MSC Industrial Direct Co., Inc. (NYSE:MSM) Q3 2022 Earnings Conference Call June 29, 2022 8:30 AM ET Company Participants John Chironna - Vice President of Investor Relations and Treasurer Erik Gershwind - Chief Executive Officer Kristen Actis-Grande - Chief Financial Officer Conference Call Participants Tommy Moll - Stephens Ryan Merkel - William Blair David Manthey - Baird Chris Dankert - Loop Capital Hans Hoffman - Jefferies Ken Newman - KeyBanc Capital Markets Pat Baumann - JPMorgan Operator Good day, a ...

| --- | --- | --- | |-------|-------|-------| | | | | | | | | | | | | Cautionary Note Regarding Forward-Looking Statements Statements in this presentation may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including statements about the future impact of COVID-19 on our business ope ...

[Cautionary Note Regarding Forward-Looking Statements](index=2&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section disclaims forward-looking statements, highlighting risks from COVID-19, economic conditions, competition, and supply chain disruptions - Forward-looking statements are subject to risks including **COVID-19 impact** on sales and operations, **general economic conditions**, and **competition**[5](index=5&type=chunk) - Additional risks encompass **strategic plan realization**, **key personnel retention**, **commodity price volatility**, **customer credit risk**, and **IT/supply chain disruptions**[5](index=5&type=chunk) [Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements: balance sheets, income, comprehensive income, equity, and cash flow [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Feb 26, 2022 (Unaudited) | Aug 28, 2021 | | :--------------------------------- | :----------------------- | :------------- | | Total Assets | $2,564,915 | $2,462,115 | | Total Liabilities | $1,329,614 | $1,300,243 | | Total Shareholders' Equity | $1,235,301 | $1,161,872 | | Cash and cash equivalents | $41,754 | $40,536 | | Accounts receivable, net | $619,913 | $560,373 | | Inventories | $657,710 | $624,169 | | Current portion of debt | $251,269 | $202,433 | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | 13 Weeks Ended Feb 26, 2022 | 13 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $862,522 | $773,995 | $1,711,069 | $1,545,899 | | Gross profit | $366,275 | $294,751 | $718,871 | $618,069 | | Income from operations | $97,168 | $28,021 | $187,900 | $81,929 | | Net income attributable to MSC Industrial | $69,931 | $18,085 | $135,998 | $56,539 | | Basic EPS | $1.25 | $0.32 | $2.44 | $1.01 | | Diluted EPS | $1.25 | $0.32 | $2.43 | $1.01 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | 13 Weeks Ended Feb 26, 2022 | 13 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income, as reported | $70,154 | $18,348 | $136,411 | $57,125 | | Foreign currency translation adjustments | $3,768 | $626 | $(1,224) | $2,822 | | Comprehensive income | $73,922 | $18,974 | $135,187 | $59,947 | | Comprehensive income attributable to MSC Industrial | $72,875 | $18,962 | $134,861 | $59,151 | [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands, except per share data) | Metric | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Total Shareholders' Equity Attributable to MSC Industrial (Ending Balance) | $1,223,974 | $1,112,113 | | Total Shareholders' Equity (Ending Balance) | $1,235,301 | $1,118,537 | | Net Income | $135,998 | $56,539 | | Regular cash dividends declared on Class A Common Stock | $(70,605) | $(69,808) | | Special cash dividends declared on Class A Common Stock | — | $(163,511) | | Dividends declared per Class A Common Share | $1.50 | $5.00 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $57,421 | $118,934 | | Net cash used in investing activities | $(31,179) | $(19,954) | | Net cash used in financing activities | $(24,916) | $(204,804) | | Net increase (decrease) in cash and cash equivalents | $1,218 | $(104,969) | | Cash and cash equivalents—end of period | $41,754 | $20,242 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Basis of Presentation](index=10&type=section&id=Note%201.%20Basis%20of%20Presentation) This note outlines the basis for the unaudited financial statements, fiscal year structure, and ongoing COVID-19 impacts - Unaudited Condensed Consolidated Financial Statements include all normal recurring material adjustments and should be read with the **Annual Report on Form 10-K** for fiscal year ended August 28, 2021[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company operates on a **52/53-week fiscal year**, ending on the Saturday closest to August 31, with fiscal year 2022 being a **53-week year**[28](index=28&type=chunk) - The **COVID-19 pandemic** continues to impact operations, supply chains, and labor availability, affecting product prices and availability with uncertain future impacts[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 2. Revenue](index=11&type=section&id=Note%202.%20Revenue) This note details revenue recognition policies and provides a breakdown of net sales by customer end-market and geographic area - Revenue is recognized when performance obligations are satisfied, typically upon customer obtaining control of products, with net sales including product revenue and shipping/handling, net of estimated returns and sales incentives[36](index=36&type=chunk) Percentage of Net Sales by Customer End-Market (13 Weeks Ended) | Customer End-Market | Feb 26, 2022 | Feb 27, 2021 | | :------------------ | :----------- | :----------- | | Manufacturing Heavy | 48% | 48% | | Manufacturing Light | 21% | 20% | | Retail/Wholesale | 7% | 7% | | Government | 7% | 9% | | Commercial Services | 4% | 5% | | Other | 13% | 11% | | Total net sales | 100% | 100% | Net Sales by Geographic Area (13 Weeks Ended, in thousands) | Geographic Area | Feb 26, 2022 | % | Feb 27, 2021 | % | | :---------------- | :----------- | :- | :----------- | :- | | United States | $817,026 | 95% | $728,212 | 94% | | Mexico | $20,259 | 2% | $21,802 | 3% | | United Kingdom | $13,546 | 2% | $12,896 | 2% | | Canada | $11,691 | 1% | $11,085 | 1% | | Total net sales | $862,522 | 100% | $773,995 | 100% | [Note 3. Net Income per Share](index=13&type=section&id=Note%203.%20Net%20Income%20per%20Share) This note explains the calculation of basic and diluted net income per share, including the treatment of common stock equivalents - Net income per share is calculated by dividing net income by the weighted-average number of Class A and Class B Common Stock shares outstanding, with diluted EPS including potentially dilutive common stock equivalents using the treasury stock method[46](index=46&type=chunk) Net Income Per Common Share (13 & 26 Weeks Ended) | Metric | 13 Weeks Ended Feb 26, 2022 | 13 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income attributable to MSC Industrial | $69,931 | $18,085 | $135,998 | $56,539 | | Basic EPS | $1.25 | $0.32 | $2.44 | $1.01 | | Diluted EPS | $1.25 | $0.32 | $2.43 | $1.01 | | Weighted-average shares for diluted EPS | 55,971 | 56,133 | 55,945 | 56,019 | [Note 4. Stock-Based Compensation](index=13&type=section&id=Note%204.%20Stock-Based%20Compensation) This note details stock-based compensation expense, including stock options, restricted stock units, and performance share units Stock-Based Compensation Expense (in thousands) | Type | 13 Weeks Ended Feb 26, 2022 | 13 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock options | $217 | $544 | $805 | $1,221 | | Restricted stock units | $3,306 | $3,819 | $8,009 | $7,118 | | Performance share units | $889 | $345 | $1,197 | $558 | | Associate Stock Purchase Plan | $88 | $48 | $178 | $97 | | Total | $4,500 | $4,756 | $10,189 | $8,994 | | Deferred income tax benefit | $(1,139) | $(1,174) | $(2,476) | $(2,204) | | Net expense | $3,361 | $3,582 | $7,713 | $6,790 | - The Company discontinued stock option grants in fiscal year 2020, with **unrecognized stock-based compensation cost of $565 thousand** at February 26, 2022, to be recognized over **0.6 years**[51](index=51&type=chunk) - Unrecognized stock-based compensation cost for PSUs at February 26, 2022, was **$5,264 thousand**, to be recognized over **2.0 years**, and for RSUs, it was **$32,032 thousand**, to be recognized over **2.9 years**[54](index=54&type=chunk)[58](index=58&type=chunk) [Note 5. Fair Value](index=15&type=section&id=Note%205.%20Fair%20Value) This note describes the Company's fair value accounting standards, hierarchy for inputs, and the classification of an asset held for sale - Fair value accounting standards define fair value as the price to sell an asset or transfer a liability in an orderly transaction, using a three-level hierarchy for inputs, with **Level 1 for quoted prices** in active markets and **Level 2 for observable market data**[59](index=59&type=chunk) - The carrying amounts of the Company's financial instruments approximated their fair values as of **February 26, 2022**, and **February 27, 2021**[59](index=59&type=chunk) - The Company classified its Long Island Customer Service Center building as held for sale as of February 26, 2022, with a carrying value of approximately **$15.3 million**, and no impairment charge was recorded[64](index=64&type=chunk) [Note 6. Debt](index=16&type=section&id=Note%206.%20Debt) This note details the Company's debt composition, including revolving credit facilities, private placement debt, and compliance with debt covenants Debt Composition (in thousands) | Debt Type | Feb 26, 2022 | Aug 28, 2021 | | :------------------------------------------ | :----------- | :----------- | | Amended Revolving Credit Facility | $285,000 | $234,000 | | Uncommitted Credit Facilities | $200,000 | $201,500 | | Private Placement Debt (various series) | $295,000 | $295,000 | | Total debt, including obligations under finance leases | $835,451 | $786,049 | | Current portion of debt | $(251,269) | $(202,433) | | Total long-term debt | $584,182 | $583,616 | - The Amended Revolving Credit Facility, maturing **August 24, 2026**, provides a **$600 million** unsecured revolving loan facility, with interest rates based on LIBOR or a base rate plus a spread[67](index=67&type=chunk) - Uncommitted Credit Facilities total **$208 million** in aggregate maximum availability, with **$200 million outstanding** at February 26, 2022, now using SOFR as the benchmark rate[71](index=71&type=chunk) - The Company was in compliance with all debt covenants as of February 26, 2022, including a maximum consolidated leverage ratio of **3.00 to 1.00** and a minimum consolidated interest coverage ratio of **3.00 to 1.00**[78](index=78&type=chunk) [Note 7. Shareholders' Equity](index=18&type=section&id=Note%207.%20Shareholders'%20Equity) This note outlines the Company's share repurchase program and details regular and special cash dividends declared - The Board authorized a new Share Repurchase Program on **June 29, 2021**, to purchase up to **5 million shares** of Class A Common Stock, with **5 million shares** still available as of February 26, 2022[79](index=79&type=chunk)[175](index=175&type=chunk) Common Stock Repurchases (13 Weeks Ended Feb 26, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :--------------------- | :--------------------------- | | 11/28/21-12/28/21 | 4,067 | $83.35 | | 12/29/21-1/27/22 | 334 | $84.32 | | 1/28/22-2/26/22 | 113 | $79.40 | | Total | 4,514 | | - The Company paid aggregate regular cash dividends of **$1.50 per common share** (**$83.6 million**) for the twenty-six weeks ended February 26, 2022, compared to a **special cash dividend of $3.50 per share** (**$195.4 million**) and regular dividends of **$1.50 per share** (**$83.7 million**) in the prior year[82](index=82&type=chunk) [Note 8. Restructuring and Other Costs](index=19&type=section&id=Note%208.%20Restructuring%20and%20Other%20Costs) This note details the restructuring and other costs incurred, including severance, consulting, and operating lease asset impairment charges - The Company incurred **$3.1 million** in restructuring and other costs for the thirteen weeks ended February 26, 2022, down from **$21.6 million** in the prior year, including severance, consulting, and other exit-related expenses[88](index=88&type=chunk) - The prior year's costs included **$16.7 million** in operating lease asset impairment charges related to closing **73 branch offices** as part of an enhanced customer support model[88](index=88&type=chunk) Restructuring and Other Costs (in thousands) | Cost Type | 13 Weeks Ended Feb 26, 2022 | 13 Weeks Ended Feb 27, 2021 | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease asset impairment loss | $— | $16,736 | $— | $16,736 | | Consulting-related costs | $2,520 | $1,270 | $2,520 | $3,790 | | Associate severance and separation costs | $517 | $2,568 | $4,032 | $3,980 | | Equity award acceleration costs | $— | $196 | $1,729 | $243 | | Other exit-related costs | $97 | $845 | $136 | $845 | | Total restructuring and other costs | $3,134 | $21,615 | $8,417 | $25,594 | [Note 9. Asset Impairments](index=19&type=section&id=Note%209.%20Asset%20Impairments) This note discusses asset impairment charges, specifically related to PPE-related inventory write-downs and a prepayment for nitrile gloves - No PPE-related inventory write-downs occurred for the thirteen- and twenty-six-week periods ended February 26, 2022, compared to **$30.1 million** in the prior year due to increased supply and inability to sell excess inventory[89](index=89&type=chunk)[92](index=92&type=chunk) - In fiscal year 2021, the Company recorded a **$26.7 million impairment charge** for a prepayment for nitrile gloves that were significantly delayed and not obtained, with a **$20.8 million loss recovery** received later in fiscal year 2021[93](index=93&type=chunk) [Note 10. Product Warranties](index=20&type=section&id=Note%2010.%20Product%20Warranties) This note outlines the Company's product warranty policy and the immateriality of warranty expense for the reported periods - The Company generally offers a maximum **one-year warranty** for some machinery products, and warranty expense for the reported periods was immaterial[94](index=94&type=chunk) [Note 11. Income Taxes](index=20&type=section&id=Note%2011.%20Income%20Taxes) This note addresses unrecognized tax benefits, the review of Employee Retention Credit provisions, and changes in the effective tax rate - No material changes in unrecognized tax benefits occurred during the twenty-six-week period ended **February 26, 2022**[95](index=95&type=chunk) - The Company is reviewing the **Employee Retention Credit (ERC)** provisions of the CARES Act and ARPA to determine eligibility and potential impact[96](index=96&type=chunk) - The effective tax rate decreased to **24.3%** for the twenty-six-week period ended February 26, 2022, from **24.5%** in the prior year, primarily due to a higher tax benefit from stock-based compensation[98](index=98&type=chunk) [Note 12. Legal Proceedings](index=20&type=section&id=Note%2012.%20Legal%20Proceedings) This note states management's expectation that the costs to resolve legal proceedings will not materially affect the Company's financial position - Management does not expect the ultimate costs to resolve various claims, lawsuits, and pending actions in the ordinary course of business to have a material adverse effect on the Company's financial position, results of operations, or liquidity[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, sales, profitability, strategy, and liquidity for the reported periods [Overview](index=21&type=section&id=Overview) This overview describes MSC's business as a distributor of metalworking and MRO products, its business model, and sales force changes - MSC is a leading North American distributor of metalworking and MRO products and services, offering approximately **2.0 million SKUs** through various channels including catalogs, eCommerce, and inventory management solutions[102](index=102&type=chunk) - The business model focuses on **procurement cost reduction** and **just-in-time delivery**, with a strategy to transition from a spot-buy supplier to a mission-critical partner[103](index=103&type=chunk)[104](index=104&type=chunk) - Field sales and service associate headcount increased to **2,448** at February 26, 2022, from **2,301** at February 27, 2021, reflecting a shift towards a more complex, high-touch sales role[104](index=104&type=chunk) [Highlights](index=21&type=section&id=Highlights) This section presents key financial highlights for the twenty-six-week periods, including cash from operations, borrowings, and dividends Financial Highlights (26 Weeks Ended, in millions) | Metric | Feb 26, 2022 | Feb 27, 2021 | | :--------------------------------- | :----------- | :----------- | | Cash from operations | $57.4 | $118.9 | | Net borrowings on credit facilities | $49.5 | $65.0 | | Regular cash dividends paid | $83.6 | $83.7 | | Special cash dividends paid | — | $195.4 | | Restructuring and other costs | $8.4 | $25.6 | [Recent Developments](index=22&type=section&id=Recent%20Developments) This section outlines recent strategic initiatives, including the 'Mission Critical' project, profitability improvements, facility relocation, and demand/supply chain trends - The 'Mission Critical' project aims to accelerate market share capture and improve profitability through investments in metalworking, value-added services, vending/VMI expansion, sales force build-out, and customer diversification[107](index=107&type=chunk) - Profitability improvement initiatives include **pricing strategies** and **structural cost reductions** in sales, supply chain, and G&A, optimizing distribution and real estate, renegotiating supplier contracts, and redesigning talent acquisition[107](index=107&type=chunk) - The Company is relocating its Long Island Customer Service Center to a smaller facility and has entered into an agreement to sell its current **170,000-square-foot facility**[108](index=108&type=chunk) - Demand from traditional manufacturing end markets has recovered, but **supply chain disruptions** and **labor availability issues** persist due to COVID-19, impacting product prices and availability[109](index=109&type=chunk) [Our Strategy](index=22&type=section&id=Our%20Strategy) This section describes the Company's primary objective to grow sales profitably by offering technical solutions and pursuing strategic acquisitions - The primary objective is to grow sales profitably by offering highly technical and high-touch solutions to customers, transitioning from a spot-buy supplier to a mission-critical partner[111](index=111&type=chunk) - The Company will selectively pursue strategic acquisitions that expand or complement its business in new and existing markets or enhance value and offerings[111](index=111&type=chunk) [Business Environment](index=22&type=section&id=Business%20Environment) This section discusses the Company's revenue sources from the manufacturing sector and monitors key economic indicators like MBI and IP index - Approximately **68% of revenues** came from the manufacturing sector during the twenty-six weeks ended February 26, 2022, with the Company monitoring the **Metalworking Business Index (MBI)** and **Industrial Production (IP) index** as indicators of business activity[112](index=112&type=chunk) MBI and IP Index Trends | Period | MBI | IP Index | | :--------------- | :---- | :------- | | December | 58.3 | 101.6 | | January | 62.5 | 103.0 | | February | 60.6 | 103.6 | | Fiscal Year 2022 Q2 average | 60.5 | 102.7 | | 12-month average | 61.1 | 101.0 | - The MBI average remained above **50.0**, indicating manufacturing growth, and the average IP index increased, reflecting economic recovery and abatement of the COVID-19 pandemic, leading to price realization strategies to offset increased costs[113](index=113&type=chunk) [Thirteen-Week Period Ended February 26, 2022 Compared to the Thirteen-Week Period Ended February 27, 2021](index=23&type=section&id=Thirteen-Week%20Period%20Ended%20February%2026,%202022%20Compared%20to%20the%20Thirteen-Week%20Period%20Ended%20February%2027,%202021) [Net Sales (13 Weeks)](index=23&type=section&id=Net%20Sales%20(13%20Weeks)) This section analyzes the net sales performance for the thirteen-week period, highlighting drivers such as volume, pricing, and eCommerce penetration Net Sales Performance (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $862,522 | $773,995 | $88,527 | 11.4% | - The **$88.5 million increase** in net sales was driven by **$51.6 million higher sales volume**, **$32.1 million from improved pricing**, and **$4.8 million from fiscal year 2021 acquisitions**[114](index=114&type=chunk) - National account sales increased by **$41.1 million**, core and other customers by **$47.1 million**, partially offset by a **$4.5 million decrease** in government sales[114](index=114&type=chunk) Average Daily Sales (ADS) Percentage Change (13 Weeks Ended) | Customer Type | Feb 26, 2022 | Feb 27, 2021 | | :---------------------------- | :----------- | :----------- | | Total Company ADS Percent Change | 7.9% | -1.5% | | Manufacturing Customers ADS Percent Change | 8.9% | -4.9% | | Non-Manufacturing Customers ADS Percent Change | 5.8% | 6.6% | - eCommerce platforms represented **60.7% of consolidated net sales**, up from **59.2%** in the prior year, indicating a competitive advantage[118](index=118&type=chunk) [Gross Profit (13 Weeks)](index=24&type=section&id=Gross%20Profit%20(13%20Weeks)) This section examines gross profit performance for the thirteen-week period, focusing on margin changes and the impact of inventory write-downs Gross Profit Performance (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :--------- | :----------- | :----------- | :--------- | :--------- | | Gross profit | $366,275 | $294,751 | $71,524 | 24.3% | | Gross profit margin | 42.5% | 38.1% | | | - The increase in gross profit margin was due to **improved price realization** and a **positive spread** between sales price and cost of goods sold, with the prior year including **$30.1 million in PPE-related inventory write-downs** that did not recur[119](index=119&type=chunk) [Operating Expenses (13 Weeks)](index=24&type=section&id=Operating%20Expenses%20(13%20Weeks)) This section analyzes operating expenses for the thirteen-week period, detailing increases primarily due to payroll and freight costs Operating Expenses Performance (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :---------------- | :----------- | :----------- | :--------- | :--------- | | Operating expenses | $265,973 | $245,115 | $20,858 | 8.5% | | % of net sales | 30.8% | 31.7% | | | - The increase in operating expenses was primarily due to **higher payroll and payroll-related costs** (**$13.8 million increase**) and **higher freight costs** (**$36.6 million vs. $32.5 million**), driven by increased sales volume and fuel charges[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Restructuring and Other Costs (13 Weeks)](index=24&type=section&id=Restructuring%20and%20Other%20Costs%20(13%20Weeks)) This section details the significant decrease in restructuring and other costs for the thirteen-week period, primarily due to non-recurring impairment charges Restructuring and Other Costs (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Restructuring and other costs | $3,134 | $21,615 | $(18,481) | (85.5)% | - The significant decrease was due to the prior year including **$16.7 million in operating lease asset impairment charges** related to closing **73 branch offices** as part of an enhanced customer support model, which did not recur in the current period[123](index=123&type=chunk)[124](index=124&type=chunk) [Income from Operations (13 Weeks)](index=25&type=section&id=Income%20from%20Operations%20(13%20Weeks)) This section analyzes the substantial increase in income from operations for the thirteen-week period, driven by higher sales and reduced costs Income from Operations Performance (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Income from operations | $97,168 | $28,021 | $69,147 | 246.8% | | % of net sales | 11.3% | 3.6% | | | - The substantial increase was primarily due to **higher sales**, the **absence of prior year PPE-related inventory write-downs**, and **lower restructuring-related impairment charges**[125](index=125&type=chunk) [Provision for Income Taxes (13 Weeks)](index=25&type=section&id=Provision%20for%20Income%20Taxes%20(13%20Weeks)) This section details the provision for income taxes for the thirteen-week period, noting a slight increase in the effective tax rate Provision for Income Taxes (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------------ | :----------- | :----------- | :--------- | :--------- | | Provision for income taxes | $23,509 | $6,051 | $17,458 | 288.5% | | Effective tax rate | 25.1% | 24.8% | | | - The effective tax rate increased slightly due to an increase in unfavorable permanent tax items[126](index=126&type=chunk) [Net Income (13 Weeks)](index=25&type=section&id=Net%20Income%20(13%20Weeks)) This section highlights the significant increase in net income for the thirteen-week period, driven by sales growth, improved margins, and lower costs Net Income Performance (13 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net income attributable to MSC Industrial | $69,931 | $18,085 | $51,846 | 286.7% | - Net income significantly increased, driven by **higher sales**, **improved gross profit margin** (absence of PPE write-downs), and **lower restructuring costs** compared to the prior year[127](index=127&type=chunk)[125](index=125&type=chunk)[119](index=119&type=chunk) [Twenty-Six-Week Period Ended February 26, 2022 Compared to the Twenty-Six-Week Period Ended February 27, 2021](index=25&type=section&id=Twenty-Six-Week%20Period%20Ended%20February%2026,%202022%20Compared%20to%20the%20Twenty-Six-Week%20Period%20Ended%20February%2027,%202021) [Net Sales (26 Weeks)](index=25&type=section&id=Net%20Sales%20(26%20Weeks)) This section analyzes the net sales performance for the twenty-six-week period, detailing drivers such as volume, pricing, acquisitions, and foreign exchange Net Sales Performance (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------- | :----------- | :----------- | :--------- | :--------- | | Net sales | $1,711,069 | $1,545,899 | $165,170 | 10.7% | - The **$165.2 million increase** in net sales was due to **$105.4 million higher sales volume**, **$49.9 million from improved pricing**, **$8.8 million from acquisitions**, and **$1.1 million favorable foreign exchange impact**[129](index=129&type=chunk) Average Daily Sales (ADS) Percentage Change (26 Weeks Ended) | Customer Type | Feb 26, 2022 | Feb 27, 2021 | | :---------------------------- | :----------- | :----------- | | Total Company ADS Percent Change | 8.9% | -4.0% | | Manufacturing Customers ADS Percent Change | 12.2% | -9.3% | | Non-Manufacturing Customers ADS Percent Change | 2.5% | 9.0% | - eCommerce platforms accounted for **60.6% of consolidated net sales**, up from **60.0%** in the prior year[132](index=132&type=chunk) [Gross Profit (26 Weeks)](index=26&type=section&id=Gross%20Profit%20(26%20Weeks)) This section examines gross profit performance for the twenty-six-week period, focusing on margin improvements and the absence of prior year write-downs Gross Profit Performance (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :--------- | :----------- | :----------- | :--------- | :--------- | | Gross profit | $718,871 | $618,069 | $100,802 | 16.3% | | Gross profit margin | 42.0% | 40.0% | | | - Gross profit margin increased due to **improved price realization** and a **positive spread** between sales price and cost of goods sold, with the prior year including **$30.1 million in PPE-related inventory write-downs** that did not recur[133](index=133&type=chunk) [Operating Expenses (26 Weeks)](index=26&type=section&id=Operating%20Expenses%20(26%20Weeks)) This section analyzes operating expenses for the twenty-six-week period, detailing increases primarily due to higher payroll and freight costs Operating Expenses Performance (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :---------------- | :----------- | :----------- | :--------- | :--------- | | Operating expenses | $522,554 | $483,820 | $38,734 | 8.0% | | % of net sales | 30.5% | 31.3% | | | - The increase was primarily due to **higher payroll and payroll-related costs** (**$25.6 million increase**) and **higher freight costs** (**$72.8 million vs. $64.3 million**), driven by increased sales volume and fuel charges[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Impairment Loss (26 Weeks)](index=27&type=section&id=Impairment%20Loss%20(26%20Weeks)) This section discusses the absence of impairment loss in the current period compared to a significant charge in the prior year related to nitrile gloves Impairment Loss (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :-------------- | :----------- | :----------- | :--------- | :--------- | | Impairment loss | $— | $26,726 | $(26,726) | (100)% | - No impairment loss was recorded in the current period, while the prior year included a **$26.7 million impairment charge** for a prepayment for nitrile gloves that were not obtained, with a **$20.8 million loss recovery** received later in fiscal year 2021[138](index=138&type=chunk) [Restructuring and Other Costs (26 Weeks)](index=27&type=section&id=Restructuring%20and%20Other%20Costs%20(26%20Weeks)) This section details the decrease in restructuring and other costs for the twenty-six-week period, primarily due to non-recurring impairment charges Restructuring and Other Costs (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Restructuring and other costs | $8,417 | $25,594 | $(17,177) | (67.1)% | - The decrease was due to the prior year including **$16.7 million in operating lease asset impairment charges** related to closing **73 branch offices** as part of an enhanced customer support model, which did not recur in the current period[139](index=139&type=chunk) [Income from Operations (26 Weeks)](index=27&type=section&id=Income%20from%20Operations%20(26%20Weeks)) This section analyzes the significant increase in income from operations for the twenty-six-week period, driven by higher sales and reduced costs Income from Operations Performance (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------- | :----------- | :----------- | :--------- | :--------- | | Income from operations | $187,900 | $81,929 | $105,971 | 129.3% | | % of net sales | 11.0% | 5.3% | | | - The significant increase was primarily due to **higher sales**, the **absence of prior year impairment loss and PPE-related inventory write-downs**, and **lower restructuring costs**[140](index=140&type=chunk) [Provision for Income Taxes (26 Weeks)](index=27&type=section&id=Provision%20for%20Income%20Taxes%20(26%20Weeks)) This section details the provision for income taxes for the twenty-six-week period, noting a slight decrease in the effective tax rate Provision for Income Taxes (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------------ | :----------- | :----------- | :--------- | :--------- | | Provision for income taxes | $43,862 | $18,498 | $25,364 | 137.1% | | Effective tax rate | 24.3% | 24.5% | | | - The effective tax rate decreased slightly due to a higher tax benefit from stock-based compensation[141](index=141&type=chunk) [Net Income (26 Weeks)](index=27&type=section&id=Net%20Income%20(26%20Weeks)) This section highlights the significant increase in net income for the twenty-six-week period, driven by sales growth, improved margins, and reduced costs Net Income Performance (26 Weeks Ended, in thousands) | Metric | Feb 26, 2022 | Feb 27, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------- | :----------- | :--------- | :--------- | | Net income attributable to MSC Industrial | $135,998 | $56,539 | $79,459 | 140.5% | - Net income significantly increased, driven by **higher sales**, **improved gross profit margin** (absence of PPE write-downs), and **lower impairment and restructuring costs** compared to the prior year[142](index=142&type=chunk)[140](index=140&type=chunk)[133](index=133&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's cash position, financing needs, and sufficiency of resources to fund operations and capital expenditures Liquidity and Capital Resources (in thousands) | Metric | Feb 26, 2022 | Aug 28, 2021 | Change ($) | | :------------------------ | :----------- | :----------- | :--------- | | Total debt | $835,451 | $786,049 | $49,402 | | Less: Cash and cash equivalents | $41,754 | $40,536 | $1,218 | | Net debt | $793,697 | $745,513 | $48,184 | | Equity | $1,235,301 | $1,161,872 | $73,429 | - The Company had **$41.8 million in cash and cash equivalents** as of February 26, 2022, with primary financing needs for working capital, acquisitions, new products, facilities, and technology investments[143](index=143&type=chunk) - Management believes existing cash, financial resources, and cash flow from operations will be sufficient to fund capital expenditures and operating cash requirements for at least the next **12 months**, even with anticipated impacts from COVID-19[146](index=146&type=chunk) [Cash Flows from Operating Activities](index=28&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes the decrease in net cash provided by operating activities, attributing it to changes in accounts receivable, inventories, and payables Net Cash Provided by Operating Activities (in thousands) | Metric | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $57,421 | $118,934 | - The decrease in net cash provided by operating activities was primarily due to an increase in **accounts receivable** and **inventories** (higher sales volume) and a decrease in the change in **accounts payable and accrued liabilities**, partially offset by an increase in net income[148](index=148&type=chunk) Working Capital and Ratios | Metric | Feb 26, 2022 | Aug 28, 2021 | Feb 27, 2021 | | :------------------ | :----------- | :----------- | :----------- | | Working Capital | $819,641 | $752,317 | $632,139 | | Current Ratio | 2.4 | 2.3 | 2.1 | | Days' Sales Outstanding | 60.9 | 61.1 | 57.4 | | Inventory Turnover | 3.2 | 3.4 | 3.4 | - Working capital and current ratio increased due to **higher accounts receivable and inventories**, while inventory turnover declined due to increasing inventory levels to meet customer demand and address supply chain challenges[151](index=151&type=chunk)[154](index=154&type=chunk) [Cash Flows from Investing Activities](index=29&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section details the increase in cash used in investing activities, primarily due to higher capital expenditures for vending programs and strategic projects Net Cash Used in Investing Activities (in thousands) | Metric | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in investing activities | $(31,179) | $(19,954) | - Cash used in investing activities increased, primarily due to **higher expenditures for property, plant, and equipment** related to vending programs and 'Mission Critical' projects[155](index=155&type=chunk) [Cash Flows from Financing Activities](index=29&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section analyzes the significant decrease in cash used in financing activities, primarily due to lower special dividends and net borrowings Net Cash Used in Financing Activities (in thousands) | Metric | 26 Weeks Ended Feb 26, 2022 | 26 Weeks Ended Feb 27, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in financing activities | $(24,916) | $(204,804) | - The significant decrease in cash used in financing activities was primarily due to **lower special dividends paid** (**$0 in current period vs. $195.4 million in prior year**) and **lower net borrowings** under credit facilities (**$49.5 million vs. $65.0 million**)[162](index=162&type=chunk) [Capital Expenditures](index=29&type=section&id=Capital%20Expenditures) This section highlights the Company's ongoing investments in sales productivity, eCommerce, vending platforms, and infrastructure - The Company continues to invest in **sales productivity initiatives**, **eCommerce and vending platforms**, customer fulfillment centers, distribution network, and other infrastructure and technology[156](index=156&type=chunk) [Long-Term Debt](index=29&type=section&id=Long-Term%20Debt) This section details the Company's long-term debt, including revolving credit facilities, uncommitted credit facilities, private placement debt, and covenant compliance - As of February 26, 2022, the Company had a **$600 million revolving credit facility** (unused balance of **$339.6 million**) and three uncommitted credit facilities totaling **$208 million**, and was in compliance with all debt covenants[157](index=157&type=chunk) - The Company has various private placement debt and shelf facility agreements, with no new unsecured senior notes issued after **January 12, 2021**, under the shelf agreements[158](index=158&type=chunk) [Leases and Financing Arrangements](index=29&type=section&id=Leases%20and%20Financing%20Arrangements) This section describes the Company's leased premises and equipment, as well as periodic financing arrangements with vendors - Operations are conducted on leased premises, with leases extending to **fiscal year 2031**, and the Company also has obligations under equipment and automobile operating and finance leases expiring through **fiscal year 2026**[159](index=159&type=chunk) - The Company periodically enters into financing arrangements with vendors for IT equipment or software[160](index=160&type=chunk) [Critical Accounting Estimates](index=30&type=section&id=Critical%20Accounting%20Estimates) This section states that the Company evaluates critical accounting policies and estimates, with no material changes outside the ordinary course of business - The Company evaluates critical accounting policies and estimates related to revenue recognition, inventory valuation, allowance for credit losses, warranty reserves, contingencies, income taxes, goodwill, and long-lived assets, with no material changes occurring outside the ordinary course of business[163](index=163&type=chunk)[164](index=164&type=chunk) [Recently Issued Accounting Standards](index=30&type=section&id=Recently%20Issued%20Accounting%20Standards) This section refers to Note 1 for information on recently issued accounting standards and confirms no material impact from ASU 2020-04 - Refer to **Note 1, 'Basis of Presentation,'** for information on recently issued accounting standards, with the adoption of **ASU 2020-04 (Reference Rate Reform)** having no material impact[165](index=165&type=chunk)[34](index=34&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the Annual Report on Form 10-K for market risk details, noting no significant changes since the last fiscal year-end - No significant changes in the financial instrument portfolio or interest rate risk have occurred since **August 28, 2021**, fiscal year-end, other than those discussed in Item 2[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of **February 26, 2022**[168](index=168&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended **February 26, 2022**[169](index=169&type=chunk) [Part II. Other Information](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section reiterates that management does not expect legal proceedings to have a material adverse effect on the Company's financial position - Management does not expect the ultimate costs to resolve ordinary course legal proceedings to have a material adverse effect on the Company's financial position, results of operations, or liquidity[171](index=171&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the Annual Report on Form 10-K for a comprehensive discussion of risks that could materially affect the business - Readers should consider the risks and uncertainties discussed in **Item 1A, 'Risk Factors'** of the Annual Report on Form 10-K for the fiscal year ended **August 28, 2021**, as these could materially affect the business[172](index=172&type=chunk) - Additional unknown or currently immaterial risks may also materially and adversely affect the Company's business, financial condition, and/or operating results[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's Class A Common Stock repurchases and the remaining authorization under its share repurchase program Issuer Purchases of Equity Securities (13 Weeks Ended Feb 26, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :--------------------- | :--------------------------- | | 11/28/21-12/28/21 | 4,067 | $83.35 | | 12/29/21-1/27/22 | 334 | $84.32 | | 1/28/22-2/26/22 | 113 | $79.40 | | Total | 4,514 | | - **4,514 shares** of Class A Common Stock were withheld to satisfy associates' tax withholding liability for stock-based compensation[174](index=174&type=chunk) - A new share repurchase program authorized on **June 29, 2021**, allows for the purchase of up to **5 million shares** of Class A Common Stock, with **5 million shares** remaining available as of February 26, 2022[175](index=175&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer (**31.1, 31.2, 32.1, 32.2**) and Inline XBRL documents (**101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104**)[178](index=178&type=chunk) [Signatures](index=33&type=section&id=SIGNATURES) This section contains the signatures of the registrant's authorized officers, certifying the filing of the report - The report was signed by **Erik Gershwind (President and CEO)** and **Kristen Actis-Grande (EVP and CFO)** on **March 30, 2022**[181](index=181&type=chunk)

Financial Data and Key Metrics Changes - The company's second quarter sales reached $863 million, reflecting an 11.4% growth compared to the prior year, with an average daily sales growth rate of 7.9% [27][10] - Gross margins improved to 42.5%, up 90 basis points sequentially and 440 basis points year-over-year [29][30] - Adjusted operating expenses were $266 million, representing 30.8% of sales, down from 31.6% in the prior year [31] - Earnings per share increased to $1.25 from $0.32 in the same period last year, with adjusted earnings per share rising 25% to $1.29 [34] Business Line Data and Key Metrics Changes - Non-safety and non-janitorial product lines grew over 10% on an average daily sales basis, while safety and janitorial products saw a decline of roughly 3% [27] - The implant program now represents approximately 9% of total company sales, tracking ahead of the plan to reach 10% by the end of fiscal 2023 [12] - E-commerce sales accounted for 60.7% of total company sales, up 150 basis points from the prior year [13] Market Data and Key Metrics Changes - Government sales declined roughly 11% due to challenging comparisons in janitorial and safety products, but this was an improvement from a nearly 30% decline in Q1 [28] - The company reported strong demand across most customer segments, with the exception of automotive, indicating robust order backlogs [22][60] Company Strategy and Development Direction - The company aims to restore return on invested capital into the high teens by the end of fiscal 2023 through growth, gross margin initiatives, and cost reductions of at least $100 million [18] - The five growth levers identified include metalworking, solutions, selling the portfolio, digital investments, and customer diversification, particularly in the public sector [12] - The company is leveraging its broad inventory and logistics capabilities to capture market share from local and regional distributors [25] Management's Comments on Operating Environment and Future Outlook - Management noted strong underlying demand, tight supply chain constraints, and rapid inflation as key factors affecting the business environment [22] - The outlook remains robust, with expectations for double-digit growth for fiscal 2022 [12][51] - Management expressed confidence in achieving a low double-digit sales growth scenario for the year, supported by pricing realization and strong performance [41] Other Important Information - The company is experiencing slight negative cash flow conversion due to increased working capital needs, with expectations for improvement in the second half of fiscal 2022 [37] - Total debt at the end of the fiscal second quarter was $835 million, reflecting a $72 million increase from the previous quarter [38] Q&A Session Summary Question: Update on adjusted operating framework for the year - Management indicated that actual performance and a strong outlook contributed to the confidence in a low double-digit growth scenario [50][51] Question: Comments on pricing strategies and cultural shifts - Management highlighted efforts to build agility in the sales organization around pricing discussions, which is expected to yield long-term benefits [54][56] Question: Impact of supply chain issues on organic growth - Management confirmed that supply chain constraints are currently limiting growth, but there is pent-up demand that remains unfulfilled [60] Question: Growth within vending and addressable market size - Vending has grown about 100 basis points as a percentage of revenue, with the total addressable market for services including vending estimated to be around half of the business [62][63] Question: Update on capital allocation and working capital - Management is focused on organic reinvestment and is exploring potential bolt-on acquisitions while maintaining a strong balance sheet [75] Question: Operating leverage and future margin expectations - Management expressed confidence that operating margins could exceed 12% on mid-single-digit growth in the future, supported by Mission Critical savings [104] Question: Freight expenses and inflation impact - Freight expenses represent about 4% of sales, with management managing inflationary pressures effectively, though some risks remain for the second half of the year [110][112]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________ FORM 10-Q __________________________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 27, 2021 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number: 1-14130 ______________________ ...

Financial Performance - Net sales increased to $848.5 million in Q1 2022 from $771.9 million in Q1 2021[6,8], representing a 9.9% increase[6,8] - Gross profit increased to $352.6 million in Q1 2022 from $323.3 million in Q1 2021[6,8], with gross margin declining slightly from 41.9% to 41.6%[6,8] - Operating profit increased to $90.7 million in Q1 2022 from $53.9 million in Q1 2021[6], with operating margin increasing from 7.0% to 10.7%[6] - Adjusted operating profit increased to $96.0 million in Q1 2022 from $84.9 million in Q1 2021[8], with adjusted operating margin increasing from 11.0% to 11.3%[8] - Earnings per diluted share increased to $1.18 in Q1 2022 from $0.69 in Q1 2021[6] - Adjusted earnings per diluted share increased to $1.25 in Q1 2022 from $1.11 in Q1 2021[8] Balance Sheet and Liquidity - Free cash flow decreased to $42.5 million in Q1 2022 from $95.3 million in Q1 2021[15] - Net debt increased to $699.9 million in Q1 2022 from $437.0 million in Q1 2021[16] Strategic Initiatives - The company is targeting at least $100 million in total program savings by the end of fiscal year 2023 versus fiscal year 2019[19] - The company achieved $10 million in savings in Q1 2022 related to Mission Critical initiatives[19]

MSC Industrial Direct Co., Inc. (NYSE:MSM) Q1 2022 Earnings Conference Call December 22, 2021 8:30 AM ET Company Participants John Chironna - Vice President, Investor Relations and Treasurer Erik Gershwind - President and Chief Executive Officer Kristen Actis-Grande - Executive Vice President and Chief Financial Officer Conference Call Participants Tommy Moll - Stephens David Manthey - Baird Ryan Merkel - William Blair Chris Dankert - Loop Capital Michael McGinn - Wells Fargo Steve Barger - KeyBanc Capital ...

Financial Performance - Net sales for Q4 2021 increased by 98% to $8310 million compared to $7477 million in Q4 2020[6] - Gross profit for Q4 2021 was $3490 million or 420% of sales compared to $3111 million or 416% of sales in Q4 2020[6] - Adjusted operating profit for Q4 2021 was $969 million or 117% of sales compared to $841 million or 112% of sales in Q4 2020[8] - Earnings per diluted share for Q4 2021 were $118 compared to $094 in Q4 2020[6] - Adjusted earnings per diluted share for Q4 2021 were $126 compared to $109 in Q4 2020[8] - Net sales for fiscal year 2021 increased by 16% to $32432 million compared to $31924 million in fiscal year 2020[10] Strategic Initiatives - The company achieved $40 million in Mission Critical savings in fiscal year 2021 and increased expected total program savings to at least $100 million by fiscal year 2023[4] - The company is targeting at least $100 million in total program savings by the end of fiscal year 2023 versus fiscal year 2019[23] - The company reaffirms fiscal year 2022 incremental margin target of 20 percent[4] Balance Sheet and Liquidity - Free cash flow was $690 million in Q4 2021 compared to $1707 million in Q4 2020[17] - Net debt was $7455 million in Q4 2021 compared to $4941 million in Q4 2020[18]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-K __________________________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 28, 2021 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to______ Commission File Number: 1-14130 __________________________________ MSC INDUSTRI ...

Financial Data and Key Metrics Changes - Sales for Q4 were $831 million, an increase of 11.1% year-over-year, with average daily sales (ADS) growth of 12.9% [33] - Gross margin for Q4 was 42%, down 30 basis points from Q3 but up 40 basis points from the previous year [34] - Adjusted operating margin was 11.7%, compared to 11.2% in the prior year [36] - GAAP earnings per share were $1.18, up from $0.94 in the same period last year, while adjusted earnings per share were $1.26, a 15.6% increase [37] - Free cash flow was $69 million in Q4, down from $171 million in the prior year [38] Business Line Data and Key Metrics Changes - Non-safety and non-janitorial product lines grew by 20%, while safety and janitorial products declined by approximately 14% [27] - Government sales declined nearly 30% due to difficult comparisons in janitorial and safety products [28] - The implant program accounted for just over 7% of company sales, up from 5% a year ago [19] Market Data and Key Metrics Changes - The demand environment remained strong, with most manufacturing end markets robust, although some softness was noted in automotive [25] - The Industrial Production (IP) index continues to show growth, indicating a positive market outlook [25] Company Strategy and Development Direction - The company is focused on its "Mission Critical" program, aiming to capture market share and restore return on invested capital (ROIC) to the high teens by fiscal 2023 [14] - The goal is to achieve at least 400 basis points of growth above the IP index by the end of fiscal 2023, with a target of 300 basis points for fiscal 2022 [23] - The company plans to deliver an additional $25 million in cost savings in fiscal 2022, building on the $40 million achieved in fiscal 2021 [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for fiscal 2022, despite challenges from supply chain disruptions and inflation [23] - The company is well-positioned to navigate current challenges due to its broad product assortment and strong supplier relationships [26] - Management noted that while service levels are not yet back to pre-COVID levels, they are above most of the industry, aiding in market share capture [21] Other Important Information - The company achieved $40 million in cost savings in fiscal 2021, exceeding its original target of $25 million [18] - Inventory levels increased significantly to support customer needs amid ongoing supply chain disruptions [39] - Total debt at the end of Q4 was $786 million, reflecting a $27 million increase from the previous quarter [41] Q&A Session Summary Question: What is the outlook on price cost and inflationary cycles? - Management indicated that they are in the early stages of the inflationary cycle, with expectations for a positive price cost spread to maintain flat gross margins [61][63] Question: How will Mission Critical execution impact savings versus investments? - Management noted that savings will be narrower in the first half of the year but expected to widen in the second half [65][66] Question: What is the forecast for price inflation and pent-up demand? - Management expects continued price increases and believes pent-up demand will extend the growth runway into 2022 and possibly 2023 [80][81] Question: How does the company view free cash flow conversion? - Management acknowledged there is room to optimize free cash flow and plans to focus on balance sheet initiatives in fiscal 2022 [103] Question: What is the company's exposure to the production cycle versus MRO products? - Approximately half of revenues are from metalworking products, which are heavily leveraged to the production environment, while the rest includes MRO products [108][109]