnership with our suppliers.

We expect this event to be a key growth accelerator for MFC demonstrating mfc's. Clear commitment to take sales, execution to the next level.

Speaker #3: I am particularly excited now that Guidance is onboarded in her role as SVP of Sales. She will continue to strengthen our sales execution in the field.

To enable our vision is clear that we must drive speed and consistency in our daily decision, making through our technology platform.

Operator: Most of these initiatives have been in flight for less than a year, and tremendous opportunity remains ahead. In addition to our work on pricing, website, and marketing, our highest priority over the last year has been to optimize the design of our sales organization to better match resource to potential and put us closer to the core customer. At the end of the first quarter, we turned our attention to our service model now, applying the same principles and aligning those teams to our more efficient geographic territory design. This will lead to an improved customer experience and enabled us to further optimize our cost structure in early Q2. We now look forward to driving sales excellence as we leverage our recent organizational changes and our new leadership structure that balances long-term MSC tenure with new thinking from the outside.

Most of these initiatives have been in flight for less than a year, and tremendous opportunity remains ahead. In addition to our work on pricing, website, and marketing, our highest priority over the last year has been to optimize the design of our sales organization to better match resource to potential and put us closer to the core customer. At the end of the first quarter, we turned our attention to our service model now, applying the same principles and aligning those teams to our more efficient geographic territory design. This will lead to an improved customer experience and enabled us to further optimize our cost structure in early Q2. We now look forward to driving sales excellence as we leverage our recent organizational changes and our new leadership structure that balances long-term MSC tenure with new thinking from the outside.

Speaker #3: As Kim Shacklett moves fully into her new role as SVP, Customer Experience, by decentralizing and streamlining decision-making in this new structure, we will amplify the impacts of these changes and strengthen our position to achieve our long-term vision to enhance customer experience and accelerate our ability to capture greater share of wallet.

Our CIO John reichelt and his organization have continued making progress on the evaluation of our systems roadmap and will provide recommendations upon completion.

We must also strengthen and improve Financial visibility through our operating system to enhance our daily decision-making.

Having the Right leader will be critical in achieving this which is why we are taking a selective approach to our search for a permanent CFO that remains a top priority.

Speaker #3: To truly outperform, we must leverage our supplier community as a strong partner in these efforts as well. Over a year ago, we created a Supplier Council that we meet with regularly to share ideas and opportunities.

And finally, we're committed to elevating our strong differentiated culture.

Speaker #3: These discussions are now evolving to the development of joint strategies to accelerate MSCs growth . For example , turning to slide four . I'm pleased to announce that in late February , we will be hosting an Growth inaugural Forum , where approximately 1400 MSC associates in customer facing roles will come together with our supplier community .

Our culture is a competitive Advantage rooted in a highly talented, and Technical team. That consistently puts the customer first

Building on the Proud Family Legacy, that is shaped who we are. We are raising expectations driving more rigorous, Performance Management and embedding a mindset of continuous Improvement to deliver even stronger results.

Operator: I am particularly excited now that Jaida Nadi is on board in her role as SVP of Sales. She will continue to strengthen our sales execution in the field as Kim Shacklett moves fully into her new role as SVP Customer Experience. By decentralizing and streamlining decision-making in this new structure, we will amplify the impacts of these changes and strengthen our position to achieve our long-term vision to enhance customer experience and accelerate our ability to capture a greater share of wallet. To truly outperform, we must leverage our supplier community as a strong partner in these efforts as well. Over a year ago, we created a supplier council that we meet with regularly to share ideas and opportunities. These discussions are now evolving to the development of joint strategies to accelerate MSC's growth.

I am particularly excited now that Jaida Nadi is on board in her role as SVP of Sales. She will continue to strengthen our sales execution in the field as Kim Shacklett moves fully into her new role as SVP Customer Experience. By decentralizing and streamlining decision-making in this new structure, we will amplify the impacts of these changes and strengthen our position to achieve our long-term vision to enhance customer experience and accelerate our ability to capture a greater share of wallet. To truly outperform, we must leverage our supplier community as a strong partner in these efforts as well. Over a year ago, we created a supplier council that we meet with regularly to share ideas and opportunities. These discussions are now evolving to the development of joint strategies to accelerate MSC's growth.

Speaker #3: The event was designed in collaboration with our Supplier Council for maximum effectiveness and impact, using data to pair sellers and suppliers in pursuit of a pipeline of customer opportunities.

By remaining steadfast in. These key areas of focus, we will capture the tremendous potential. I see ahead and position MSC to achieve higher levels of profitable growth.

Speaker #3: This highly curated , three day , industry leading event will be unlike our previous or other supplier conferences in its level of focus and partnership with our suppliers .

In short, I am more energized than ever. And I want to thank our entire team of Associates for their support and endless dedication to providing the best service to our customers.

Speaker #3: We expect this event to be a key growth accelerator for MSC, demonstrating MSC's clear commitment to take sales execution to the next level.

Before we move to the quarters results, I want to highlight 1 further element of our strong culture and our commitment to improving each and every day and share with you some highlights from our most recent ESG report released last month.

Speaker #3: enable To our vision is clear that we must drive speed and consistency in our daily decision making through our technology platform , our CIO , John Reichelt and his organization have continued making progress on the evaluation of our systems roadmap provide and will recommendations upon completion .

First, we reaffirmed our commitment to the planet and established a new long-term goal of reducing our scope 1 and 2 greenhouse gas emissions by 15% by 2030.

We supported the recycling of over 8,000. Pounds of carbide.

Operator: For example, turning to slide four, I'm pleased to announce that in late February, we will be hosting an inaugural growth forum where approximately 1,400 MSC associates in customer-facing roles will come together with our supplier community. The event was designed in collaboration with our supplier council for maximum effectiveness and impact. Using data to pair sellers and suppliers in pursuit of a pipeline of customer opportunities, this highly curated three-day industry-leading event will be unlike our previous or other supplier conferences in its level of focus and partnership with our suppliers. We expect this event to be a key growth accelerator for MSC, demonstrating MSC's clear commitment to take sales execution to the next level. To enable our vision, it's clear that we must drive speed and consistency in our daily decision-making through our technology platform.

For example, turning to slide four, I'm pleased to announce that in late February, we will be hosting an inaugural growth forum where approximately 1,400 MSC associates in customer-facing roles will come together with our supplier community. The event was designed in collaboration with our supplier council for maximum effectiveness and impact. Using data to pair sellers and suppliers in pursuit of a pipeline of customer opportunities, this highly curated three-day industry-leading event will be unlike our previous or other supplier conferences in its level of focus and partnership with our suppliers. We expect this event to be a key growth accelerator for MSC, demonstrating MSC's clear commitment to take sales execution to the next level. To enable our vision, it's clear that we must drive speed and consistency in our daily decision-making through our technology platform.

We were recognized as being a best company to work for by several organizations across several dimensions.

Speaker #3: We must also strengthen and improve financial visibility through our operating system to enhance our daily decision making. Having the right leader will be critical in achieving this, which is why we are taking a selective approach to search for a permanent CFO.

And lastly, we continue our strong partnership with nonprofit organizations including American corporate with whom, we work to provide mentorship to military members as they transition into a civilian Workforce.

Speaker #3: That remains a top priority . And finally , we're committed to elevating our strong , differentiated culture . Our culture is a competitive advantage rooted in a highly talented and technical team that consistently puts the customer first .

Now digging deeper into our 1q results on slide 6. I am pleased with our performance in the fiscal first quarter.

average daily sales came in at the midpoint of our Outlook and increased 4% year-over-year,

Speaker #3: Building on the proud family legacy that has shaped who we are, we are raising expectations, driving more rigorous performance management, and embedding a mindset of continuous improvement to deliver even stronger results.

Since primarily driven by benefits from price of approximately, 4.2%, that was partially offset by volumes, that contracted by 30 basis points.

The decline in volumes was largely driven by the federal government shutdown, which negatively impacted sales by approximately 100 basis points in the quarter.

Speaker #3: By remaining steadfast in these key areas of focus, we will capture the tremendous potential I see ahead and position MSC to achieve higher levels of profitable growth.

This headwind was felt most in the public sector as seen by a year-over-year decline of 5% in the quarter.

Operator: Our CIO, John Reichelt, and his organization have continued making progress on the evaluation of our systems roadmap and will provide recommendations upon completion. We must also strengthen and improve financial visibility through our operating system to enhance our daily decision-making. Having the right leader will be critical in achieving this, which is why we are taking a selective approach to our search for a permanent CFO that remains a top priority. And finally, we're committed to elevating our strong differentiated culture. Our culture is a competitive advantage rooted in a highly talented and technical team that consistently puts the customer first. Building on the proud family legacy that has shaped who we are, we are raising expectations, driving more rigorous performance management, and embedding a mindset of continuous improvement to deliver even stronger results.

Our CIO, John Reichelt, and his organization have continued making progress on the evaluation of our systems roadmap and will provide recommendations upon completion. We must also strengthen and improve financial visibility through our operating system to enhance our daily decision-making. Having the right leader will be critical in achieving this, which is why we are taking a selective approach to our search for a permanent CFO that remains a top priority. And finally, we're committed to elevating our strong differentiated culture. Our culture is a competitive advantage rooted in a highly talented and technical team that consistently puts the customer first. Building on the proud family legacy that has shaped who we are, we are raising expectations, driving more rigorous performance management, and embedding a mindset of continuous improvement to deliver even stronger results.

Speaker #3: In short, I am more energized than ever. I want to thank our entire team of associates for their support and endless dedication to providing the best service to our customers.

Following the resolution of the shutdown. However, we had seen public sector sales resume growth in December.

Speaker #3: Before we move to the quarter's, I want to highlight elements of our strong results. I have one further commitment to improving each and every day to share with you, and some highlights from our most recent ESG report, released last month.

We were pleased to see national accounts return to growth in the quarter. But once again underpinning our sales performance where daily sales Trends in core and other customers that have now outperformed total company sales for 2 consecutive quarters,

Core customers. Grew approximately 6% in q1. Boyed by our initiatives, around, e-commerce marketing and seller optimization.

Speaker #3: First, we reaffirmed our commitment to the planet and established a new long-term goal of reducing our Scope 1 and 2 greenhouse gas emissions by 15% by 2030.

Looking at the details, we experienced another quarter of year-over-year improvement in the number of customer locations touches logged by field sales and fiscal 1 Q.

Speaker #3: We supported the recycling of over £8,000 of carbide. We were recognized as being a best company to work for by several organizations across several dimensions.

This is having a direct impact on our sales per rep per day trend as seen by the high single digit Improvement in this quarter.

Speaker #3: And lastly, we continue our strong partnership with nonprofit organizations, including American Corporate, with whom we work to provide mentorship to military members as they transition into the civilian workforce.

Operator: By remaining steadfast in these key areas of focus, we will capture the tremendous potential I see ahead and position MSC to achieve higher levels of profitable growth. In short, I am more energized than ever, and I want to thank our entire team of associates for their support and endless dedication to providing the best service to our customers. Before we move to the quarter's results, I want to highlight one further element of our strong culture and our commitment to improving each and every day and share with you some highlights from our most recent ESG report released last month. First, we reaffirmed our commitment to the planet and established a new long-term goal of reducing our Scope 1 and 2 greenhouse gas emissions by 15% by 2030. We supported the recycling of over 8,000 pounds of carbide.

By remaining steadfast in these key areas of focus, we will capture the tremendous potential I see ahead and position MSC to achieve higher levels of profitable growth. In short, I am more energized than ever, and I want to thank our entire team of associates for their support and endless dedication to providing the best service to our customers. Before we move to the quarter's results, I want to highlight one further element of our strong culture and our commitment to improving each and every day and share with you some highlights from our most recent ESG report released last month. First, we reaffirmed our commitment to the planet and established a new long-term goal of reducing our Scope 1 and 2 greenhouse gas emissions by 15% by 2030. We supported the recycling of over 8,000 pounds of carbide.

The positive trend in these 2 metrics as well as in total company sales was achieved, with fewer sellers reflecting the efficiency of our new territory design. We will now take these learnings and apply them to geographies outside the US.

Speaker #3: Now, digging deeper into our Q1 results on slide six. I am pleased with our performance in the fiscal first quarter.

Speaker #3: Average daily sales came in at the midpoint of our outlook and increased 4% year over year. This was primarily driven by benefits from price of approximately 4.2%.

Average daily sales on the web increased mid single digits year-over-year.

CPI that continued improving year-over-year. During the quarter, including the conversion rates of our top channels and direct traffic to the website.

Speaker #3: That was partially offset by volumes that contracted by 30 basis points. The decline in volumes was largely driven by the federal government shutdown, which negatively impacted sales by approximately 100 basis points in the quarter.

With respect to marketing, our efforts continued producing benefits in the quarter including High single digit Improvement in the daily sales of our uncovered core customers.

Speaker #3: This headwind was felt most in the public sector, as seen by a year-over-year decline of 5% in the quarter following the resolution of the shutdown.

Given this building momentum accelerated investment in marketing. Will likely continue.

Speaker #3: However, we have seen public sector sales resume growth in December. We were pleased to see national accounts return to growth in the quarter, but again, once underpinning our sales performance were daily sales trends in core and other customers that have now outperformed total company sales for two consecutive quarters.

Operator: We were recognized as being a best company to work for by several organizations across several dimensions. And lastly, we continue our strong partnership with nonprofit organizations, including American Corporate Partners, with whom we work to provide mentorship to military members as they transition into a civilian workforce. Now, digging deeper into our Q1 results on slide six, I am pleased with our performance in the fiscal first quarter. Average daily sales came in at the midpoint of our outlook and increased 4% year over year. This was primarily driven by benefits from price of approximately 4.2% that was partially offset by volumes that contracted by 30 basis points. The decline in volumes was largely driven by the federal government shutdown, which negatively impacted sales by approximately 100 basis points in the quarter.

We were recognized as being a best company to work for by several organizations across several dimensions. And lastly, we continue our strong partnership with nonprofit organizations, including American Corporate Partners, with whom we work to provide mentorship to military members as they transition into a civilian workforce. Now, digging deeper into our Q1 results on slide six, I am pleased with our performance in the fiscal first quarter. Average daily sales came in at the midpoint of our outlook and increased 4% year over year. This was primarily driven by benefits from price of approximately 4.2% that was partially offset by volumes that contracted by 30 basis points. The decline in volumes was largely driven by the federal government shutdown, which negatively impacted sales by approximately 100 basis points in the quarter.

And third we continue expanding our Solutions footprint with our installed vending base which was up roughly 9% year-over-year and our implant programs which were up 13% at quarter end.

While implant signings remain strong, our year-over-year growth in the net number of programs. At quarter end moderated in comparison to recent trending.

Speaker #3: Core customers grew approximately 6% in Q1 , buoyed by our initiatives around e-commerce , marketing and seller optimization . Looking at the details , we experienced another quarter of year over year improvement in the number of customer location touches logged by field sales in fiscal one .

This is not due to a slowing in the opportunity funnel but rather an increased emphasis on sharpening Financial Acumen in the field.

As a result, we saw a number of existing implant programs convert back to more cost-effective service options. Better scaled to customer needs such as traditional VMI.

Speaker #3: Q . This is having a direct impact on our sales per rep , per day trend , as seen by the high single digit this improvement in quarter .

By working together with those customers, we were able to retain revenues at a lower cost to serve.

Moving to profitability for the quarter.

Speaker #3: The trend in these two metrics, as well as in total company sales, was achieved with fewer sellers, reflecting the efficiency of our new territory.

Gross margin of 40.7% came in at the midpoint of our Outlook.

Operator: This headwind was felt most in the public sector, as seen by a year-over-year decline of 5% in the quarter. Following the resolution of the shutdown, however, we have seen public sector sales resume growth in December. We were pleased to see national accounts return to growth in the quarter, but once again, underpinning our sales performance were daily sales trends in core and other customers that have now outperformed total company sales for two consecutive quarters. Core customers grew approximately 6% in Q1, buoyed by our initiatives around e-commerce, marketing, and seller optimization. Looking at the details, we experienced another quarter of year-over-year improvement in the number of customer location touches logged by field sales in fiscal Q1. This is having a direct impact on our sales per rep per day trend, as seen by the high single-digit improvement in this quarter.

This headwind was felt most in the public sector, as seen by a year-over-year decline of 5% in the quarter. Following the resolution of the shutdown, however, we have seen public sector sales resume growth in December. We were pleased to see national accounts return to growth in the quarter, but once again, underpinning our sales performance were daily sales trends in core and other customers that have now outperformed total company sales for two consecutive quarters. Core customers grew approximately 6% in Q1, buoyed by our initiatives around e-commerce, marketing, and seller optimization. Looking at the details, we experienced another quarter of year-over-year improvement in the number of customer location touches logged by field sales in fiscal Q1. This is having a direct impact on our sales per rep per day trend, as seen by the high single-digit improvement in this quarter.

Speaker #3: Design. We will now take these learnings and apply them to geographies outside the U.S. Second, benefits from our web upgrades and enhanced marketing efforts continue to be realized in the quarter.

As a reminder, in fiscal 4. Q, gross margin was pressured by negative price cost due to greater than anticipated levels of inflation during the last 2 months of that quarter.

This was addressed in fiscal 1 Q by taking action on price, in late, September, and early October.

Speaker #3: Average daily sales on the web increased mid-single digits year over year. This was supported by several KPIs that continued improving year over year.

Given the timing of these actions price cost and gross margin performed similar to 4 q for the month of September.

Speaker #3: quarter , including the conversion rates of our top channels and direct traffic to the website . With respect to marketing , our efforts continued producing benefits in the quarter , including high single digit improvement in the daily sales of our uncovered core customers .

That said I'm pleased with our performance with price cost and gross margin. Both returning to expected levels as we exited the first quarter.

Speaker #3: Given this building momentum accelerated investment in marketing will likely continue . And third , we continue expanding our solutions footprint with our installed vending base , which was up roughly 9% year over year , and our implant programs , which were up 13% at quarter end .

Reported operating margin came in at 7.9% and adjusted operating. Margin of 8.4% came in, at the upper range of our Outlook. Resulting in an incremental, operating margin of 18% on an adjusted basis.

Looking ahead under a mid single-digit growth scenario. We continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year.

Underpinning, this confidence are several factors.

Operator: The positive trend in these two metrics, as well as in total company sales, was achieved with fewer sellers, reflecting the efficiency of our new territory design. We will now take these learnings and apply them to geographies outside the US. Second, benefits from our web upgrades and enhanced marketing efforts continue to be realized in the quarter. Average daily sales on the web increased mid-single digits year over year. This was supported by several KPIs that continued improving year over year during the quarter, including the conversion rates of our top channels and direct traffic to the website. With respect to marketing, our efforts continued producing benefits in the quarter, including high single-digit improvement in the daily sales of our uncovered core customers. Given this building momentum, accelerated investment in marketing will likely continue.

The positive trend in these two metrics, as well as in total company sales, was achieved with fewer sellers, reflecting the efficiency of our new territory design. We will now take these learnings and apply them to geographies outside the US. Second, benefits from our web upgrades and enhanced marketing efforts continue to be realized in the quarter. Average daily sales on the web increased mid-single digits year over year. This was supported by several KPIs that continued improving year over year during the quarter, including the conversion rates of our top channels and direct traffic to the website. With respect to marketing, our efforts continued producing benefits in the quarter, including high single-digit improvement in the daily sales of our uncovered core customers. Given this building momentum, accelerated investment in marketing will likely continue.

Speaker #3: In-plant signings remain strong, our year-over-year growth in while year the number of programs at end quarter moderated in comparison to recent trending.

First, we expect continued traction on our growth initiatives and hence growth above the IP index.

Speaker #3: This is not due to a slowing in the opportunity funnel, but rather an increased emphasis on sharpening financial acumen in the field.

Second, we anticipate ongoing benefits from Price which should yield gross margin stability.

Speaker #3: As a result , we saw a number of existing In-plant programs convert back to more cost effective service options , better scaled to customer needs such as traditional VMI working by together with customers , we were able to retain revenues at a lower serve cost to .

And third our productivity initiatives, including our ongoing Network optimization, should continue yielding benefits allowing us to support higher levels of revenues, in the back, half of the year with moderating operating expense growth.

Starting to the environment. I would describe demand across the majority of our primary markets as stable.

Speaker #3: Moving to profitability for the quarter , gross margin of 40.7% came in at the midpoint of our outlook . As a reminder , in fiscal four , Q gross margin was pressured by negative price costs due to greater than anticipated levels of inflation during the last two months of that quarter .

Aerospace remains strong, while some areas of softness, remain in automotive and heavy truck.

These mixed levels of demand are reflective in the MBI as seen by the recent readings which remain in contractionary territory.

Operator: And third, we continue expanding our solutions footprint with our installed vending base, which was up roughly 9% year over year, and our In-Plant programs, which were up 13% at quarter end. While In-Plant signings remain strong, our year-over-year growth in the net number of programs at quarter end moderated in comparison to recent trending. This is not due to a slowing in the opportunity funnel, but rather an increased emphasis on sharpening financial acumen in the field. As a result, we saw a number of existing In-Plant programs convert back to more cost-effective service options, better scaled to customer needs, such as traditional VMI. By working together with those customers, we were able to retain revenues at a lower cost to serve. Moving to profitability for the quarter, gross margin of 40.7% came in at the midpoint of our outlook.

And third, we continue expanding our solutions footprint with our installed vending base, which was up roughly 9% year over year, and our In-Plant programs, which were up 13% at quarter end. While In-Plant signings remain strong, our year-over-year growth in the net number of programs at quarter end moderated in comparison to recent trending. This is not due to a slowing in the opportunity funnel, but rather an increased emphasis on sharpening financial acumen in the field. As a result, we saw a number of existing In-Plant programs convert back to more cost-effective service options, better scaled to customer needs, such as traditional VMI. By working together with those customers, we were able to retain revenues at a lower cost to serve. Moving to profitability for the quarter, gross margin of 40.7% came in at the midpoint of our outlook.

Looking at slide 7. However, I am encouraged to see how MSC is performing in this environment.

Speaker #3: was This addressed in fiscal one . Q by taking action on price in late September and early October . Given the timing of these actions , price , cost and gross margin performed similar to four Q for the month of September .

Average daily sales outpaced the industrial production index for the second consecutive quarter as a result of our improved core customer performance.

Speaker #3: That said, I am pleased with our performance, with price, cost, and gross margin both returning to expected levels as we exited the first quarter.

Thus far in the fiscal second quarter average daily sales for fiscal December, which ended for MSC on January 3rd, improved approximately 2.5% year-over-year.

Speaker #3: Operating margin came in reported at 7.9%, and adjusted operating margin of 8.4% came in at the upper range of our outlook, resulting in an incremental operating margin of 18% on an adjusted basis.

On a sequential basis. However, the month-over-month decline of roughly 20% was worse than what we typically experience in the month.

Feedback. We were receiving from customers around their plant shutdown activity. Suggested the month would be challenging.

Speaker #3: Looking ahead, under a mid-single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year.

However, in addition Christmas and New Year's occurred on a Thursday this year, which historically is typically the most challenging day for the holidays to fall on.

Speaker #3: Underpinning this confidence are several factors. First, we expect continued traction on our growth initiatives and, hence, growth above the IP Index.

Operator: As a reminder, in fiscal Q4, gross margin was pressured by negative price cost due to greater than anticipated levels of inflation during the last two months of that quarter. This was addressed in fiscal Q1 by taking action on price in late September and early October. Given the timing of these actions, price cost and gross margin performed similar to Q4 for the month of September. That said, I am pleased with our performance with price cost, and gross margin both returning to expected levels as we exited the first quarter. Reported operating margin came in at 7.9%, and adjusted operating margin of 8.4% came in at the upper range of our outlook, resulting in an incremental operating margin of 18% on an adjusted basis.

As a reminder, in fiscal Q4, gross margin was pressured by negative price cost due to greater than anticipated levels of inflation during the last two months of that quarter. This was addressed in fiscal Q1 by taking action on price in late September and early October. Given the timing of these actions, price cost and gross margin performed similar to Q4 for the month of September. That said, I am pleased with our performance with price cost, and gross margin both returning to expected levels as we exited the first quarter. Reported operating margin came in at 7.9%, and adjusted operating margin of 8.4% came in at the upper range of our outlook, resulting in an incremental operating margin of 18% on an adjusted basis.

Speaker #3: Second , we anticipate ongoing benefits from price , which should yield gross margin stability . And third , our productivity initiatives ongoing , including our network optimization , should yielding continue benefits , allowing us to support higher levels of revenues in the back half of the year .

To put some color on. This are sales from Christmas through the end of the fiscal month. We're down approximately 20% year-over-year and weighed heavily on the overall growth rate in fiscal December

Having said that we were pleased to see the core customer maintained its trend of outperforming total company sales during the month.

Speaker #3: With moderating operating expense growth, turning to the environment, I would describe demand across the majority of our primary markets as stable.

Looking ahead with only 3 days into fiscal January, visibility into demand levels entering, the new calendar year and the remainder of the quarter is limited

Speaker #3: Aerospace remains strong, while some areas of softness remain in automotive and heavy truck. These mixed levels of demand are reflected in the MBI, as seen by the recent readings, which remain in contractionary territory.

Will provide more detail on what this implies for our 2q Outlook. But despite this uncertainty under a mid single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year, supported by the momentum, from the execution of our initiatives that continues to build.

Speaker #3: Looking at slide seven, however, I am encouraged to see how MSC is performing in this environment. Average daily sales outpaced the Industrial Production Index for the second consecutive quarter.

Operator: Looking ahead under a mid-single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year. Underpinning this confidence are several factors. First, we expect continued traction on our growth initiatives and hence growth above the IP index. Second, we anticipate ongoing benefits from price, which should yield gross margin stability. And third, our productivity initiatives, including our ongoing network optimization, should continue yielding benefits, allowing us to support higher levels of revenues in the back half of the year with moderating operating expense growth. Turning to the environment, I would describe demand across the majority of our primary markets as stable. Aerospace remains strong, while some areas of softness remain in automotive and heavy trucks. These mixed levels of demand are reflected in the MBI, as seen by the recent readings, which remain in contractionary territory.

Looking ahead under a mid-single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year. Underpinning this confidence are several factors. First, we expect continued traction on our growth initiatives and hence growth above the IP index. Second, we anticipate ongoing benefits from price, which should yield gross margin stability. And third, our productivity initiatives, including our ongoing network optimization, should continue yielding benefits, allowing us to support higher levels of revenues in the back half of the year with moderating operating expense growth. Turning to the environment, I would describe demand across the majority of our primary markets as stable. Aerospace remains strong, while some areas of softness remain in automotive and heavy trucks. These mixed levels of demand are reflected in the MBI, as seen by the recent readings, which remain in contractionary territory.

And with that, I will now turn the call over to Greg to cover our financial results in Greater detail and expectations for the fiscal second quarter.

Speaker #3: As a result of our improved core customer performance thus far in the fiscal second quarter, average for fiscal December, which ended for MSC on January 3rd, improved approximately 2.5% year over year on a sequential basis.

Thank you, Martina and good morning everyone. Please turn to slide 8 where you'll find key metrics for the fiscal. First quarter on both a reported and adjusted basis.

Speaker #3: However , the month over month decline of roughly 20% was worse than what we typically experience in the month . Feedback . receiving from customers around their planned shutdown activity suggested the month would be challenging .

This call first quarter sales. Approximately 966 million came in at the midpoint of our daily sales outlooks and improved 4% year-over-year.

Speaker #3: However, in addition, Christmas and New Year's occurred on a Thursday this year, which historically is typically the most challenging day for the holidays to fall on.

Price contributed 420 basis points to growth and was partially offset by a 30 basis. Point decline in volumes, that can be attributed to the 100 basis point headwind related to the federal government shutdown,

Speaker #3: To put some color on this, our sales from Christmas through the end of the fiscal month were down approximately 20% year over year, and weighed heavily on the overall growth rate in fiscal December.

Sequentially. I am pleased by our modest Improvement in daily sales despite the headwind during the quarter that I just mentioned.

This was largely driven by benefits from price and strength in both core and national account customers.

Operator: Looking at slide seven, however, I am encouraged to see how MSC is performing in this environment. Average Daily Sales outpaced the Industrial Production Index for the second consecutive quarter as a result of our improved core customer performance. Thus far, in the fiscal second quarter, Average Daily Sales for fiscal December, which ended for MSC on 3 January, improved approximately 2.5% year over year. On a sequential basis, however, the month-over-month decline of roughly 20% was worse than what we typically experience in the month. Feedback we were receiving from customers around their planned shutdown activity suggested the month would be challenging. However, in addition, Christmas and New Year's occurred on a Thursday this year, which historically is typically the most challenging day for the holidays to fall on.

Looking at slide seven, however, I am encouraged to see how MSC is performing in this environment. Average Daily Sales outpaced the Industrial Production Index for the second consecutive quarter as a result of our improved core customer performance. Thus far, in the fiscal second quarter, Average Daily Sales for fiscal December, which ended for MSC on 3 January, improved approximately 2.5% year over year. On a sequential basis, however, the month-over-month decline of roughly 20% was worse than what we typically experience in the month. Feedback we were receiving from customers around their planned shutdown activity suggested the month would be challenging. However, in addition, Christmas and New Year's occurred on a Thursday this year, which historically is typically the most challenging day for the holidays to fall on.

Speaker #3: Having that , said we were pleased to see the core customer maintained its trend of outperforming total company sales during the month . Looking ahead , with only into three days fiscal January , visibility into demand entering the new levels calendar year and the remainder of the quarter is limited .

Buy customer type, we were pleased by the continued strength in core customer daily sales with year-over-year Improvement of 6% in the quarter.

National accounts improved 3%, while public sector, daily sales declined 5%, as a result of the federal government shutdown.

Speaker #3: will Greg provide more detail implies for on what our two new outlook . But despite this uncertainty , under a mid-single growth digit scenario , we continue to expect adjusted operating incremental margins to be approximately 20% for the full fiscal year , supported by the momentum from the execution of our initiatives .

Uh sequential basis average daily sales improved approximately 2% for both national accounts and core customers. While public sector daily sales declined by approximately 14%

in the solutions. As Martina mentioned, we are encouraged by the continued expansion of our footprint.

Speaker #3: That continues to build. And with that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal second quarter.

From a sales perspective daily sales and vending for the first quarter, were up 9% year-over-year and represented 19% of total company sales.

Speaker #2: Thank you , Martina , and good morning , everyone . Please turn to slide eight where you'll find key metrics for the fiscal first quarter on both a reported and adjusted basis .

Operator: To put some color on this, our sales from Christmas through the end of the fiscal month were down approximately 20% year over year and weighed heavily on the overall growth rate in fiscal December. Having said that, we were pleased to see the core customer maintained its trend of outperforming total company sales during the month. Looking ahead with only three days into fiscal January, visibility into demand levels entering the new calendar year and the remainder of the quarter is limited. Greg will provide more detail on what this implies for our Q2 outlook. But despite this uncertainty, under a mid-single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year, supported by the momentum from the execution of our initiatives that continues to build.

To put some color on this, our sales from Christmas through the end of the fiscal month were down approximately 20% year over year and weighed heavily on the overall growth rate in fiscal December. Having said that, we were pleased to see the core customer maintained its trend of outperforming total company sales during the month. Looking ahead with only three days into fiscal January, visibility into demand levels entering the new calendar year and the remainder of the quarter is limited. Greg will provide more detail on what this implies for our Q2 outlook. But despite this uncertainty, under a mid-single-digit growth scenario, we continue to expect adjusted incremental operating margins to be approximately 20% for the full fiscal year, supported by the momentum from the execution of our initiatives that continues to build.

daily sales to customers with an implant program, grew by 13% and represented approximately 20% of total company, net sales,

Speaker #2: Fiscal first quarter sales of approximately $966 million were at the midpoint of our daily sales outlook, and improved 4% year over year. Price contributed 420 basis points to growth, partially offset by a 30 basis point decline in volumes that can be attributed to the 100 basis point headwind related to the government federal shutdown.

Moving to profitability for the quarter, gross margins of 40.7% performed as expected and was flat compared to the prior year period.

This was primarily driven by benefits from mixed due to lower public sector sales of 10 basis points that were offset by a price cost. Headwinds,

Speaker #2: Sequentially, I am pleased by our modest improvement in daily sales despite the headwind during the quarter that I just mentioned. This was largely driven by benefits from price and strength in both core and national account customers.

As a reminder, we took actions on the price after the first month in 1 q and exits, a quarter and a better price cost position.

Operating expenses in the first quarter, were approximately 312 million on both a reported and adjusted basis and slightly favorable compared to the midpoint of our expectations.

Speaker #2: By customer type , we were pleased by the continued strength in core customer daily sales . With year over year improvement of 6% in the quarter .

Operator: With that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal second quarter. Thank you, Martina, and good morning, everyone. Please turn to slide 8, where you'll find key metrics for the fiscal first quarter on both a reported and adjusted basis. Fiscal first quarter sales, approximately $966 million, came in at the midpoint of our daily sales outlook and improved 4% year over year. Price contributed 420 basis points to growth and was partially offset by a 30 basis points decline in volumes that can be attributed to the 100 basis points headwind related to the federal government shutdown. Sequentially, I am pleased by our modest improvement in daily sales despite the headwind during the quarter that I just mentioned.

With that, I will now turn the call over to Greg to cover our financial results in greater detail and expectations for the fiscal second quarter.

Speaker #2: National accounts, while the public sector improved 3%, daily sales declined 5%. This was as a result of the federal government shutdown. And on a sequential basis.

Greg Clark: Thank you, Martina, and good morning, everyone. Please turn to slide 8, where you'll find key metrics for the fiscal first quarter on both a reported and adjusted basis. Fiscal first quarter sales, approximately $966 million, came in at the midpoint of our daily sales outlook and improved 4% year over year. Price contributed 420 basis points to growth and was partially offset by a 30 basis points decline in volumes that can be attributed to the 100 basis points headwind related to the federal government shutdown. Sequentially, I am pleased by our modest improvement in daily sales despite the headwind during the quarter that I just mentioned.

On an adjusted basis. Operating expenses were up approximately 8 million dollars year-over-year primarily driven by the combination of higher Personnel, related costs and depreciation and ammer being partially offset by productivity.

Speaker #2: Average daily sales improved approximately 2% for both national accounts and core customers, while public sector daily sales declined by approximately 14% in Solutions. As Martina mentioned, we are encouraged by the continued expansion of our footprint from a sales perspective. Daily sales...

Adjusted operating expenses as a percentage of sales, improved 40 basis, points compared to the prior year to the increase in sales.

Sequentially. Adjusted operating expenses increased, approximately 7 million and was primarily due to the same drivers of the year-over-year increase.

Reported operating margin for the quarter was 7.9% compared to 7.8% in the prior year.

Speaker #2: Vending for the quarter was up 9% year over year and represented 19% of total company sales. Daily sales to an In-plant program grew by customers with 13% and represented approximately 20% of total company net sales.

On an adjusted basis. Operating margin of 8.4% was slightly above the midpoint of our Outlook and compared favorably to 8% in the prior year.

Operator: This was largely driven by benefits from price and strength in both core and national account customers. By customer type, we were pleased by the continued strength in core customer daily sales with year-over-year improvement of 6% in the quarter. National accounts improved 3%, while public sector daily sales declined 5% as a result of the federal government shutdown. On a sequential basis, average daily sales improved approximately 2% for both national accounts and core customers, while public sector daily sales declined by approximately 14%. In solutions, as Martina mentioned, we are encouraged by the continued expansion of our footprint. From a sales perspective, daily sales and vending for the first quarter were up 9% year over year and represented 19% of total company sales. Daily sales to customers with an In-Plant program grew by 13% and represented approximately 20% of total company net sales.

This was largely driven by benefits from price and strength in both core and national account customers. By customer type, we were pleased by the continued strength in core customer daily sales with year-over-year improvement of 6% in the quarter. National accounts improved 3%, while public sector daily sales declined 5% as a result of the federal government shutdown. On a sequential basis, average daily sales improved approximately 2% for both national accounts and core customers, while public sector daily sales declined by approximately 14%. In solutions, as Martina mentioned, we are encouraged by the continued expansion of our footprint. From a sales perspective, daily sales and vending for the first quarter were up 9% year over year and represented 19% of total company sales. Daily sales to customers with an In-Plant program grew by 13% and represented approximately 20% of total company net sales.

We delivered, gaap EPS of 93 cents compared to 83 cents in the prior year.

Speaker #2: Moving to for the profitability quarter , gross margins of 40.7% performed as and was expected flat compared to the prior year period . This was primarily driven by benefits from mix due to lower sector public sales of ten basis points were that offset price cost by a headwind .

An adjusted basis. We delivered EPS of 99 Cents compared to 86 cents in the prior year.

And Improvement of 15%.

Earning the slide 9 to review, our balance sheet and free cash flow performance.

Speaker #2: As a reminder, we took on the actions price after the first month in one Q and exited the quarter at a better cost position.

We continue to maintain a healthy balance sheet with net debt of approximately 491 million representing roughly 1.2 times. Evita

For upper proxy 2 million dollars year-over-year as expected.

Speaker #2: Operating expenses in the first quarter were approximately $312 million on both a reported and adjusted basis, and slightly favorable compared to the midpoint of our expectations.

We generate approximately 7.4 million of free cash flow in the quarter.

Representing approximately 14% of net income.

Speaker #2: On an adjusted basis, operating expenses were up approximately $8 million year over year. This was primarily driven by the combination of higher personnel-related costs and depreciation and amortization, being partially offset by productivity. Adjusted operating expenses as a percentage of sales improved 40 basis points compared to the prior year, due to the increase in sales sequentially.

It's worth noting that inventory investment combined with a step up and receivables. And prepaid expenses, were the primary factors of the free cash flow decline year-over-year,

So despite the slow start, we remain on track to achieve. Our expectation of 90% free cash flow conversion for the fiscal year.

Operator: Moving to profitability for the quarter, gross margins of 40.7% performed as expected and was flat compared to the prior year period. This was primarily driven by benefits from mix due to lower public sector sales of 10 basis points that were offset by a price-cost headwind. As a reminder, we took actions on the price after the first month in Q1 and exited the quarter in a better price-cost position. Operating expenses in the first quarter were approximately $312 million on both a reported and adjusted basis and slightly favorable compared to the midpoint of our expectations. On an adjusted basis, operating expenses were up approximately $8 million year over year, primarily driven by the combination of higher personnel-related costs and depreciation and amortization being partially offset by productivity.

Moving to profitability for the quarter, gross margins of 40.7% performed as expected and was flat compared to the prior year period. This was primarily driven by benefits from mix due to lower public sector sales of 10 basis points that were offset by a price-cost headwind. As a reminder, we took actions on the price after the first month in Q1 and exited the quarter in a better price-cost position. Operating expenses in the first quarter were approximately $312 million on both a reported and adjusted basis and slightly favorable compared to the midpoint of our expectations. On an adjusted basis, operating expenses were up approximately $8 million year over year, primarily driven by the combination of higher personnel-related costs and depreciation and amortization being partially offset by productivity.

Speaker #2: Adjusted operating expenses increased approximately $7 million and was primarily due to the same drivers of the year-over-year increase. Reported operating margin for the quarter was 7.9% compared to 7.8% in the prior year.

Lastly, in 2 Q, we proactively amended our, our security facility and increased its capacity by 50 million to 350 million. Compared to the use of alternative sources such as our revolver. This approach is expected to lower our cost of funds by over 1 million dollars, annually.

Looking at our Capital, allocation strategy on slide 10.

Speaker #2: On an adjusted basis, operating margin of 8.4% was slightly above the midpoint of our outlook, and compared favorably to 8% in the prior year.

Our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business.

Speaker #2: We delivered GAAP EPs of $0.93 , compared to $0.83 in the prior year . On an adjusted basis . We EPs delivered of $0.99 compared to $0.86 in the prior year , and improvement of 15% .

Returning Capital to shareholders also remains a priority and in fiscal 1 Q. We returned approximately 62 million dollars to shareholders in the form of dividends and share repurchases.

Moving to our expectations for the fiscal quarter. Um slide 11.

Speaker #2: Turning to slide nine to review our balance sheet and free cash flow performance. We maintain a healthy balance sheet with net debt of approximately $491 million, representing roughly 1.2 times EBITDA.

We anticipate average daily sales growth of 3 and a half to 5 and a half percent compared to the prior year.

Operator: Adjusted operating expenses as a percentage of sales improved 40 basis points compared to the prior year due to the increase in sales. Sequentially, adjusted operating expenses increased approximately $7 million and was primarily due to the same drivers of the year-over-year increase. Reported operating margin for the quarter was 7.9% compared to 7.8% in the prior year. On an adjusted basis, operating margin of 8.4% was slightly above the midpoint of our outlook and compared favorably to 8% in the prior year. We delivered GAAP EPS of $0.93 compared to $0.83 in the prior year. On an adjusted basis, we delivered EPS of $0.99 compared to $0.86 in the prior year, an improvement of 15%. Turning to slide nine to review our balance sheet and free cash flow performance.

Adjusted operating expenses as a percentage of sales improved 40 basis points compared to the prior year due to the increase in sales. Sequentially, adjusted operating expenses increased approximately $7 million and was primarily due to the same drivers of the year-over-year increase. Reported operating margin for the quarter was 7.9% compared to 7.8% in the prior year. On an adjusted basis, operating margin of 8.4% was slightly above the midpoint of our outlook and compared favorably to 8% in the prior year. We delivered GAAP EPS of $0.93 compared to $0.83 in the prior year. On an adjusted basis, we delivered EPS of $0.99 compared to $0.86 in the prior year, an improvement of 15%. Turning to slide nine to review our balance sheet and free cash flow performance.

Sequentially. We expect daily sales to decline, approximately 4, to 6%, compared to the fiscal first quarter.

Speaker #2: Capital expenditures are roughly $22 million , were up approximately $2 million year over year as expected , we generated approximately $7.4 million of free cash flow in the quarter , representing approximately 14% of net income .

While the midpoint of our Outlook compares favorably to our sequential performance moving from 1 Q to 2q last year.

It is below our historical performance in 2q and driven by the following factors that are now highlights.

First.

Speaker #2: It's worth noting that inventory investment, combined with a step-up in receivables and prepaid expenses, were the primary factors of the free cash flow decline year over year.

Through the timing of our supplier conference that takes place during the last week of the fiscal quarter. We anticipate some revenues to shift from 2 Q to 3 q and create a headwind of approximately 50 basis points.

Speaker #2: Despite the slow start , on we remain track to achieve our expectation of 90% free cash flow conversion for the fiscal year . Lastly , in two Q , we proactively amended our AR securitization and increased its capacity facility by 50 million to $350 million compared to the use of alternative sources such as our revolver .

Second and as seen in the operating stats, December sales. This fiscal year were weaker than normal.

This was anticipated due to the holidays, which fell on a Thursday. This year combined with feedback from customers on their plan, shutdown, activity for the month.

that said, there are some sequential factors that we expect to work in our favor and 2 q and partially offset these headwinds

Speaker #2: This approach is expected to lower our cost of funds by over $1 million annually. Looking at our capital allocation strategy on slide ten, our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business.

Operator: We continue to maintain a healthy balance sheet with net debt of approximately $491 million, representing roughly 1.2x EBITDA. Capital expenditures are roughly $22 million, up approximately $2 million year over year as expected. We generated approximately $7.4 million of free cash flow in the quarter, representing approximately 14% of net income. It's worth noting that inventory investment combined with a step up in receivables, and prepaid expenses were the primary factors of the free cash flow decline year over year. Despite the slow start, we remain on track to achieve our expectation of 90% free cash flow conversion for the fiscal year. Lastly, in Q2, we proactively amended our AR securitization facility and increased its capacity by $50 million to 350 million.

We continue to maintain a healthy balance sheet with net debt of approximately $491 million, representing roughly 1.2x EBITDA. Capital expenditures are roughly $22 million, up approximately $2 million year over year as expected. We generated approximately $7.4 million of free cash flow in the quarter, representing approximately 14% of net income. It's worth noting that inventory investment combined with a step up in receivables, and prepaid expenses were the primary factors of the free cash flow decline year over year. Despite the slow start, we remain on track to achieve our expectation of 90% free cash flow conversion for the fiscal year. Lastly, in Q2, we proactively amended our AR securitization facility and increased its capacity by $50 million to 350 million.

starting with public sector, assuming headwinds related to the government shutdown of 1q did not occur in 2q,

It will benefit daily sales by approximately 50 basis points sequentially.

As a reminder, 2q is typically the seasonal low for public sector sales.

Which was considered in the amount of the expected benefit.

Speaker #2: Returning capital to shareholders also remains a priority. And in fiscal Q1, we returned approximately $62 million to shareholders in the form of dividends and share repurchases.

And second we expect sequential benefits from price and momentum from our growth initiatives to continue into Cube.

Speaker #2: Moving to our the expectations for fiscal quarter on slide 11 , we anticipate average daily sales growth of three and a half to 5.5% compared to the prior year .

Lastly, on sales, the midpoint of our range, implies a year-over-year growth, a little more than 5% in January and February.

Speaker #2: expect Sequentially , we daily sales to decline approximately 4 to 6% compared to the fiscal first quarter . While the midpoint of our outlook compares favorably to our sequential performance , moving from one Q to two Q , last year , it is below our historical performance in two Q and driven by the following factors that will now highlight .

Under this Revenue range, we expect the adjusted operating margin for the quarter, be 7.3 to 7.9%.

Or up approximately 50 basis points at the midpoint compared to the prior year driven by the following assumptions.

Gross margins of 40.8% plus or minus 20 basis points.

Operator: Compared to the use of alternative sources such as our revolver, this approach is expected to lower our cost of funds by over $1 million annually. Looking at our capital allocation strategy on slide 10, our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business. Returning capital to shareholders also remains a priority, and in fiscal Q1, we returned approximately $62 million to shareholders in the form of dividends and share repurchases. Moving to our expectations for the fiscal quarter on slide 11, we anticipate average daily sales growth of 3.5% to 5.5% compared to the prior year. Sequentially, we expect daily sales to decline approximately 4% to 6% compared to the fiscal first quarter.

Compared to the use of alternative sources such as our revolver, this approach is expected to lower our cost of funds by over $1 million annually. Looking at our capital allocation strategy on slide 10, our highest priorities remain organic investment to fuel growth and advancing operational efficiencies across the business. Returning capital to shareholders also remains a priority, and in fiscal Q1, we returned approximately $62 million to shareholders in the form of dividends and share repurchases. Moving to our expectations for the fiscal quarter on slide 11, we anticipate average daily sales growth of 3.5% to 5.5% compared to the prior year. Sequentially, we expect daily sales to decline approximately 4% to 6% compared to the fiscal first quarter.

That includes negative mix from the public sector sequentially of approximately 10 basis points.

Speaker #2: First , due to the timing of our supplier conference that takes place during the last week of the fiscal quarter , we anticipate some revenues to shift from two Q to three Q and create a headwind of approximately 50 basis points .

in operating expenses the headcount actions and early tier cue that were enabled by our sales authorization, work to offset the sequential headwind to the 2

Speaker #2: Second, and as seen in the operating stats, December sales this fiscal year were weaker than normal. This was anticipated due to the holidays, which fell on a Thursday this year.

Lastly, an included in the operating expenses are costs related to our supplier conference, that won't be self-funded through supplier, registration fees such as travel, which will negatively impact adjusted operating margin by approximately 10 basis points.

Speaker #2: Combined with feedback from customers on their planned shutdown activity for the month. That said, there are some sequential factors that we expect to work in our favor in Q2 and partially offset these headwinds.

It is worth noting that this includes incremental margins in January. And February, there are higher than the average implied for the quarter, following a seasonally soft December.

Speaker #2: Starting with public sector, assuming headwinds related to the government shutdown in Q1 did not occur in Q2, it will benefit daily sales by approximately 50 basis points sequentially.

Operator: While the midpoint of our outlook compares favorably to our sequential performance, moving from Q1 to Q2 last year, it is below our historical performance in Q2 and driven by the following factors that I will now highlight. First, through the timing of our supplier conference that takes place during the last week of the fiscal quarter, we anticipate some revenues to shift from Q2 to Q3 and create a headwind of approximately 50 basis points. Second, and as seen in the operating stats, December sales this fiscal year were weaker than normal. This was anticipated due to the holidays, which fell on a Thursday this year, combined with feedback from customers on their planned shutdown activity for the month. That said, there are some sequential factors that we expect to work in our favor in Q2 and partially offset these headwinds.

While the midpoint of our outlook compares favorably to our sequential performance, moving from Q1 to Q2 last year, it is below our historical performance in Q2 and driven by the following factors that I will now highlight. First, through the timing of our supplier conference that takes place during the last week of the fiscal quarter, we anticipate some revenues to shift from Q2 to Q3 and create a headwind of approximately 50 basis points. Second, and as seen in the operating stats, December sales this fiscal year were weaker than normal. This was anticipated due to the holidays, which fell on a Thursday this year, combined with feedback from customers on their planned shutdown activity for the month. That said, there are some sequential factors that we expect to work in our favor in Q2 and partially offset these headwinds.

We expect the January and February strength to sustain for the balance of the fiscal year as the benefits from productivity and pricing is expected to support higher levels of revenues with moderating operating expense growth.

Speaker #2: As a reminder, Q2 is typically the seasonal low for public sector sales, which was considered in the amount of the expected benefit.

Speaker #2: second , we And expect sequential benefits from price and momentum from our growth initiatives to continue into Q . Lastly , on sales , the midpoint of our range implies a year over year growth , a little more than 5% in January and February .

turning to the next slide for an updated view of expectations, on certain line items for the full year

Speaker #2: Under this revenue range , we expect adjusted operating margin for the quarter to be 7.3 to 7.9% , or up approximately 50 basis points at the midpoint , compared to the prior year , driven by the following assumptions .

Depreciation amiz, expense of 95 to 100 million or an increase of 5 to 10 million, year-over-year, interests, and other expense of roughly 35 million.

Capital expenditures of 100 to 110 million.

The tax rate between 24.5% 25.5 percent.

And free cash flow conversion of approximately 90%.

Speaker #2: Gross margins of 40.8%, plus or minus 20 basis points. That includes negative mix from the public sector sequentially of approximately 10 basis points in operating expenses.

To assist in modeling, the Cadence of sales for the remainder of the fiscal year.

Operator: Starting with public sector, assuming headwinds related to the government shutdown in Q1 do not occur in Q2, it will benefit daily sales by approximately 50 basis points sequentially. As a reminder, Q2 is typically the seasonal low for public sector sales, which was considered in the amount of the expected benefit. Second, we expect sequential benefits from price and momentum from our growth initiatives to continue in Q2. Lastly, on sales, the midpoint of our range implies a year-over-year growth a little more than 5% in January and February. Under this revenue range, we expect adjusted operating margin for the quarter to be 7.3% to 7.9% or up approximately 50 basis points at the midpoint compared to the prior year, driven by the following assumptions: gross margins of 40.8% ± 20 basis points.

Starting with public sector, assuming headwinds related to the government shutdown in Q1 do not occur in Q2, it will benefit daily sales by approximately 50 basis points sequentially. As a reminder, Q2 is typically the seasonal low for public sector sales, which was considered in the amount of the expected benefit. Second, we expect sequential benefits from price and momentum from our growth initiatives to continue in Q2. Lastly, on sales, the midpoint of our range implies a year-over-year growth a little more than 5% in January and February. Under this revenue range, we expect adjusted operating margin for the quarter to be 7.3% to 7.9% or up approximately 50 basis points at the midpoint compared to the prior year, driven by the following assumptions: gross margins of 40.8% ± 20 basis points.

Speaker #2: The actions in headcount early to Q that were enabled by our sales optimization work to offset the sequential headwind due to two extra months of the annual merit increase in Q1.

The bottom of slide provides historical core or quarter averages in key considerations for the second quarter, and the back half of the fiscal year.

And lastly, we have 1 extra selling day year-over-year in the fourth quarter, has shown at the bottom of the chart.

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

Speaker #2: Lastly , and included in the operating expenses , costs our related to our supplier conference , that won't be supplier self-funded through registration fee , such as travel , which will negatively impact adjusted operating margin by approximately ten basis points .

Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line as in the question queue.

Speaker #2: It is worth noting that this includes margins, in incremental January and February, that are higher than the average implied for the quarter.

You may press star 2 if you would like to remove your question from the queue.

Speaker #2: Following a seasonally soft December, we expect the January and February strength to sustain for the balance of the fiscal year, as benefits from productivity and prices are expected to support higher levels of revenues.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

1 moment, please while we pull for questions.

Speaker #2: With moderating operating expense growth of this, all underpins our confidence that under a mid-single-digit growth scenario, we expect adjusted incremental operating margins to be approximately 20% for the full fiscal year.

Operator: That includes negative mix from the public sector sequentially of approximately 10 basis points. In operating expenses, the headcount actions in early Q2 that were enabled by our sales optimization work to offset the sequential headwind due to two extra months of the annual merit increase in Q2 versus Q1. Lastly, and included in the operating expenses, are costs related to our supplier conference that won't be self-funded through supplier registration fees such as travel, which will negatively impact adjusted operating margin by approximately 10 basis points. It is worth noting that this includes incremental margins in January and February that are higher than the average implied for the quarter, following a seasonally soft December.

That includes negative mix from the public sector sequentially of approximately 10 basis points. In operating expenses, the headcount actions in early Q2 that were enabled by our sales optimization work to offset the sequential headwind due to two extra months of the annual merit increase in Q2 versus Q1. Lastly, and included in the operating expenses, are costs related to our supplier conference that won't be self-funded through supplier registration fees such as travel, which will negatively impact adjusted operating margin by approximately 10 basis points. It is worth noting that this includes incremental margins in January and February that are higher than the average implied for the quarter, following a seasonally soft December.

your first question for today is from Ryan Merkel with William Blair,

Speaker #2: Turning to the next slide for an updated expectation on certain line items. For the full-year view of expense of amortization, $95 to $100 million, or an increase.

Speaker #2: Depreciation of $5 to $10 million year over year. Other interest and expense of roughly $35 million. Capital expenditures of $100 to $110 million.

Hey, everyone. Good morning, and thanks for the questions. Uh, my first question is just on price and I guess it's a 2-part. So the 4% price, I think that was a little bit more than you expected. Could you just unpack? You know what drove that? And then, how should we think about price in fiscal 2q. Do you think you'll see more price?

Speaker #2: A tax rate between 24.5% and 25.5%, and free flow cash conversion of approximately 90%. To assist in modeling the cadence of sales for the remainder of the fiscal year.

Speaker #2: Bottom of the slide provides the historical quarter or quarter averages and key considerations for the second quarter and the back fiscal half of the year, lastly.

Operator: We expect the January and February strength to sustain for the balance of the fiscal year, as the benefits from productivity and pricing are expected to support higher levels of revenues with moderating operating expense growth. All of this underpins our confidence that under a mid-single-digit growth scenario, we expect adjusted incremental operating margins to be approximately 20% for the full fiscal year. Turning to the next slide for an updated view of our expectations on certain line items for the full year: depreciation amortization expense of $95 to 100 million, or an increase of $5 to 10 million year over year. Interest and other expenses of roughly $35 million. Capital expenditures of $100 to 110 million. A tax rate between 24.5% and 25.5%, and free cash flow conversion of approximately 90%.

We expect the January and February strength to sustain for the balance of the fiscal year, as the benefits from productivity and pricing are expected to support higher levels of revenues with moderating operating expense growth. All of this underpins our confidence that under a mid-single-digit growth scenario, we expect adjusted incremental operating margins to be approximately 20% for the full fiscal year. Turning to the next slide for an updated view of our expectations on certain line items for the full year: depreciation amortization expense of $95 to 100 million, or an increase of $5 to 10 million year over year. Interest and other expenses of roughly $35 million. Capital expenditures of $100 to 110 million. A tax rate between 24.5% and 25.5%, and free cash flow conversion of approximately 90%.

Speaker #2: We have one extra selling and over a year. In the fourth quarter, as shown at the bottom of the chart. And with that, we will open the line for Q&A.

Hey, Ryan. This is, uh, Ryan. I'll talk about the the 1q price, and then I'll pass it over to Martina to talk about our expectations for, uh, for 2q. No price came in, uh, kind of how we're expecting it. And if you recall, you know, we took a price action in June, uh, late June. Um, and we had some carryover, uh, from that. And then, we took another price action in, uh, late late September early October, um, to address the, uh, the price cost issues towards, uh, the end of, uh, fiscal 4q. Uh, so, you know, that that it all together, The price came in as expected and then Martina, if you want to get some color on, hi Brian. Thank you.

Speaker #1: Certainly, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #1: A confirmation tone will indicate your line is in the question queue. If you would like to remove your question from the queue, you may press star two. For participants using speaker equipment, you may need to pick up your handset before pressing the star keys.

Speaker #1: One moment, please, while we pull for questions. Your first question for today is from Ryan Merkel with William Blair.

Operator: To assist in modeling the cadence of sales for the remainder of the fiscal year, the bottom of the slide provides historical quarter-over-quarter averages and key considerations for the second quarter and the back half of the fiscal year. Lastly, we have one extra selling day year over year in the fourth quarter, as shown at the bottom of the chart. With that, we will open the line for Q&A. Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

To assist in modeling the cadence of sales for the remainder of the fiscal year, the bottom of the slide provides historical quarter-over-quarter averages and key considerations for the second quarter and the back half of the fiscal year. Lastly, we have one extra selling day year over year in the fourth quarter, as shown at the bottom of the chart. With that, we will open the line for Q&A.

Um, so we're still seeing inflation, not the intense Pace that we saw in July and August but we're still taking pockets of inflation. Across the business. The strongest is seen on the metal working side and I think that's not a surprise for anybody who's kept track of what's happening with tungsten. So just to, um, just to ground, everybody tungsten is the major, um, input into carbide, cutting tools, and we have, and IT supplies to control by China. And we've seen price increases now that exceed 100% on tungsten. So we are taking mid to high single-digit, price, increases from our metal working suppliers and we will pass that on starting in mid January. Um to give you a little bit of a flavor on our exposure with tungsten. Um,

Speaker #4: everyone . Good morning Hey and thanks for the questions . My first question is just on price , and I guess it's a two parter .

Speaker #4: So the 4% price, I think, a little bit more than you could have expected. Was that just—what drove that? And then how should we think about price for fiscal '26?

Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #4: Q: Do you think you'll see more price in Q2?

Speaker #5: Ryan , Hey , this is Ryan . I'll talk about the one . price , and pass it then I'll over to Martina Q to talk about our expectations for for two .

Speaker #5: Q now , came in kind of how we're expecting it . If you you know , we took a price recall , action in June , late June , had some and we from that .

it impacts about 15% of our sales. So I'll, I'll walk you through. That metalworking is about 50% of our total sales within metalworking. A cutting tools is a is a big category. Not the only category, right? We have abrasives and machinery, and accessories, and fluids. There are other large categories as well, but cutting tools is a major category within metalworking. And then carbide, cutting tools is a, a major. It's not an overwhelming majority, but it's about half of our cutting tool business. We also have, you know, high-speed steel and, and Cobalt and other things in there, too. So, our exposure is about

Speaker #5: We had some carryover, and then took another price action in late September, early October to address the price issues. Towards the cost end of fiscal Q4.

Operator: One moment, please, while we poll for questions. Your first question for today is from Ryan Merkle with William Blair. Hey, everyone. Good morning, and thanks for the questions. My first question is just on price, and I guess it's a two-parter. So the 4% price, I think that was a little bit more than you expected. Could you just unpack what drove that? And then how should we think about price in fiscal Q2? Do you think you'll see more price? Hey, Ryan. This is Ryan. I'll talk about the Q1 price, and then I'll pass it over to Martina to talk about our expectations for Q2. Now, price came in kind of how we're expecting it. If you recall, we took a price action in late June, and we had some carryover from that.

One moment, please, while we poll for questions. Your first question for today is from Ryan Merkle with William Blair.

Ryan Merkel: Hey, everyone. Good morning, and thanks for the questions. My first question is just on price, and I guess it's a two-parter. So the 4% price, I think that was a little bit more than you expected. Could you just unpack what drove that? And then how should we think about price in fiscal Q2? Do you think you'll see more price?

Ryan Mills: Hey, Ryan. This is Ryan. I'll talk about the Q1 price, and then I'll pass it over to Martina to talk about our expectations for Q2. Now, price came in kind of how we're expecting it. If you recall, we took a price action in late June, and we had some carryover from that.

Got it. Okay, super helpful, thanks for that and then my second question is on the topic of aipa and we're going to get a ruling Friday. It seems this may be hard to answer, but can you share any thoughts on the impact? If if I put tariffs are ruled invalid.

Operator: Then we took another price action in late September, early October to address the price-cost issues toward the end of fiscal Q4. So you net it all together. Price came in as expected. Then, Martina, if you want to give some color on Q2. Hi, Ryan. Thank you. So we're still seeing inflation, not the intense pace that we saw in July and August, but we're still taking pockets of inflation across the business. The strongest is seen on the metalworking side, and I think that's not a surprise for anybody who's kept track of what's happening with tungsten. So just to ground everybody, tungsten is the major input into carbide cutting tools, and its supply to be controlled by China, and we've seen price increases now that exceed 100% on tungsten.

Then we took another price action in late September, early October to address the price-cost issues toward the end of fiscal Q4. So you net it all together. Price came in as expected. Then, Martina, if you want to give some color on Q2.

Martina McIsaac: Hi, Ryan. Thank you. So we're still seeing inflation, not the intense pace that we saw in July and August, but we're still taking pockets of inflation across the business. The strongest is seen on the metalworking side, and I think that's not a surprise for anybody who's kept track of what's happening with tungsten. So just to ground everybody, tungsten is the major input into carbide cutting tools, and its supply to be controlled by China, and we've seen price increases now that exceed 100% on tungsten.

Yeah, so we'll get the benefit from, uh, lower, uh, lower, uh, inventories working through the p&l. Um, and then, of course, you know, if, if the market adjusts price, we would too. So it it kind of be opposite of how uh uh price costs rolls through our uh, average inventory, accounting method. So I I'd say, we'd probably take a, a hit initially and then we'd get a benefit as we work through the inventory and, uh, start to receive that lower cost inventory. So that's why I think about it, right.

All right, thank you. Pass it on.

Your next question is from Ken Neumann with KeyBank.

Hey, good morning, guys.

Operator: So we are taking mid- to high single-digit price increases from our metalworking suppliers, and we will pass that on starting in mid-January. To give you a little bit of a flavor on our exposure with tungsten, it impacts about 15% of our sales. So I'll walk you through that. Metalworking is about 50% of our total sales. Within metalworking, cutting tools is a big category, not the only category. We have abrasives, machinery, accessories, and fluids. There are other large categories as well, but cutting tools is a major category within metalworking. And then carbide cutting tools is a majority. It's not an overwhelming majority, but it's about half of our cutting tool business. We also have high-speed steel, cobalt, and other things in there too. So our exposure is about 15%. We'll take the first price increase in January. I don't think we're done.

So we are taking mid- to high single-digit price increases from our metalworking suppliers, and we will pass that on starting in mid-January. To give you a little bit of a flavor on our exposure with tungsten, it impacts about 15% of our sales. So I'll walk you through that. Metalworking is about 50% of our total sales. Within metalworking, cutting tools is a big category, not the only category. We have abrasives, machinery, accessories, and fluids. There are other large categories as well, but cutting tools is a major category within metalworking. And then carbide cutting tools is a majority. It's not an overwhelming majority, but it's about half of our cutting tool business. We also have high-speed steel, cobalt, and other things in there too. So our exposure is about 15%. We'll take the first price increase in January. I don't think we're done.

Good morning, uh, morning. So maybe for my first question here, uh, you know Martine, I just wanted to run through that comment around. I mean, you guys have uh certainly kind of hammered this idea of call. It 20% incremental margins, in a mid single digit environment. You know, when I run through the historical seasonality against the midpoint of that 2q guide it does imply the back. Half is growing something a little closer.

Closer to low to mid single digits.

Um you know, I I just want to give you the chance to maybe clarify the intent behind that mid single digit comment and you know the opportunity to help us understand um you know maybe the pockets of opportunity for better operating leverage in the back half versus typical seasonality.

Operator: So I think there will be more inflation passed to us on that. We're in conversations with our suppliers, so we may see another action needed later on in 2026. And then, Ryan, if you take the carryover from the late September, early October pricing actions, and then what Martina alluded to in the mid-January, late January price increases, it wouldn't be a surprise if pricing to Q2 was a little north of 5% year over year and around 1.4% quarter over quarter, just to give you a little bit of an idea. Got it. Okay. Super helpful. Thanks for that. And then my second question is on the topic of IEEPA, and we're going to get a ruling Friday, it seems. This may be hard to answer, but can you share any thoughts on the impact if IEEPA tariffs are ruled invalid? Yeah.

So I think there will be more inflation passed to us on that. We're in conversations with our suppliers, so we may see another action needed later on in 2026.

Ryan Mills: And then, Ryan, if you take the carryover from the late September, early October pricing actions, and then what Martina alluded to in the mid-January, late January price increases, it wouldn't be a surprise if pricing to Q2 was a little north of 5% year over year and around 1.4% quarter over quarter, just to give you a little bit of an idea.

It impacts about 15% of our sales. So I'll, I'll walk you through. That metalworking is about 50% of our total sales within metalwork, a cutting tools, is a is a big category, not the only category, right? We have a bracelets and machinery and accessories and fluids. There are other large categories as well, but cutting tools is a major category within metalwork and then carbide cutting tools is a, a majority. It's not an overwhelming majority, but it's about half of our cutting tool business. We also have, you know, high-speed steel and, and Cobalt and other things in there, too. So our exposure is about, 15% will take the first price increase in January. I don't think we're done. So I think there will be more inflation passed to us on that and we're in conversations with our suppliers. So we may see another action needed later on in 26 and then Ryan if you take, um, you know, the the carryover from the like,

Yeah. Hey, Ken, this is uh, Ryan. I I'll give you a little bit of color and then pass it over to Martina. Uh, you know, you're right, if you run that seasonality, you know, it would imply, you know, low to mid single digits. But if you if you look at the, uh, annual Outlook slide, you know, in the commentary due to price, uh, and continued momentum in our initiatives, we wouldn't be surprised if we outperformed, uh, historical. Uh, seasonal Trends quarter over quarter in the back half. Um, and then, you know, when we think about the productivity front that will continue to grow, um, and we, we expect incremental to be a little bit stronger in the back half, and just to give you a little bit of color on the confidence. There, you know, if you look at the midpoint of our outlook for 2 Q, uh, incremental, margin around 18%. You know, we talked about, uh, some increase in costs related to supply conference, uh, around travel uh, and other costs, you know, we view that as an opportunity to partner with our suppliers, we didn't feel it was, uh, the right thing to do to, uh, make them, uh, pay for that. If you back that out, it's about a million bucks. Uh, you know, incremental is a closer to

Ryan Merkel: Got it. Okay. Super helpful. Thanks for that. And then my second question is on the topic of IEEPA, and we're going to get a ruling Friday, it seems. This may be hard to answer, but can you share any thoughts on the impact if IEEPA tariffs are ruled invalid?

September early, uh, October pricing actions and then what Martina alluded to in the mid January? Late January, price increases, you know, it wouldn't be a surprise if if price too Q was a little north of 5% year-over-year and uh around 1 1.4% uh, quarter over quarter. Just to give you a little bit of an idea.

Ryan Mills: Yeah.

Operator: So we'll get the benefit from lower inventories working through the P&L. And then, of course, if the market adjusts price, we would too. So it'd kind of be opposite of how price cost rolls through our average inventory accounting method. So I'd say we'd probably take a hit initially, and then we'd get a benefit as we work through the inventory and start to receive that lower-cost inventory. So that's the way I think about it, Ryan. All right. Thank you. Pass it on. Your next question is from Ken Newman with KeyBanc. Hey, good morning, guys. Good morning. Morning. So maybe for my first question here, Martina, I just wanted to run through that comment around, I mean, you guys certainly kind of hammered this idea of, call it, 20% incremental margins in a mid-single-digit environment.

So we'll get the benefit from lower inventories working through the P&L. And then, of course, if the market adjusts price, we would too. So it'd kind of be opposite of how price cost rolls through our average inventory accounting method. So I'd say we'd probably take a hit initially, and then we'd get a benefit as we work through the inventory and start to receive that lower-cost inventory. So that's the way I think about it, Ryan.

Got it. Okay, super helpful, thanks for that. And then my second question is on the topic of AIPA, and we're going to get a ruling Friday. It seems this may be hard to answer, but can you share your thoughts on the impact if, if AIPA tariffs are ruled invalid?

Ryan Merkel: All right. Thank you. Pass it on.

On what was the challenging December in the quarter. Um, so that gives us confidence in incremental as we move through the rest of the fiscal year and then Martina, I didn't know if there's anything you wanted to add. Yeah, I mean, I think we're confident in our growth, in the momentum, in our growth initiatives. So we expect to be decoupling from decoupling, from our Trend. Um, everything that we're doing is around sales, execution and share capture. I think we have the right structure in place now, and now we turn to accelerated execution in the field and what we're seeing, um, is encouraging. So we're not declaring Victory, but we do expect that higher pace of of growth, particularly in our core customer. And then, as I said, we're on track with um, a productivity program that we started a couple of years ago in terms of our Network optimization and optimizing, you know, our the way we, the way we spend all of our big drivers of costs right where we spend for 8 dollars how we optimize within our 4 Walls and so

Yeah. So we'll get the benefit from, uh, lower, uh, lower lower, uh, inventories working through the p&l. Um, and then, of course, you know, if, if the market adjusts price, we would too. So it it kind of be opposite of how uh, price costs rolls through our, uh, average inventory, accounting method. So I I'd say, we'd probably take a, a hit initially and then we'd get a benefit as we work through the inventory and, uh, start to, uh, receive that lower cost inventory. So, that's the way I think about it, right?

Operator: Your next question is from Ken Newman with KeyBanc.

All right, thank you. Pass it on.

We're seeing the trajectory there and it makes us pretty confident. And then the other thing I'd add too is uh, you know, the core.

Ken Newman: Hey, good morning, guys. Good morning. Morning. So maybe for my first question here, Martina, I just wanted to run through that comment around, I mean, you guys certainly kind of hammered this idea of, call it, 20% incremental margins in a mid-single-digit environment.

Your next question is from Ken Neumann with KeyBank.

Hey, good morning, guys.

Of our has been growing for for 2 plus quarters. Uh the MBI could still signals contraction and then if you look in the off stats, you know this is the second quarter that manufacturing daily sales outpaced uh, price. So you know, that's giving us uh encouragement too. That uh you know the initiatives in place are are working

Operator: When I run through the historical seasonality against the midpoint of that Q2 guide, it does imply the back half is growing something a little closer to low to mid-single digits. I just wanted to give you the chance to maybe clarify the intent behind that mid-single-digit comment and the opportunity to help us understand maybe the pockets of opportunity for better operating leverage of the back half versus typical seasonality. Yeah. Hey, Ken, this is Ryan. I'll give you a little bit of color and then pass it over to Martina. You're right. If you run at that seasonality, it would imply low to mid-single digits. But if you look at the annual outlook slide in the commentary, due to price and continued momentum in our initiatives, we wouldn't be surprised if we outperformed historical seasonal trends quarter over quarter in the back half.

When I run through the historical seasonality against the midpoint of that Q2 guide, it does imply the back half is growing something a little closer to low to mid-single digits. I just wanted to give you the chance to maybe clarify the intent behind that mid-single-digit comment and the opportunity to help us understand maybe the pockets of opportunity for better operating leverage of the back half versus typical seasonality.

Good morning. Uh, morning. So maybe for my first question here, uh, you know, Martina, I just wanted to run through that comment around—I mean, you guys have, uh, certainly kind of hammered this idea of, call it, 20% incremental margins in a mid single-digit environment. You know, when I run through the historical seasonality against the midpoint of that Q2 guide, it does imply the back half is growing something a little closer to low to mid single digits.

Ryan Mills: Yeah. Hey, Ken, this is Ryan. I'll give you a little bit of color and then pass it over to Martina. You're right. If you run at that seasonality, it would imply low to mid-single digits. But if you look at the annual outlook slide in the commentary, due to price and continued momentum in our initiatives, we wouldn't be surprised if we outperformed historical seasonal trends quarter over quarter in the back half.

Got it. That's, that's really helpful color, uh, maybe just for my follow-up here. Um, you know, I'm curious if there's a way to quantify, you know, how you think about the net margin impact from the public sector sales implied in the second quarter, you know, I know that's I think you mentioned, it's resuming, uh, you know, back to growth after uh, the shutdown at headwinds last quarter, but it's still against a pretty tough comp. I I think that's a lower mix portion of the business. And just how do you think about that? Maybe normalizing out, uh, mix wise in the back half of this year?

Um, you know, I just want to give you the chance to maybe clarify the intent behind that mid-single-digit comment and, you know, the opportunity to help us understand, um, you know, maybe the pockets of opportunity for better operating leverage in the back half versus typical seasonality.

Operator: Then when we think about the productivity front, that will continue to grow. We expect incrementals to be a little bit stronger in the back half. Just to give you a little bit of color on the confidence there, if you look at the midpoint of our outlook for Q2, incremental margin around 18%. We talked about some increasing costs related to the supplier conference around travel and other costs. We view that as an opportunity to partner with our suppliers. We didn't feel it was the right thing to do to make them pay for that. If you back that out, it's about $1 million. Incrementals look closer to 20% on what was a challenging December in the quarter. So that gives us confidence in incrementals as we move through the rest of the fiscal year.

Then when we think about the productivity front, that will continue to grow. We expect incrementals to be a little bit stronger in the back half. Just to give you a little bit of color on the confidence there, if you look at the midpoint of our outlook for Q2, incremental margin around 18%. We talked about some increasing costs related to the supplier conference around travel and other costs. We view that as an opportunity to partner with our suppliers. We didn't feel it was the right thing to do to make them pay for that. If you back that out, it's about $1 million. Incrementals look closer to 20% on what was a challenging December in the quarter. So that gives us confidence in incrementals as we move through the rest of the fiscal year.

Yeah. Hey, Ken, this is Ryan. I I'll give you a little bit of color and then pass it over to Martina. Uh, you know, you're right. If you run at that seasonality, you know, it would imply, you know, low to mid single digits. But if you, if you look at the, uh, annual Outlook slide, you know, in the commentary due to price, uh, and continued momentum in our initiatives, we wouldn't be surprised if we outperformed, uh, historical. Uh, seasonal Trends quarter over quarter in the back half. Um, and then, you know, when we think about the productivity front that will continue to grow, um, and we we expect incremental to be a little bit stronger in the back half and just to give you a little bit of color on

Quarter over quarter. Uh, mix Edwin will be about roughly 50 basis points. You know, we don't expect to to uh, see a strong ramp in the public sector. Uh, we expect it to go back more to business as usual. And uh, you know, I I would assume that to be the case in the back half of the fiscal year, um, that that's how I would think about it again. And then keep in mind that our Outlook assumes uh, for too few assumes that there is not a, uh, another federal government shutdown. I just wanted to throw that out there as well.

Very helpful, thanks.

Your next question is from Tommy mall with Stevens Inc.

Good morning and thanks for taking my questions.

Operator: And then, Martina, I didn't know if there was anything you wanted to add. Yeah. I mean, I think we're confident in the momentum in our growth initiative. We expect to be decoupling from our trend. Everything that we're doing is around sales execution and share capture. I think we have the right structure in place now, and now we turn to accelerated execution in the field. And what we're seeing is encouraging. We're not declaring victory, but we do expect that higher pace of growth, particularly in our core customer. And then, as I said, we're on track with a productivity program that we started a couple of years ago in terms of our network optimization and optimizing the way we spend all of our big drivers of cost, right: where we spend freight dollars, how we optimize within our four walls.

And then, Martina, I didn't know if there was anything you wanted to add.

Martina and your prepared comments. You talked about some cost measures taken in early, 2q and it was in the same breath as, as I mentioned on, uh, turning your attention to the service model. So

Martina McIsaac: Yeah. I mean, I think we're confident in the momentum in our growth initiative. We expect to be decoupling from our trend. Everything that we're doing is around sales execution and share capture. I think we have the right structure in place now, and now we turn to accelerated execution in the field. And what we're seeing is encouraging. We're not declaring victory, but we do expect that higher pace of growth, particularly in our core customer. And then, as I said, we're on track with a productivity program that we started a couple of years ago in terms of our network optimization and optimizing the way we spend all of our big drivers of cost, right: where we spend freight dollars, how we optimize within our four walls.

I guess it's a 2-part question here on the cost measures. What can you share there in terms of details, perhaps sizing or, or context and was that meant to be linked to your comments around service or or were they more aimed at the selling organization? Thank you.

Yeah, thanks. Thanks for the question.

Operator: So we're seeing the trajectory there, and it makes us pretty confident. And then, Ken, the other thing I'd add too is the core customer has been growing for two-plus quarters. The MBI still signals contraction. And then if you look in the official stats, this is the second quarter that manufacturing daily sales outpaced price. So that's giving us encouragement too that the initiatives in place are working. Got it. That's really helpful color. Maybe just for my follow-up here, I'm curious if there's a way to quantify how you think about the net margin impact from the public sector sales implied in the second quarter. I know that's, I think you mentioned it's resuming back to growth after the shutdown and headwinds last quarter, but it's still against a pretty tough comp. I think that's a lower mix portion of the business.

So we're seeing the trajectory there, and it makes us pretty confident.

Ryan Mills: And then, Ken, the other thing I'd add too is the core customer has been growing for two-plus quarters. The MBI still signals contraction. And then if you look in the official stats, this is the second quarter that manufacturing daily sales outpaced price. So that's giving us encouragement too that the initiatives in place are working.

Yeah. So our whole sales optimization program, you know, has has sort of been pointed at our strategic goals of accelerating organic growth and optimizing our cost to serve. And that's what I've been talking about. For the past year, and we focus primarily through those efforts on our core selling rule. So we optimize geographies, we balanced portfolios. And like I said, we believe that um, we're starting to see the impact of that, right? Growth comes from more coverage and a better customer experience and cost to serve comes from an efficient resource deployment. So that work we had completed.

Is encouraging. So we're not declaring Victory. But we do expect that higher pace of of growth, particularly in our core customer. And then, as I said, we're on track with um, a productivity program that we started a couple of years ago in terms of our Network optimization and optimizing, you know, our the way we, the way we spend all of our big drivers of costs right where we spend for 8 dollars how we optimize within our 4 Walls and so we're seeing the trajectory there and it makes us pretty confident, it's 10. The other thing I'd add too is, uh, you know, the

Ken Newman: Got it. That's really helpful color. Maybe just for my follow-up here, I'm curious if there's a way to quantify how you think about the net margin impact from the public sector sales implied in the second quarter. I know that's, I think you mentioned it's resuming back to growth after the shutdown and headwinds last quarter, but it's still against a pretty tough comp. I think that's a lower mix portion of the business.

Customer has been growing for for 2 plus quarters. Uh the MBI could still signals contraction and then if you look in the off stats, you know this is the second quarter that manufacturing daily sales outpaced uh, price. So you know, that's giving us uh encouragement too. That uh you know the initiatives in place are are working

But as you can imagine, there's a lot of other, uh, customers facing roles in the business. So if you think about our core customer, you're talking about anyone from a small metal working shop with 20 people up to a complex, multi-site business. And we have a lot of teams that support that business. So, both in business acquisition. And then in terms of service, once we have customers, um, enrolled in different programs and and so we had not touched that side of the business and so what we have done over the past you know quarter and a half is apply those principles to our service or to basically marry it up um with what we've done in sales and again the goal is match.

Operator: And just how do you think about that, maybe normalizing out mix-wise in the back half of this year? Yeah. So in the public sector, what we said is due to the headwinds in the first quarter from the shutdown, quarter over quarter, mixed headwind will be about roughly 50 basis points. We don't expect to see a strong ramp in the public sector. We expect it to go back more to business as usual. And I would assume that to be the case in the back half of the fiscal year. That's how I would think about it, Ken. And then keep in mind that our outlook assumes for Q2 assumes that there is not another federal government shutdown. I just wanted to throw that out there as well. Very helpful. Thanks. Your next question is from Tommy Moll with Stephens Inc.

And just how do you think about that, maybe normalizing out mix-wise in the back half of this year?

Ryan Mills: Yeah. So in the public sector, what we said is due to the headwinds in the first quarter from the shutdown, quarter over quarter, mixed headwind will be about roughly 50 basis points. We don't expect to see a strong ramp in the public sector. We expect it to go back more to business as usual. And I would assume that to be the case in the back half of the fiscal year. That's how I would think about it, Ken. And then keep in mind that our outlook assumes for Q2 assumes that there is not another federal government shutdown. I just wanted to throw that out there as well.

Got it. That's, that's really helpful color, uh, maybe just for my follow-up here. Um, you know, I'm curious if there's a way to quantify, you know, how you think about the net margin impact from the public sector sales implied, in the second quarter. And I know that's, I think you mentioned, it's resuming, uh, you know, back to growth after uh, the shutdown at headwinds last quarter, but it's still against a pretty tough comp. I I think that's a lower mix of portion of the business. And just how do you think about that? Maybe normalizing out, uh, mix wise in the back? Half of the Sear,

The right amount of resource to the right potential. So we completed that work right at the end of the first quarter and then at the beginning of 2 Q, um we did have a a headcount benefit as a result of that optimization. So I I don't I won't share a lot more detail for competitive reasons, but we think we have the right structure in place now and then Tommy just to to size it. You know, the way I would think about it is the the headcount actions Martino alluded to in uh early on in fiscal 2q and further productivity uh eating away, a large chunk of that $4 million uh quarter over quarter headwind from 2 extra months of Merit.

Ken Newman: Very helpful. Thanks.

Yeah, so in the public sector, what we said is, you know, due to, uh, the headwinds in the first quarter from the shutdown, you know, quarter over quarter, uh, make Edwin will be about roughly 50 basis points. You know, we don't expect to, to, uh, see a strong ramp in the public sector. Uh, we expect it to go back more to business as usual. And, uh, you know, I would assume that to be the case in the back half of the fiscal year. Um, that's how I would think about it again. And then keep in mind that our outlook assumes, uh, for Q2 key, assumes that there is not a, uh, another federal government shutdown. I just wanted to throw that out there as well.

Ah, okay, that that's helpful. Thank you both.

Operator: Your next question is from Tommy Moll with Stephens Inc.

Very helpful, thanks.

Operator: Good morning, and thanks for taking my questions. Good morning. Martina, in your prepared comments, you talked about some cost measures taken in early Q2, and it was in the same breath as a mention on turning your attention to the service model. So I guess it's a two-part question here on the cost measures. What can you share there in terms of details, perhaps sizing or context? And was that meant to be linked to your comments around service, or were they more aimed at the selling organization? Thank you. Yeah. Thanks for the question. Yeah. So our whole sales optimization program has sort of been pointed at our strategic goals of accelerating organic growth and optimizing our cost to serve. And that's what I've been talking about for the past year. And we focus primarily through those efforts on our core selling role.

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

Your next question is from Tommy Mall with Stephens Inc.

Martina McIsaac: Good morning.

Tommy Moll: Martina, in your prepared comments, you talked about some cost measures taken in early Q2, and it was in the same breath as a mention on turning your attention to the service model. So I guess it's a two-part question here on the cost measures. What can you share there in terms of details, perhaps sizing or context? And was that meant to be linked to your comments around service, or were they more aimed at the selling organization? Thank you.

Good morning and thanks for taking my questions.

And then um, just sticking on the theme of profitability here. You, you gave helpful guidance on fiscal second quarter in terms of gross margin and, uh, Opex, any comments you want to offer now on seasonality for either gross margin percentage or

um,

Martina, in your prepared comments, you talked about some cost measures taken in early Q2, and it was in the same breath as, as I mentioned, turning your attention to the service model. So,

Opex. I mean I guess the starting assumption might be gross margin percentage flat, maybe be maybe even a little bit improved as as price cost improved post Q2 and on Opex.

um,

I mean unless you would Point anything out, I think the starting assumption there would just be model normal. Um,

Uh, variable expense associated with the sales commission as volumes.

Martina McIsaac: Yeah. Thanks for the question. Yeah. So our whole sales optimization program has sort of been pointed at our strategic goals of accelerating organic growth and optimizing our cost to serve. And that's what I've been talking about for the past year. And we focus primarily through those efforts on our core selling role.

I guess it's a two-part question here on the cost measures. What can you share there in terms of details, perhaps sizing or context? And was that meant to be linked to your comments around service, or were they more aimed at the selling organization? Thank you.

Uh, fluctuate, but any additional context would be helpful. Thank you.

Yes, thanks. Thanks for the question.

Operator: So we optimize geographies. We balance portfolios. And like I said, we believe that we're starting to see the impact of that, right? Growth comes from more coverage and a better customer experience, and cost to serve comes from an efficient resource deployment. So that work we had completed. But as you can imagine, there's a lot of other customer-facing roles in the business. So if you think about our core customer, you're talking about anyone from a small metalworking shop with 20 people up to a complex multi-site business. And we have a lot of teams that support that business, so both in business acquisition and then in terms of service once we have customers enrolled in different programs. And so we had not touched that side of the business.

So we optimize geographies. We balance portfolios. And like I said, we believe that we're starting to see the impact of that, right? Growth comes from more coverage and a better customer experience, and cost to serve comes from an efficient resource deployment. So that work we had completed. But as you can imagine, there's a lot of other customer-facing roles in the business. So if you think about our core customer, you're talking about anyone from a small metalworking shop with 20 people up to a complex multi-site business. And we have a lot of teams that support that business, so both in business acquisition and then in terms of service once we have customers enrolled in different programs. And so we had not touched that side of the business.

Yeah, so our whole sales optimization program, you know, has sort of been pointed at our strategic goals of accelerating organic growth and optimizing our cost to serve. And that's what I've been talking about for the past year, and we focus primarily through those efforts on our core selling role. So we optimized geographies, we balanced portfolios. And like I said, we believe that, um, we're starting to see the impact of that, right? Growth comes from more coverage and a better customer experience, and cost to serve comes from an efficient resource deployment. So that work we had completed.

Plus or minus 20 basis points, uh, with some potential upside, um, in the back app as we think about offex, you know, to your point. I I think it's a good idea to take the variable Opex associated with the sales growth. But then, uh, you know, the other thing to keep in mind too, is we expect productivity to improve, uh, throughout the year. Uh, so what I'm alluding at is, you know, we have a 20% incremental margin Target for the year, you know, 18% in 1 Cube at the midpoint of 2 Cube. We're at 18% so that implies some stronger incremental, margins in the back half. And what we have line of sight to, we feel pretty comfortable in that.

Operator: And so what we have done over the past quarter and a half is apply those principles to our service org to basically marry it up with what we've done in sales. And again, the goal is match the right amount of resource to the right potential. So we completed that work right at the end of the first quarter. And then at the beginning of Q2, we did have a headcount benefit as a result of that optimization. So I won't share a lot more detail for competitive reasons, but we think we have the right structure in place now.

And so what we have done over the past quarter and a half is apply those principles to our service org to basically marry it up with what we've done in sales. And again, the goal is match the right amount of resource to the right potential. So we completed that work right at the end of the first quarter. And then at the beginning of Q2, we did have a headcount benefit as a result of that optimization. So I won't share a lot more detail for competitive reasons, but we think we have the right structure in place now.

Thank you both. I'll turn it back.

Your next question.

Today is from Nigel, Co with Wolfe research.

But as you can imagine, there's a lot of other uh, customer facing roles in the business. So if you think about our core customer, you're talking about anyone from a small metal working shop with 20 people up to a complex, multi-site business. And we have a lot of teams that support that business. So, both in business acquisition. And then in terms of service, once we have customers, um, enrolled in different programs and and so we had not touched that side of the business and so what we have done over the past you know quarter and a half is apply those principles to our service or to basically marry it up um with what we've done in sales and again the goal is match.

Operator: And then, Tommy, just to size it, the way I would think about it is the headcount actions Martina alluded to early on in fiscal Q2 and further productivity eating away a large chunk of that $4 million quarter-over-quarter headwind from two extra months of merit. Okay. That's helpful. Thank you both. And then just sticking on the theme of profitability here, you gave helpful guidance on fiscal second quarter in terms of gross margin and OpEx. Any comments you want to offer now on seasonality for either gross margin percentage or OpEx? I mean, I guess the starting assumption might be gross margin percentage flat, maybe even a little bit improved as price-cost improves post Q2 and on OpEx.

Ryan Mills: And then, Tommy, just to size it, the way I would think about it is the headcount actions Martina alluded to early on in fiscal Q2 and further productivity eating away a large chunk of that $4 million quarter-over-quarter headwind from two extra months of merit.

Oh, thanks. Good morning and Martina congratulations. Um, on the, on the new role. Um, thank you, just want to go back to December. Um, just, you know, I understand, you know, the, the holiday timing and and the impact on on, on the customer shutdowns, but any more color on, you know why? It's so extreme just given G, you know, it was a 1 day shift from from last year, from Wednesday, to Thursday. Uh, so just wondering if there's any more kind of color in terms of why, uh, customers decided to, you know, shut down over that period. Uh, and then have you seen sort of normal operations resuming, um, in January so far?

Tommy Moll: Okay. That's helpful. Thank you both. And then just sticking on the theme of profitability here, you gave helpful guidance on fiscal second quarter in terms of gross margin and OpEx. Any comments you want to offer now on seasonality for either gross margin percentage or OpEx? I mean, I guess the starting assumption might be gross margin percentage flat, maybe even a little bit improved as price-cost improves post Q2 and on OpEx.

A $4 million, uh, quarter-over-quarter headwind from two extra months of Merit.

Ah, okay, that's helpful. Thank you both.

And then, just sticking on the theme of profitability here—you gave helpful guidance on fiscal second quarter in terms of gross margin and OpEx. Any comments you want to offer now on seasonality for either gross margin percentage or...

um,

Opex. I mean I guess the starting assumption might be gross margin percentage flat, maybe be maybe even a little bit improved is its price cost improved post Q2 and on Opex.

Operator: I mean, unless you would point anything out, I think the starting assumption there would just be model normal variable expense associated with the sales commission as volumes fluctuate. But any additional context would be helpful. Thank you. Yeah, Tommy, good question. The way I think about it, starting with Q2, we have I'll start with gross margin. Starting with Q2, the outlook 40.8 ± 20 basis points. With one month under our belt and in what we see looking forward in the next two months, it doesn't feel like a tough hurdle to be at the upper end of that range. As you go through the remainder of the year, that's going to be dependent on core customer acceleration and further inflation working through the P&L if we see more supplier price increases.

I mean, unless you would point anything out, I think the starting assumption there would just be model normal variable expense associated with the sales commission as volumes fluctuate. But any additional context would be helpful. Thank you.

um,

I mean, unless you would point anything out, I think the starting assumption there would just be model normal—um, uh, variable expense associated with the sales commission as volumes.

Ryan Mills: Yeah, Tommy, good question. The way I think about it, starting with Q2, we have I'll start with gross margin. Starting with Q2, the outlook 40.8 ± 20 basis points. With one month under our belt and in what we see looking forward in the next two months, it doesn't feel like a tough hurdle to be at the upper end of that range. As you go through the remainder of the year, that's going to be dependent on core customer acceleration and further inflation working through the P&L if we see more supplier price increases.

Uh, fluctuate, but any context additional to Conte would be helpful. Thank you.

Yeah, Nigel, good question. Uh, you know that the Dynamics with December first off, it wasn't a surprise uh, you know, with the holidays falling on a Thursday and keep in mind, our fiscal, December runs through January 3rd. So we also have the impact from New Year's. The reason Thursday being the worst is, you know, customers, take off Friday, too, for a long weekend, just to give you an idea. The last time at the holidays fell on. A Thursday was back in 2014, you know, December was down 16% month over month, we're down 20% roughly uh, month over month and then, you know, going back to the prepared remarks. Um, you know, the December on through the rest of the the fiscal month. We were down 20%. So you know we really got hit hard in the back half of the uh the month. Uh looking out to January, you know, visibility is still limited. I mean we have 2 days under our belt um but you know going back to what Martinez said on uh, our growth initiatives, you know, the fact that core continued to grow in that challenging December and was our top grower, we expect that Trend to continue. Um so regardless of macro conditions

You know, we, we feel like there's opportunity to take shares, uh, particularly within that core customer for the thing. I didn't know if there's anything. Yeah. I think Nigel, you know, the, the important thing that we always call out is that that January 2nd day or that, you know, the last Friday, um, actually falls into our quarter, it will fall into everyone else's January, because of the, our fiscal calendar. Um, and that represented a headwind, a loan of about 100 basis points on growth, um, and coming into Christmas, we were actually

Operator: So as a ballpark, I'd probably stay at that 40.8 ± 20 basis points with some potential upside in the back half. As we think about OpEx, to your point, I think it's a good idea to take the variable OpEx associated with the sales growth. But then the other thing to keep in mind too is we expect productivity to improve throughout the year. So what I'm alluding at is we have a 20% incremental margin target for the year, 18% in Q1. At the midpoint of Q2, we're at 18%. So that would imply some stronger incremental margins in the back half. And what we have line of sight to, we feel pretty comfortable in that. Thank you both. I'll turn it back. Your next question for today is from Nigel Coe with Wolfe Research. Oh, thanks. Good morning.

So as a ballpark, I'd probably stay at that 40.8 ± 20 basis points with some potential upside in the back half. As we think about OpEx, to your point, I think it's a good idea to take the variable OpEx associated with the sales growth. But then the other thing to keep in mind too is we expect productivity to improve throughout the year. So what I'm alluding at is we have a 20% incremental margin target for the year, 18% in Q1. At the midpoint of Q2, we're at 18%. So that would imply some stronger incremental margins in the back half. And what we have line of sight to, we feel pretty comfortable in that.

Yeah Tommy good question. Uh the way I think about it starting with 2 Cube you know we have I'll start with gross margin starting with 2 Q. Uh the Outlook 40.8 plus or minus 20 basis points, you know, with 1 month under our belt and, and what we see, uh, looking forward to the next 2 months, it doesn't feel like a tough hurdle to be at the upper end of that range as you go through the remainder of the year. You know, that's going to be dependent on, uh, core customer acceleration and, and further, uh, inflation working through, uh, uh, the p&l, if if we see more, uh,

Seeing Transit made us encouraged and positive. So core is still outperforming. Um, we believe we're still taking share. So I I it's it was a disappointing number obviously for for uh, December. But as Ryan said, expected because of where the holidays fell.

Tommy Moll: Thank you both. I'll turn it back.

No, that that's a great color and and January 3. He hurts you a bit more, um, the uh, just a quick follow on on Gross margins. You provided some really good color there. Um obviously we've got some pretty aggressive price increases coming through in uh in in January. I'm just wondering have you included the benefits from those prices increases in your TQ guide? I know it's on your stub portion of that price increase but would that be

Supplier price increases. So, as a ballpark, you know, I'd probably stay at that 40.8 plus or minus 20 basis points, uh, with some potential upside, um, in the back app as we think about offex, you know, to your point. I I think it's a good idea to take the variable Opex associated with the sales growth. But then, uh, you know, the other thing to keep in mind too, is we expect productivity to improve, uh, throughout the year. Uh, so what I'm alluding at is, you know, we have a 20% incremental margin Target for the year, you know, 18% and 1 Q. That's the midpoint of 2 Q. We're at 18% so that would imply. Some stronger incremental, margins in the back half and what? We have line of sight too. We feel pretty comfortable in that.

Operator: Your next question for today is from Nigel Coe with Wolfe Research.

Thank you both. I'll turn it back.

In your ticket guide and and do you anticipate maintaining gross margins, uh, on both the price and and cost inflation.

Your next question.

Nigel Coe: Oh, thanks. Good morning.

Search.

Operator: And Martina, congratulations on the new role. Thank you. Just want to go back to December. Just, I understand the holiday timing and the impact on the customer shutdowns. But any more color on why it's so extreme just given it was a one-day shift from last year from Wednesday to Thursday. So just wondering if there's any more kind of color in terms of why customers decided to shut down over that period. And then have you seen sort of normal operations resuming in January so far? Yeah, Nigel, good question. The dynamics with December, first off, it wasn't a surprise with the holidays falling on a Thursday. And keep in mind our fiscal December runs through 3 January, so we also have the impact from New Year's. The reason Thursday being the worst is customers take off Friday too for a long weekend.

And Martina, congratulations on the new role.

Martina McIsaac: Thank you.

Nigel Coe: Just want to go back to December. Just, I understand the holiday timing and the impact on the customer shutdowns. But any more color on why it's so extreme just given it was a one-day shift from last year from Wednesday to Thursday. So just wondering if there's any more kind of color in terms of why customers decided to shut down over that period. And then have you seen sort of normal operations resuming in January so far?

Ryan Mills: Yeah, Nigel, good question. The dynamics with December, first off, it wasn't a surprise with the holidays falling on a Thursday. And keep in mind our fiscal December runs through 3 January, so we also have the impact from New Year's. The reason Thursday being the worst is customers take off Friday too for a long weekend.

Yeah, yeah. So I'll get a little color on 2 q. And then, maybe I'll pass it over to Greg to talk about. You know, price Frost and gross margin in 1 Q. Um, contemplated in our Outlook is uh you know, the price increase that we have for mid January. You know, we're not going to speculate on future uh pricing from our uh, suppliers uh, for the remainder of the quarter of the year. But our our goal is to maintain price cost and neutrality. Um, and like I said earlier, uh, you know, to see some upside to the, the, uh, range for 2 Cube. Um, you know, the upper half of the range and 40.8 plus or minus 20 basis points for uh, the back half of the Year. Sounds like a good ballpark, uh, with some potential upside and then great. I got to know if you wanted to touch on, you know how gross margin

Oh, thanks. Good morning and Martina congratulations. Um, on the, on the new role. Um, thank you, just want to go back to December. Um, just, you know, I understand, you know, the, the holiday timing and and the impact on on, on the customer shutdowns, but any more color on, you know why? It's so extreme just given, you know, it was a 1 day shift from from last year, from Wednesday, to Thursday. Uh, so just wondering if any more kind of color in terms of why, uh, customers decided to, you know, shut down over that period. Uh, and then have you seen sort of normal operations resuming, um, in January so far?

Trying to get through uh, 1 Q.

Operator: Just to give you an idea, the last time the holidays fell on a Thursday was back in 2014. December was down 16% month over month. We're down 20% roughly month over month. Then going back to the prepared remarks, December on through the rest of the fiscal month, we were down 20%. So we really got hit hard in the back half of the month. Looking out to January, visibility is still limited. I mean, we have two days under our belt. But going back to what Martina said on our growth initiatives, the fact that core continued to grow in that challenging December and was our top grower, we expect that trend to continue. So regardless of macro conditions, we feel like there's opportunity to take shares, particularly within that core customer. Martina, I didn't know if there's anything. Yeah.

Just to give you an idea, the last time the holidays fell on a Thursday was back in 2014. December was down 16% month over month. We're down 20% roughly month over month. Then going back to the prepared remarks, December on through the rest of the fiscal month, we were down 20%. So we really got hit hard in the back half of the month. Looking out to January, visibility is still limited. I mean, we have two days under our belt. But going back to what Martina said on our growth initiatives, the fact that core continued to grow in that challenging December and was our top grower, we expect that trend to continue. So regardless of macro conditions, we feel like there's opportunity to take shares, particularly within that core customer. Martina, I didn't know if there's anything.

Yep. Thanks Ryan. Uh, taking a look just looking at gross margin, I can talk quarter reporter sequentially with positive price costs and public sector driven mix where the biggest drivers of the 30 basis. Point Improvement that we saw during the quarter. Uh, these benefits were slightly offset by some adjustments. That didn't go our way during the quarter.

In the late September early October, we just start to see price cost improve negative to the court in a much better position which led to the 40.8% plus or minus 20 bibs guide for Q2.

Great. Thank you.

Your next question for today, is from Patrick Bowman with JP Morgan.

Patrick your line is live.

Yeah, Nigel, good question. Uh, you know that the Dynamics with December first off, it wasn't a surprise uh, you know, with the holidays falling on a Thursday and keep in mind, our fiscal, December runs through January 3rd. So we also have the impact from New Year's. The reason Thursday being the worst is, you know, customers, take off Friday, too, for a long weekend, just to give you an idea. The last time, the holidays fell on a Thursday was back in 2014. You know, December was down 16% month over month, we're down 20% roughly uh, month over month and then, you know, going back to the prepared remarks. Um, you know, the December on through the rest of the the fiscal month. We were down 20%. So you know we really got hit hard in the back half of the uh the month. Uh looking out to January, you know, visibility is still limited. I mean we have 2 days under our belt um but you know going back to what Martinez said on uh, our growth initiatives, you know, the fact that core continued to grow in that challenging December and was our top grower, we expect that Trend to continue. Um so regardless of macro conditions

Martina McIsaac: Yeah.

Operator: I think, Nigel, the important thing that we always call out is that January 2nd day or the last Friday actually falls into our quarter. It will fall into everyone else's January because of our fiscal calendar. That represented a headwind alone of about 100 basis points on growth. Coming into Christmas, we were actually seeing trends that made us encouraged and positive. Core is still outperforming. We believe we're still taking share. It was a disappointing number, obviously, for December, but as Ryan said, expected because of where the holidays fell. No, that's great color. January 3rd definitely hurts you a bit more. Just a quick follow-on on gross margins. You provided some really good color there. Obviously, we've got some pretty aggressive price increases coming through in January.

I think, Nigel, the important thing that we always call out is that January 2nd day or the last Friday actually falls into our quarter. It will fall into everyone else's January because of our fiscal calendar. That represented a headwind alone of about 100 basis points on growth. Coming into Christmas, we were actually seeing trends that made us encouraged and positive. Core is still outperforming. We believe we're still taking share. It was a disappointing number, obviously, for December, but as Ryan said, expected because of where the holidays fell.

Sorry, I was muted. Thank you for uh, for letting me know. Good morning.

Good morning. Good morning.

Um I I just want to dive back into Nigel's question on December. Cadence. So you said that I think from Christmas through

the end of your fiscal month. Um,

It was down 20.

I'm guessing like,

You know, we, we feel like there's opportunity to take shares uh, particularly within that core customer what I think. I didn't know if there's anything. Yeah. I think Nigel, you know, the, the important thing that we always call out is that that January 2nd day or the, you know, the last Friday, um, actually falls into our quarter, it will fall into everyone else's January, because of the, our fiscal calendar. Um, and that represented a headwind, a loan of about 100 basis points on growth. Um, and coming into Christmas, we were

You know, sales trans at that, time of year are the greatest anyway on a daily basis. So, curious up until Christmas. What was the ads growth versus that 2 and a half percent? You did for the month?

Nigel Coe: No, that's great color. January 3rd definitely hurts you a bit more. Just a quick follow-on on gross margins. You provided some really good color there. Obviously, we've got some pretty aggressive price increases coming through in January.

Actually seeing trends that made us encouraged and positive. So core is still outperforming. Um, we believe we're still taking share. So I I it's it was a disappointing number obviously for for uh, December. But as Ryan said, expected because of where the holidays fall.

yeah, just if you do the math path, it's about, you know, 4 to 5, percentage roughly

Operator: I'm just wondering, have you included the benefits from those price increases in your Q2 guide? I know it's in your stub portion of that price increase, but would that be in your Q2 guide? And do you anticipate maintaining gross margins on both the price and cost inflation? Yeah. Yeah. So I'll give a little color on Q2, and then maybe I'll pass it all over to Greg to talk about price cost and gross margin in Q1. Contemplated in our outlook is the price increase that we have for mid-January. We're not going to speculate on future pricing from our suppliers for the remainder of the quarter of the year. But our goal is to maintain price cost neutrality. And like I said earlier, see some upside to the range for Q2.

I'm just wondering, have you included the benefits from those price increases in your Q2 guide? I know it's in your stub portion of that price increase, but would that be in your Q2 guide? And do you anticipate maintaining gross margins on both the price and cost inflation?

okay, and then when you're thinking about the, the first uh, quarter and the January February, number being 3% above that, at the midpoint of the second quarter number

Can you talk about the thinking behind that I guess?

Let's see, we got some pretty aggressive price increases coming through in, um, in January. I'm just wondering, have you included the benefits from those price increases in your TQ guide? I know it's on your stub portion of that price increase, but would that be—

Um, you mentioned price, but um, just curious how to 3%.

Ryan Mills: Yeah. Yeah. So I'll give a little color on Q2, and then maybe I'll pass it all over to Greg to talk about price cost and gross margin in Q1. Contemplated in our outlook is the price increase that we have for mid-January. We're not going to speculate on future pricing from our suppliers for the remainder of the quarter of the year. But our goal is to maintain price cost neutrality. And like I said earlier, see some upside to the range for Q2.

In your ticket guide, do you anticipate maintaining gross margins on both the price and cost inflation?

compares to um history and then um with limited visibility that you have while you think that's kind of a reasonable uh place to be

Operator: The upper half of the range and 40.8 ± 20 basis points for the back half of the year sounds like a good ballpark with some potential upside. Then, Greg, I didn't know if you wanted to touch on how gross margin trended through Q1. Yep. Thanks, Ryan. Taking a look, just looking at gross margin across quarter over quarter, sequentially, with positive price costs and public sector-driven mix were the biggest drivers of the 30 basis point improvement that we saw during the quarter. These benefits were slightly offset by some adjustments that didn't go our way during the quarter. Just looking at price costs in general, at the beginning of the quarter, we saw price costs was negative and similar to Q4 levels.

The upper half of the range and 40.8 ± 20 basis points for the back half of the year sounds like a good ballpark with some potential upside. Then, Greg, I didn't know if you wanted to touch on how gross margin trended through Q1.

Greg Clark: Yep. Thanks, Ryan. Taking a look, just looking at gross margin across quarter over quarter, sequentially, with positive price costs and public sector-driven mix were the biggest drivers of the 30 basis point improvement that we saw during the quarter. These benefits were slightly offset by some adjustments that didn't go our way during the quarter. Just looking at price costs in general, at the beginning of the quarter, we saw price costs was negative and similar to Q4 levels.

Yeah, yeah. So I'll give a little color on 2 q. And then, maybe I'll pass it over to Greg to talk about. You know, price cross and gross margin and 1 Q. Um, contemplated in our Outlook is uh, you know, the price increase that we have for mid January. You know, we're not going to speculate on future uh, pricing from our, uh, suppliers, uh, for the remainder of the quarter of the year. But our, our goal is to maintain price, cost neutrality. Um, and like I said earlier, uh, you know, to see some upside to the, the, uh, range for 2 Cube. Um, you know, the upper half of the range and 40.8 plus or minus 20 basis points for uh, the back half of the Year. Sounds like a good ballpark, uh, with some potential upside and then Greg, I didn't know if you wanted to touch on, you know how gross margin trended through, uh, 1 View.

Yeah, good. Good question, Pat. You know, to your point January and February at the midpoint up roughly 3%. Uh, that's combined January and February ads. Uh, up, 3% versus 1, uh, Q, you know, historically that's roughly 2%, you know, digging a little bit deeper, uh, you know, for the quarter, we talked about a 50 basis point, uh, benefit to ads from the federal government shutdown. Uh, it went to 1 Cube. We already picked up a little bit of that in December. Uh, public sector was up, uh, bit to high single digits sequentially. Uh, December versus November. So, what I'm getting at there is maybe for January to February, that looks more like 35.40 basis points. And then we talked about a 50 basis. Point headwind from the timing of our, uh, supplier conference. That's in the last week of February.

Yep. Thanks, Ryan. Uh, taking a look—just looking at gross margin. I talked to a reporter. Sequentially, with positive price-costs and public sector-driven mix were the biggest drivers of the 30th that we saw during the order. Uh, these benefits were slightly offset by some adjustments that didn't go our way during the quarter.

Operator: However, following our price actions in late September, early October, we did start to see price costs improve and exited the quarter in a much better position, which led to the 40.8% ± 20 basis points guide for Q2. Great. Thank you. Your next question for today is from Patrick Baumann with J.P. Morgan. Patrick, your line is live. Patrick, we can't hear you. Sorry, I was muted. Thank you for letting me know. Good morning. Good morning. Good morning. I just want to dive back into Nigel's question on December cadence. So you said that I think from Christmas through the end of your fiscal month, it was down 20%. I'm guessing sales trends at that time of year aren't the greatest anyway on a daily basis. So curious, up until Christmas, what was the ADS growth versus that 2.5% you did for the month? Yeah.

However, following our price actions in late September, early October, we did start to see price costs improve and exited the quarter in a much better position, which led to the 40.8% ± 20 basis points guide for Q2.

Nigel Coe: Great. Thank you.

Operator: Your next question for today is from Patrick Baumann with J.P. Morgan. Patrick, your line is live.

I'm just looking at price/cost in general. At the beginning of the quarter, we saw that price/cost was negative and similar to Q4 levels. However, following our price actions in late September and early October, we did start to see price/cost improve and exited the quarter in a much better position, which led to the 40.8%, plus or minus 20 bps guide for Q2.

Great. Thank you.

Um, we've set 50 basis points. But if the isolated for that 2 months, it looks more like 75 basis points. Um, so, you know, we're in the whole 30 basis points roughly, uh, on when you add those 2 together, what's given us confidence is, uh, the price action in mid January, um, that that will go into effect and also, the continued acceleration we see in in 4, uh, customers and, uh, in national accounts as well. Um, as we mentioned, you know, December, despite a challenging December core was still up mid single digits. We feel confident that that could, uh, continue

Got it. Um, and then maybe 1 from Martina

Your next question for today is from Patrick Bowman with JP Morgan.

Ryan Mills: Patrick, we can't hear you.

Patrick Baumann: Sorry, I was muted. Thank you for letting me know. Good morning. Good morning. Good morning. I just want to dive back into Nigel's question on December cadence. So you said that I think from Christmas through the end of your fiscal month, it was down 20%. I'm guessing sales trends at that time of year aren't the greatest anyway on a daily basis. So curious, up until Christmas, what was the ADS growth versus that 2.5% you did for the month?

Patrick your line is live.

I guess, uh, this supplier event that you're hosting this year, you know, what, are you hoping to accomplish from it? Um, you know, you you're bringing 1400 Associates to it and a bunch of suppliers. Um,

you know, the volume growth that that the companies delivering is still

Sorry, I was muted. Thank you for—uh, for letting me know. Good morning.

Good morning. Good morning.

You know versus the industrial production, um, not exciting. Um,

can you talk about, um, you know,

Um, I just want to dive back into Nigel's question on December cadence. So you said that, I think, from Christmas through—

how you get that to to improve and, and maybe if this event is, is meant to, to help, you know, start to drive that

the end of your fiscal month. Um,

It was down 20.

I'm guessing like,

Ryan Mills: Yeah.

Operator: Just if you do the math, Pat, it's about 4% to 5%, roughly. Okay. And then when you're thinking about Q1 and the January-February number being 3% above that at the midpoint of the Q2 number, can you talk about the thinking behind that? I guess you mentioned price, but just curious how the 3% compares to history and then with limited visibility that you have, why you think that's kind of a reasonable place to be. Yeah. Good question, Pat. To your point, January and February at the midpoint up roughly 3%. That's combined January and February ADS up 3% versus Q1. Historically, that's roughly 2%. Digging a little bit deeper, for the quarter, we talked about a 50 basis points benefit to ADS from the federal government shutdown headwinds of Q1. We already picked up a little bit of that in December.

Just if you do the math, Pat, it's about 4% to 5%, roughly.

You know, sales trans at that, time of year are the greatest anyway on a daily basis. So, curious up until Christmas. What was the ads growth versus that 2 and a half percent? You did for the month?

Patrick Baumann: Okay. And then when you're thinking about Q1 and the January-February number being 3% above that at the midpoint of the Q2 number, can you talk about the thinking behind that? I guess you mentioned price, but just curious how the 3% compares to history and then with limited visibility that you have, why you think that's kind of a reasonable place to be.

Yeah, just if you do the math path, it's about, you know, 4 to 5 percent, roughly.

Okay, and then when you're thinking about the first quarter and the January, February number being 3% above that, at the midpoint of the second quarter number...

Can you talk about the thinking behind that, I guess?

Um, you mentioned price, but I'm just curious how to 3%.

Ryan Mills: Yeah. Good question, Pat. To your point, January and February at the midpoint up roughly 3%. That's combined January and February ADS up 3% versus Q1. Historically, that's roughly 2%. Digging a little bit deeper, for the quarter, we talked about a 50 basis points benefit to ADS from the federal government shutdown headwinds of Q1. We already picked up a little bit of that in December.

Compares to, um, history, and then, um, with the limited visibility that you have, do you think that's kind of a reasonable, uh, place to be?

Operator: Public sector was up mid to high single digits sequentially, December versus November. So what I'm getting at there is maybe for January to February, that looks more like 35, 40 basis points. And then we talked about a 50 basis point headwind from the timing of our supplier conference. That's in the last week of February. We said 50 basis points, but if you isolate it for that two months, it looks more like 75 basis points. So we're in the whole 30 basis points roughly. When you add those two together, what's given us confidence is the price action in mid-January that will go into effect and also the continued acceleration we see in core customers and national accounts as well. As we mentioned, December, despite a challenging December, core was still up mid-single digits. We feel confident that that could continue. Got it.

Public sector was up mid to high single digits sequentially, December versus November. So what I'm getting at there is maybe for January to February, that looks more like 35, 40 basis points. And then we talked about a 50 basis point headwind from the timing of our supplier conference. That's in the last week of February. We said 50 basis points, but if you isolate it for that two months, it looks more like 75 basis points. So we're in the whole 30 basis points roughly. When you add those two together, what's given us confidence is the price action in mid-January that will go into effect and also the continued acceleration we see in core customers and national accounts as well. As we mentioned, December, despite a challenging December, core was still up mid-single digits. We feel confident that that could continue.

Um, an engagement plan in the field that will be followed up and executed on, and will be a growth accelerator. So it's a huge undertaking, it's a, a lot of upfront, data-driven prep. It is a lot of people, as you said, um, but I think it's a 1 way to, to make a big bang post all of these structural changes to, um, to aggressively go after, um, growth in partnership with suppliers. So we're really excited about it. And, and we think it's worth the, uh, the effort of taking all those folks out of the field for a few days. But as Brian said, it will shift some Revenue. Then into the third quarter,

Okay, thanks for the caller.

Your next question is from Chris Denker with loop capital.

Yeah, good, good question, Pat. You know, to your point January and February at the midpoint up roughly 3%. Uh, that's combined, January February ads. Uh, up, 3% versus 1, uh, cue, you know, historically that's roughly 2%, you know, digging a little bit deeper, uh, you know, for the quarter, we talked about a 50 basis point, uh, benefit to ads from the federal government shutdown. Uh, it went to 1 CQ. We already picked up a little bit of that in December. Uh, public sector was up, uh, mid to high single digits sequentially, uh, December versus November. So, what I'm getting at there is maybe for January and February, that looks more like 3540 basis points and then we talked about a 50 basis. Point headwind from the timing of our, uh, supplier conference. That's in the last week of February.

Hi, good morning, thanks for uh, taking the questions.

Um, I guess just to uh to poke at the 2 Q guide a little bit more here. So if we're expecting price to be up you know, 5% or a little bit north of that in the second quarter obviously, there's moving Parts with supplier conference and whatnot, but it volumes here are implied to still be flat down a bit.

Patrick Baumann: Got it.

Can you kind of put that in context? Is that just being cautious? Given the, the macro backdrop? Are we expecting to get positive in the back? Half of the year? Maybe like how how do we get that core volume back up? And how does that compare with what is? You know, the demand on the ground here?

Um, we said, 50 basis points, but if the isolated for that 2 months, it looks more like 75 basis points. Um, so, you know, we're in the whole 30 basis points roughly, uh, on when you add those 2 together, what's given us confidence is, uh, the price action in mid January, um, that that will go into effect and also, the continued acceleration we see in in core, uh, customers and, uh, in National counts as well. Um, as we mentioned, you know, December, despite a challenging December core was still up mid single digits. We feel confident that that could, uh, continue

Operator: And then maybe one for Martina. I guess the supplier event that you're hosting this year, what are you hoping to accomplish from it? You're bringing 1,400 associates to it and a bunch of suppliers. The volume growth that the company's delivering is still versus industrial production not exciting. Can you talk about how you get that to improve and maybe if this event is meant to help start to drive that? Yeah. Thanks for the question. So since I've been at MSC, one of the things that I really focus on is rebuilding trust with our suppliers and strengthening those relationships. And we've done a lot of things in the background that we haven't talked about with you around making ourselves easier to do business with and increasing our supplier transparency.

And then maybe one for Martina. I guess the supplier event that you're hosting this year, what are you hoping to accomplish from it? You're bringing 1,400 associates to it and a bunch of suppliers. The volume growth that the company's delivering is still versus industrial production not exciting. Can you talk about how you get that to improve and maybe if this event is meant to help start to drive that?

Um, and then maybe one from Martina.

I guess, uh, this supplier event that you're hosting this year—you know, what are you hoping to accomplish from it? Um, you know, you're bringing 1,400 associates to it and a bunch of suppliers. Um,

You know, the volume growth that the company's delivering is still

You know, versus the industrial production, um, not exciting. Um,

Can you talk about, um, you know,

Martina McIsaac: Yeah. Thanks for the question. So since I've been at MSC, one of the things that I really focus on is rebuilding trust with our suppliers and strengthening those relationships. And we've done a lot of things in the background that we haven't talked about with you around making ourselves easier to do business with and increasing our supplier transparency.

How you get that to improve, and maybe if this event is meant to help, you know, start to drive that.

Yeah, Chris. So, you know, if you look at it at a year-over-year basis, you know, keep in mind the challenging December, you know, January and February. You know, applies roughly, uh, up 5 and a half percent year-over-year. We said, you know, would be surprised if, uh, price was a little north of 50 basis points. I mean, uh, a little north of 5% year-over-year so, you know, maybe a little bit of volume Improvement, you know, going into the supplier conference, uh, you know, I would say we were probably a little conservative on the potential impact, you know, that's uh, 3 days in the last week, uh, you know, 1400, uh uh, customer facing uh, individuals at MSC being out, you know, it could be less, it could be more. Um, and given the fact that we don't have a lot of visibility here into the new calendar year. I'd say we're a little bit cautious with our, our Outlook, and what we're implying with January and February.

Operator: But one of the things that we did that was really important was to put this supplier council together because we talked straight about how to improve MSC's growth and how supplier collaboration with MSC can help us continue to outperform. So they actually designed what an ideal session would look like. And this is not a trade show. This is a working session, very detailed joint business planning that was designed by suppliers to be different from what they do in the industry today. And we do, exactly as you say, expect to come out of that with an engagement plan in the field that will be followed up and executed on and will be a growth accelerator. So it's a huge undertaking. It's a lot of upfront data-driven prep.

But one of the things that we did that was really important was to put this supplier council together because we talked straight about how to improve MSC's growth and how supplier collaboration with MSC can help us continue to outperform. So they actually designed what an ideal session would look like. And this is not a trade show. This is a working session, very detailed joint business planning that was designed by suppliers to be different from what they do in the industry today. And we do, exactly as you say, expect to come out of that with an engagement plan in the field that will be followed up and executed on and will be a growth accelerator. So it's a huge undertaking. It's a lot of upfront data-driven prep.

That that's helpful context, thank you for that. Um and then maybe just as we think about growth drivers I've noticed you know the implant sales growth is great but the signings have tapered a little bit here. Are we more focused on on the core and kind of letting the implant kind of bubble up. More organically is that has that been deemphasized? Is it just timing and I'm overlooking into this just any contacts on implant growth there

Yeah, thanks for the question. So since I've been at MSE 1 of the things that I really focused on is rebuilding trust with our suppliers and and strengthening those relationships. And we've done a lot of things in the background, that, that we haven't talked about with you around making ourselves easier to do business with and increasing our supplier transparency. But 1 of the things that we did that was really important. Was to put this supplier Council together because we talked straight about how to improve msc's growth. Um, and how supplier collaboration with MSE can help us continue to outperform. So they actually designed what an ideal, uh session would look like and this is not a trade show, this is a working session, very detailed uh joint business planning that was designed by suppliers to be different from what they do um in the industry today and

Operator: It is a lot of people, as you said, but I think it's one way to make a big bang post all of these structural changes to aggressively go after growth in partnership with suppliers. So we're really excited about it, and we think it's worth the effort of taking all those folks out of the field for a few days. But as Ryan said, it will shift some revenue then into the third quarter. Okay. Thanks for the color. Your next question is from Chris Dankert with Loop Capital. Hi. Morning. Thanks for taking the questions. I guess just to poke at the Q2 guide a little bit more here. So if we're expecting price to be up 5% or a little bit north of that in the second quarter, obviously, there's moving parts with supplier conference and whatnot.

It is a lot of people, as you said, but I think it's one way to make a big bang post all of these structural changes to aggressively go after growth in partnership with suppliers. So we're really excited about it, and we think it's worth the effort of taking all those folks out of the field for a few days. But as Ryan said, it will shift some revenue then into the third quarter.

Patrick Baumann: Okay. Thanks for the color.

We do exactly as you say, expect to come out of that with um, an engagement plan in the field that will be followed up and executed on, and will be a growth accelerator. So it's a huge undertaking, it's a, a lot of upfront data, driven prep. It is a lot of people, as you said, um, but I think it's a 1 way to, to make a big bang post all of these structural changes to, um, to aggressively go after, um, growth in partnership with suppliers. So we're really excited about it. And, and we think it's worth the, uh, the effort of taking all those folks out of the fields for a few days. But as Brian said, it will shift some Revenue. Then into the third quarter,

Yeah, I'm so glad you asked because know we we we still have focus on our largest customers. You know, we have an incredible team engagement, uh, Team customer engagement concept that we call mro grow mro go that um, you know, build programs for customers. And that includes placing implants if that's the appropriate part of the solution, and that's aimed at the top end of our customer segments. So, our largest most complex customers national accounts and that is still ongoing. I think what you saw in the conversion, um, in in the first quarter, you saw the net number sort of continue to grow, but grow a little bit more slowly. And that's because at the same time that we are fully engaged in opening new programs for suppliers. We're also very engaged on um, challenging our own cost structure looking at the drivers of profitability and, and building that Financial Acumen in the field. So, not

Operator: Your next question is from Chris Dankert with Loop Capital.

Okay, thanks for the caller.

Chris Dankert: Hi. Morning. Thanks for taking the questions. I guess just to poke at the Q2 guide a little bit more here. So if we're expecting price to be up 5% or a little bit north of that in the second quarter, obviously, there's moving parts with supplier conference and whatnot.

Your next question is from Chris Denker with Loop Capital.

Hi, good morning. Thanks for, uh, taking the questions.

Operator: But volumes here are implied to still be flat to down a bit. Can you kind of put that in context? Is that just being cautious given the macro backdrop? Are we expecting to get positive in the back half of the year? Maybe how do we get that core volume back up, and how does that compare with what is the demand on the ground here? Yeah. Chris, so if you look at it at a year-over-year basis, keep in mind the challenging December. January and February applies roughly up 5.5% year-over-year. We said we wouldn't be surprised if price was a little north of 50 basis points. I mean, a little north of 5% year-over-year. So maybe a little bit of volume improvement. Going to the supplier conference, I would say we were probably a little conservative on the potential impact.

But volumes here are implied to still be flat to down a bit. Can you kind of put that in context? Is that just being cautious given the macro backdrop? Are we expecting to get positive in the back half of the year? Maybe how do we get that core volume back up, and how does that compare with what is the demand on the ground here?

Every customer needs an implant. Um we can provide outstanding service through a number of our service teams in a number of different models and if a customer's needs are simpler than the better thing to do is to allow um that service to be provided in a simpler way. So we actually step down off a couple of existing impound programs in cooperation with the customer as part of our cost-savings um, program that we put in place for them and and um

Um, I guess just to, uh, poke at the Q2 guide a little bit more here. So if we're expecting price to be up, you know, 5%, or a little bit north of that in the second quarter, obviously there are moving parts with supplier conference and whatnot, but it's—volumes here are implied to still be flat to down a bit.

Offered a different solution, so we'll continue to examine those going forward, but absolutely no slowdown in the pipeline. Absolutely, no shift in emphasis the teams that are working with the largest customers are still intact, and in place.

Ryan Mills: Yeah. Chris, so if you look at it at a year-over-year basis, keep in mind the challenging December. January and February applies roughly up 5.5% year-over-year. We said we wouldn't be surprised if price was a little north of 50 basis points. I mean, a little north of 5% year-over-year. So maybe a little bit of volume improvement. Going to the supplier conference, I would say we were probably a little conservative on the potential impact.

Can you kind of put that in context? Is that just being cautious, given the macro backdrop? Are we expecting to get positive in the back half of the year? Maybe, like, how do we get that core volume back up, and how does that compare with what is, you know, the demand on the ground here?

So uh Chris I would also add that you know the sequential growth you saw in the number of implant programs that what Martinez getting at is the signings were greater than that increase. Yeah.

Got it, that, that's a really helpful color. Uh, thank you both so much.

your final question for,

From David.

With beard.

Operator: That's three days in the last week, 1,400 customer-facing individuals at MSC being out. It could be less. It could be more. And given the fact that we don't have a lot of visibility here into the new calendar year, I would say we're a little bit cautious with our outlook and what we're implying with January and February. That's helpful context. Thank you for that. And then maybe just as we think about growth drivers, I've noticed the implant sales growth is great, but the signings have tapered a little bit here. Are we more focused on the core and kind of letting the implant kind of bubble up more organically? Has that been de-emphasized? Is it just timing and I'm overlooking into this? Just any context on implant growth there? Yeah. I'm so glad you asked because, no, we still have focus on our largest customers.

That's three days in the last week, 1,400 customer-facing individuals at MSC being out. It could be less. It could be more. And given the fact that we don't have a lot of visibility here into the new calendar year, I would say we're a little bit cautious with our outlook and what we're implying with January and February.

First quarter to second quarter sequential. Uh if I'm calculating this right. If you go to uh say a 6% ads in the second quarter, theoretically that that would still be uh sequential of like minus 4 and you're saying the minus 2 is the historical average.

Chris Dankert: That's helpful context. Thank you for that. And then maybe just as we think about growth drivers, I've noticed the implant sales growth is great, but the signings have tapered a little bit here. Are we more focused on the core and kind of letting the implant kind of bubble up more organically? Has that been de-emphasized? Is it just timing and I'm overlooking into this? Just any context on implant growth there?

Yeah, Chris. So, you know, if you look at it at a year-over-year basis, you know, keep in mind the challenging December, you know, January and February. You know, applies roughly, uh, up 5 and a half percent year-over-year. We said, you know, it wouldn't be surprised if, uh, price was a little north of 50 basis points. I mean, uh, a little north of 5% year-over-year so, you know, maybe a little bit of volume Improvement, you know, going into the supplier conference, uh, you know, I would say we were probably a little conservative on the potential impact, you know, that's uh, 3 days in the last week, uh, you know, 1400, uh uh, customer facing uh, individuals at MSC being out, you know, it could be less, it could be more. Um, and given the fact that we don't have a lot of visibility here into the new calendar year. I'd say we're a little bit cautious with our, our Outlook, and what we're implying with January and February.

Martina McIsaac: Yeah. I'm so glad you asked because, no, we still have focus on our largest customers.

That that's helpful context, thank you for that. Um and then maybe just as we think about growth drivers I've noticed you know the implant sales growth is great but the signings have tapered a little bit here. Are we more focused on on the core and kind of letting the implant kind of bubble up more organically is that that that deemphasized is it just timing and I'm overlooking into this, just any any context on implant growth there

Operator: We have an incredible team customer engagement concept that we call MRO GO that builds programs for customers. That includes placing In-Plants if that's the appropriate part of the solution. That's aimed at the top end of our customer segment, so our largest, most complex customers, national accounts. That is still ongoing. I think what you saw in the conversion in Q1, you saw the net number sort of continue to grow, but grow a little bit more slowly. That's because at the same time that we are fully engaged in opening new programs for suppliers, we're also very engaged on challenging our own cost structure, looking at the drivers of profitability, and building that financial acumen in the field. So not every customer needs an In-Plant.

We have an incredible team customer engagement concept that we call MRO GO that builds programs for customers. That includes placing In-Plants if that's the appropriate part of the solution. That's aimed at the top end of our customer segment, so our largest, most complex customers, national accounts. That is still ongoing. I think what you saw in the conversion in Q1, you saw the net number sort of continue to grow, but grow a little bit more slowly. That's because at the same time that we are fully engaged in opening new programs for suppliers, we're also very engaged on challenging our own cost structure, looking at the drivers of profitability, and building that financial acumen in the field. So not every customer needs an In-Plant.

And it, if you go to that, you know, 5 and a half or 6%, I guess you'd be sort of uh factoring out the um the holidays and the sales meeting and all that stuff. So uh and and then on top of that, you get better government sales. You get this pricing acceleration. I I I'm just what I'm getting at is unless market demand is deteriorating. Why wouldn't you be seeing more normal sequential Trends in the second quarter versus what was already a seemingly weak first quarter? And then why wouldn't those be more normal or even higher as we move through the year? If the economy gets better?

Yeah, uh, Dave, we we tried, we tried messaging this at at the fireside chats at recent conferences and and following up with investors in the sales side, you look December wasn't a surprise. Uh, you know, Thursday is the worst day, uh, for the holidays to fall on and you know, if you look at the uh, if you go back to the slides last quarter, you know, in the annual side, when we talked about assumptions for the core, uh, the quarters in the back half. You know, what we said is the past 2 years, uh, the average is down 4 and a half percent, you know, we're at, we're at

Operator: We can provide outstanding service through a number of our service teams in a number of different models. If a customer's needs are simpler, then the better thing to do is to allow that service to be provided in a simpler way. We actually stepped down off a couple of existing impromptu programs in cooperation with the customer as part of our cost-savings program that we put in place for them and offered a different solution. We'll continue to examine those going forward, but absolutely no slowdown in the pipeline. Absolutely no shift in emphasis. The teams that are working with those largest customers are still intact and in place. Chris, I would also add that the sequential growth you saw in the number of In-Plant programs. What Martina's getting at is the signings were greater than that increase. Yeah. Got it.

We can provide outstanding service through a number of our service teams in a number of different models. If a customer's needs are simpler, then the better thing to do is to allow that service to be provided in a simpler way. We actually stepped down off a couple of existing impromptu programs in cooperation with the customer as part of our cost-savings program that we put in place for them and offered a different solution. We'll continue to examine those going forward, but absolutely no slowdown in the pipeline. Absolutely no shift in emphasis. The teams that are working with those largest customers are still intact and in place.

5% at the midpoint, like we said, visibility is a little bit limited, you know, we go into your point about the public sector. Yeah, we'll get a little bit of a pickup there, but keep in mind that 2 Q is a seasonal low for the public sector, and we the expectation is it's just going to go back to business as normal, so you're not going to recoup that 100 basis points in, in 2 Q. So, you know, as we stand here today, uh, you saw in the macro indicators, the PMI, uh, contracted new orders in, uh, the MBI contracted in December as well. You know, visibility is limited. We feel good about where we're we're, uh, we're doing from a growth initiative standpoint, uh, but not going to get ahead of our skis. And, uh, feel like we're doing a, a good job on just giving what we currently view the market to be and our expectations. And then also keep in mind that, uh, the supplier conference too. That's something that we alluded to, as well, uh, with sales potentially getting pushed back out from too, few to 32.

Ryan Mills: Chris, I would also add that the sequential growth you saw in the number of In-Plant programs. What Martina's getting at is the signings were greater than that increase.

Continue to grow, but grow a little bit more slowly. And that's because at the same time that we are fully engaged in opening new programs for suppliers. We're also very engaged on, um, challenging our own cost structure looking at the drivers of profitability and, and building that Financial Acumen in the field. So, not every customer needs an implant. Um, we can provide outstanding service through a number of our service teams in a number of different models. And if a customer's needs are simpler than the better thing to do is to allow um, that service to be provided in a simpler way. So we actually step down off a couple of existing impound programs in cooperation with the customer as part of our cost-savings, um, program that we put in place for them and and, um, offered a different solution. So we'll continue to examine those going forward, but absolutely no slowdown in the pipeline. Absolutely, no shift in emphasis the teams that are working with the largest customers are still.

Intact, and in place.

Okay, um yeah, I know there's a lot of moving Parts. We'll have to work through that. Um, and but additionally, if you're looking at incremental, sort of near-term, and even through the remainder of the year,

Martina McIsaac: Yeah.

Chris Dankert: Got it.

So, uh, Chris, I would also add that, you know, the sequential growth you saw in the number of implant programs—that what Martina's getting at is the signings were greater than that increase. Yeah.

Operator: That's a really helpful color. Thank you both so much. Your final question for today is from David Manthey with Baird. Thank you. Good morning, everyone. My question too is on the Q1 to Q2 sequentials. If I'm calculating this right, if you go to, say, a 6% ADS in Q2, theoretically, that would still be a sequential of like minus 4. And you're saying the minus 2 is the historical average. And if you go to that 5.5 or 6%, I guess you'd be sort of factoring out the holidays and the sales meeting and all that stuff. And then on top of that, you get better government sales. You get this pricing acceleration.

That's a really helpful color. Thank you both so much.

Operator: Your final question for today is from David Manthey with Baird.

Got it. That's really helpful, Colar. Thank you both so much.

Final question.

David Manthey: Thank you. Good morning, everyone. My question too is on the Q1 to Q2 sequentials. If I'm calculating this right, if you go to, say, a 6% ADS in Q2, theoretically, that would still be a sequential of like minus 4. And you're saying the minus 2 is the historical average. And if you go to that 5.5 or 6%, I guess you'd be sort of factoring out the holidays and the sales meeting and all that stuff. And then on top of that, you get better government sales. You get this pricing acceleration.

Um, here, too. If, if essentially you're talking about mid single digit, uh, price increases being, essentially all of the growth in the near term, and maybe, uh, maybe a little bit less than that going forward. But a big chunk of the growth,

David many with beard.

With price predominantly driving your Revenue growth with super high read through on that. In addition to some of these cost reduction efforts

I thank you. Good morning, everyone. Um, my question, too, is on the first quarter to second quarter sequential. Uh, if I'm calculating this right, if you go to, uh, say a 6% ads in the second quarter, theoretically that would still be, uh, sequential of like minus 4, and you're saying the minus 2 is the historical average.

um you know again I'm not trying to push you on these numbers and get you outside your comfort zone. But why wouldn't contribution margins be higher than 20% if it's you know Price Plus cost reduction efforts. It would seem like you'd see abnormally High incremental and that type of environment. What's the offset there that I'm missing?

Operator: What I'm getting at is unless market demand is deteriorating, why wouldn't you be seeing more normal sequential trends in the second quarter versus what was already a seemingly weak first quarter? And then why wouldn't those be more normal or even higher as we move through the year if the economy gets better? Yeah. Dave, we tried messaging this at the fireside chats at recent conferences and following up with investors and the sales team. Look, December wasn't a surprise. Thursday is the worst day for the holidays to fall on. And if you look at, if you go back to the slides last quarter, in the annual slide when we talked about assumptions for the quarters in the back half, what we said is the past two years, the average is down 4.5%. We're at 5% at the midpoint.

What I'm getting at is unless market demand is deteriorating, why wouldn't you be seeing more normal sequential trends in the second quarter versus what was already a seemingly weak first quarter? And then why wouldn't those be more normal or even higher as we move through the year if the economy gets better?

Ryan Mills: Yeah. Dave, we tried messaging this at the fireside chats at recent conferences and following up with investors and the sales team. Look, December wasn't a surprise. Thursday is the worst day for the holidays to fall on. And if you look at, if you go back to the slides last quarter, in the annual slide when we talked about assumptions for the quarters in the back half, what we said is the past two years, the average is down 4.5%. We're at 5% at the midpoint.

And it, if you go to that, you know, 5 and a half or 6%, I guess you'd be sort of uh factoring out the uh the holidays and the sales meeting and all that stuff. So, uh and and then on top of that, you get better government sales. You get this pricing acceleration. I I I'm just what I'm getting at is unless market demand is deteriorating. Why wouldn't you be seeing more normal sequential Trends in the second quarter versus what was already a seemingly weak first quarter? And then why wouldn't those be more normal or even higher as we move through the year? If the economy gets better?

So, if you look at what we're applying for, um, uh the quarter, uh, 18% at the midpoint, you know, given the soft December is a 5-week month. There's a lot of fixed costs associated with that. Uh you know, you could imagine operating leverage was pretty challenged in December, you know? That would imply January and February. Look, a lot better from an incremental, uh, margin standpoint, uh, than what's representative of the average for the quarter. And keep in mind, we have about a million uh, dollars in uh, incremental expense related to travel for the supplier conference. And then you know you heard us say in the back half we expect incremental margins to be better than the first half. Um and if we were to be in a high mid to high single a high single digit growth environment to your point Dave, we'd expect those acrobatic margins to be a lot stronger.

Got it. Okay, great. Thanks a lot.

Thank you.

We have reached the end of the question and answer session and I will now turn the call over to Ryan Mills for closing remarks.

Operator: Like we said, visibility is a little bit limited. Going to your point about the public sector, yeah, we'll get a little bit of a pickup there. But keep in mind that Q2 is a seasonal low for the public sector. And the expectation is it's just going to go back to business as normal. So you're not going to recoup that 100 basis points in Q2. So as we stand here today, you saw in the macro indicators the PMI contracted, new orders in the MBI contracted in December as well. Visibility is limited. We feel good about what we're doing from a growth initiative standpoint, but not going to get ahead of our skis and feel like we're doing a good job on just giving what we currently view the market to be and our expectations.

Like we said, visibility is a little bit limited. Going to your point about the public sector, yeah, we'll get a little bit of a pickup there. But keep in mind that Q2 is a seasonal low for the public sector. And the expectation is it's just going to go back to business as normal. So you're not going to recoup that 100 basis points in Q2. So as we stand here today, you saw in the macro indicators the PMI contracted, new orders in the MBI contracted in December as well. Visibility is limited. We feel good about what we're doing from a growth initiative standpoint, but not going to get ahead of our skis and feel like we're doing a good job on just giving what we currently view the market to be and our expectations.

Thank you everybody for attending today's call or next earnings. Call for fiscal. 2q will be on April 1st. Have a good day. Bye.

Conference and you may disconnect your lines at this time. Thank you for your participation.

Yeah, uh, Dave, we we tried, we tried messaging this at at the fireside chats at recent conferences and and following up with investors and the sales. I mean, look, December wasn't a surprise. Uh, you know, Thursday is the worst day, uh, for the holidays to fall on and you know, if you look at the, uh, if you go back to the slides last quarter, you know, in the annual slide when we talked about assumptions for the, uh, the quarters in the back half. You know, what we said is the past 2 years, uh, the average is down 4 and a half percent, you know, we're at, we're at 5% at the midpoint, like we said, visibility is a little bit limited, you know, we go into your point about the public sector. Yeah, we'll get a little bit of a pickup there, but keep in mind that 2 Q is a seasonal low for the public sector, and who we the expectation is is just going to go back to business as normal, so you're not going to recoup that 100 basis points in, in 2 Q. So, you know, as we stand here today, uh, you saw in the macro indicators, the PMI, uh, contracted new orders in, uh, the MBI contracted in December, as well.

Operator: And then also keep in mind that the supplier conference too, that's something that we alluded to as well with sales potentially getting pushed back out from Q2 to Q3. Okay. Yeah. I know there's a lot of moving parts. We'll have to work through that. But additionally, if you're looking at incrementals sort of near-term and even through the remainder of the year, here too, if essentially you're talking about mid-single-digit price increases being essentially all of the growth in the near term and maybe a little bit less than that going forward, but a big chunk of the growth with price predominantly driving your revenue growth with super high read-through on that, in addition to some of these cost reduction efforts.

And then also keep in mind that the supplier conference too, that's something that we alluded to as well with sales potentially getting pushed back out from Q2 to Q3.

David Manthey: Okay. Yeah. I know there's a lot of moving parts. We'll have to work through that. But additionally, if you're looking at incrementals sort of near-term and even through the remainder of the year, here too, if essentially you're talking about mid-single-digit price increases being essentially all of the growth in the near term and maybe a little bit less than that going forward, but a big chunk of the growth with price predominantly driving your revenue growth with super high read-through on that, in addition to some of these cost reduction efforts.

You know, visibility is limited. We feel good about where we're, uh, we're doing from a growth initiative standpoint, uh, but not going to get ahead of our skis. And, uh, feel like we're doing a, a good job on just giving what we currently view the market to be and our expectations. And then also keep in mind that, uh, the supplier conference too. That's something that we alluded to, as well, uh, with sales potentially getting pushed back up from 22 to 32.

Okay, um, yeah. I know there's a lot of moving parts. We'll have to work through that, um, and—but

Additionally, if you're looking at incremental, sort of near-term, and even through the remainder of the year,

Um, here, too. If, if essentially you're talking about mid-single-digit price increases being essentially all of the growth in the near term, and maybe, uh, maybe a little bit less than that going forward. But a big chunk of the growth,

Operator: Again, I'm not trying to push you on these numbers and get you outside your comfort zone, but why wouldn't contribution margins be higher than 20% if it's price plus cost reduction efforts? It would seem like you'd see abnormally high incrementals in that type of environment. What's the offset there that I'm missing? So if you look at what we're applying for the quarter, 18% at the midpoint, given the soft December is a five-week month, there's a lot of fixed costs associated with that. You could imagine operating leverage was pretty challenged in December. That would imply January and February look a lot better from an incremental margin standpoint than what's representative of the average for the quarter. And keep in mind, we have about $1 million in incremental expense related to travel for the supplier conference.

Again, I'm not trying to push you on these numbers and get you outside your comfort zone, but why wouldn't contribution margins be higher than 20% if it's price plus cost reduction efforts? It would seem like you'd see abnormally high incrementals in that type of environment. What's the offset there that I'm missing?

With price predominantly driving your revenue growth, with super high read-through on that, in addition to some of these cost reduction efforts.

Ryan Mills: So if you look at what we're applying for the quarter, 18% at the midpoint, given the soft December is a five-week month, there's a lot of fixed costs associated with that. You could imagine operating leverage was pretty challenged in December. That would imply January and February look a lot better from an incremental margin standpoint than what's representative of the average for the quarter. And keep in mind, we have about $1 million in incremental expense related to travel for the supplier conference.

Operator: Then you're to say in the back half, we expect incremental margins to be better than the first half. And if we were to be in a mid to high single-digit growth environment, to your point, Dave, we'd expect those incremental margins to be a lot stronger. Got it. Okay. Great. Thanks a lot. Thank you. We have reached the end of the question and answer session, and I will now turn the call over to Ryan Mills for closing remarks. Thank you, everybody, for attending today's call. Our next earnings call for fiscal Q2 will be on 1 April. Have a good day. Bye. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Then you're to say in the back half, we expect incremental margins to be better than the first half. And if we were to be in a mid to high single-digit growth environment, to your point, Dave, we'd expect those incremental margins to be a lot stronger.

David Manthey: Got it. Okay. Great. Thanks a lot.

So, if you look at what we're applying for, um, uh the quarter, uh, 18% at the midpoint, you know, given the soft December is a 5-week month. There's a lot of fixed costs associated with that. Uh you know, you could imagine operating leverage was pretty challenged in December, you know? That would imply January and February. Look, a lot better from an incremental, uh, margin standpoint, uh, than what's representative of the average for the quarter. And keep in mind, we have about a million uh, dollars in uh, incremental expense related to travel for the supplier conference. And then you know, you heard us say in the back half we expect incremental margins to be better than the first half. Um and if we were to be in a high mid to high single a high single digit growth environment to your point, Dave, we'd expect those AC margins to be a lot stronger.

Ryan Mills: Thank you.

Got it. Okay, great. Thanks a lot.

Operator: We have reached the end of the question and answer session, and I will now turn the call over to Ryan Mills for closing remarks.

Thank you.

Ryan Mills: Thank you, everybody, for attending today's call. Our next earnings call for fiscal Q2 will be on 1 April. Have a good day. Bye.

We have reached the end of the question-and-answer session, and I will now turn the call over to Ryan Mills for closing remarks.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Thank you, everybody, for attending today's call. Our next earnings call for fiscal Q2 will be on April 1st. Have a good day. Bye.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Q1 2026 MSC Industrial Direct Co Inc Earnings Call

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