MSC Industrial Direct (MSM) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion of financial condition and results of operations Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the thirteen and thirty-nine weeks ended May 31, 2025, including balance sheets, income, comprehensive income, equity, and cash flow statements Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2025 | August 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,475,594 | $2,462,313 | | Total current assets | $1,236,763 | $1,188,089 | | Total Liabilities | $1,100,029 | $1,061,031 | | Total current liabilities | $644,265 | $605,427 | | Total Shareholders' Equity | $1,375,565 | $1,401,282 | Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended May 31, 2025 | Thirteen Weeks Ended June 1, 2024 | Thirty-Nine Weeks Ended May 31, 2025 | Thirty-Nine Weeks Ended June 1, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $971,145 | $979,350 | $2,791,346 | $2,868,667 | | Gross profit | $397,739 | $400,447 | $1,141,156 | $1,182,175 | | Income from operations | $82,735 | $106,766 | $217,261 | $299,529 | | Net income attributable to MSC | $56,845 | $71,705 | $142,782 | $202,902 | | Diluted EPS | $1.02 | $1.27 | $2.55 | $3.59 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Thirty-Nine Weeks Ended May 31, 2025 | Thirty-Nine Weeks Ended June 1, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $253,461 | $303,433 | | Net cash used in investing activities | ($41,563) | ($83,213) | | Net cash used in financing activities | ($169,598) | ($244,475) | | Net increase (decrease) in cash | $42,104 | ($24,124) | | Cash and cash equivalents—end of period | $71,692 | $25,928 | Note 2: Revenue Revenue recognition is detailed, noting the company operates as a single segment, with 95% of revenue from the United States for the thirty-nine weeks ended May 31, 2025 - The company operates as a single operating and reportable segment, distributing metalworking, MRO, Class C consumables, and OEM products and services[35][37] Revenue Disaggregation (Thirty-Nine Weeks Ended May 31, 2025) | Category | Percentage of Revenue | | :--- | :--- | | By Geography | | | United States | 95% | | North America (Total) | 99% | | By Customer End-Market | | | Manufacturing Heavy | 58% | | Other | 42% | | By Customer Type | | | Core and Other Customers | 54% | | National Account Customers | 37% | | Public Sector Customers | 9% | Note 9: Debt Total debt, including finance leases, increased to $521.0 million as of May 31, 2025, with the company in compliance with all debt covenants Debt Composition (in thousands) | Debt Instrument | May 31, 2025 | August 31, 2024 | | :--- | :--- | :--- | | Amended Revolving Credit Facility | $80,000 | $74,000 | | Uncommitted Credit Facilities | $216,000 | $209,500 | | Private Placement Debt | $220,000 | $220,000 | | Total debt, including obligations under finance leases | $521,033 | $508,764 | - Subsequent to the quarter end, the company paid $20.0 million to satisfy its 3.79% Senior Notes due June 11, 2025, using existing cash resources[70] Note 10: Shareholders' Equity The company repurchased 494,000 shares for $39.1 million and paid $142.3 million in dividends during the thirty-nine weeks ended May 31, 2025 - During the thirty-nine weeks ended May 31, 2025, the company repurchased 494,000 shares of Class A Common Stock for $39.1 million[74] - The company paid aggregate regular cash dividends of $2.55 per share, totaling $142.3 million, for the thirty-nine-week period ended May 31, 2025; this is an increase from $2.49 per share in the prior-year period[77] - As of May 31, 2025, 1,413,000 shares were available for repurchase under the Share Repurchase Plan[72] Note 11: Restructuring and Other Costs Restructuring costs totaled $6.4 million for the thirty-nine weeks ended May 31, 2025, a decrease from the prior year, driven by workforce realignment and supply chain optimization Restructuring and Other Costs (in thousands) | Cost Category | Thirty-Nine Weeks Ended May 31, 2025 | Thirty-Nine Weeks Ended June 1, 2024 | | :--- | :--- | :--- | | Consulting-related costs | $4,130 | $4,435 | | Associate severance and separation costs | $2,176 | $6,319 | | Equity award acceleration costs | $124 | $383 | | Total | $6,430 | $11,787 | - The company disposed of its Columbus, OH customer fulfillment center, resulting in a loss on sale of property of $1.2 million[83][62] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports a challenging business environment with soft demand, leading to decreased net sales and income from operations, while executing its 'Mission Critical' strategy Business Overview and Strategy MSC, a leading MRO and metalworking products distributor, is executing its 'Mission Critical' strategy to capture market share, improve profitability, and enhance operational efficiency - The company's 'Mission Critical' strategy is now in its second phase, focusing on core customers, OEM fasteners, and driving productivity improvements to reduce operating expenses as a percentage of sales[94][96] - Growth in high-touch solutions continues, with vending machines in service increasing to 28,741 (up from 26,438 YoY) and In-Plant programs growing to 399 locations (up from 325 YoY)[93] Results of Operations - Thirteen Weeks Ended May 31, 2025 Net sales decreased 0.8% to $971.1 million for Q3 FY2025, with income from operations falling 22.5% to $82.7 million due to lower sales volume and higher operating expenses Q3 FY2025 vs Q3 FY2024 Performance (in thousands) | Metric | Q3 FY2025 | Q3 FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $971,145 | $979,350 | ($8,205) | (0.8)% | | Gross Profit | $397,739 | $400,447 | ($2,708) | (0.7)% | | Income from Operations | $82,735 | $106,766 | ($24,031) | (22.5)% | - The decrease in net sales was driven by a $20.4 million drop in sales volume, partially offset by a $7.7 million positive impact from pricing[103] - Operating expenses increased by $23.3 million, primarily due to higher payroll and payroll-related costs ($15.1 million increase) and higher freight expense[108][109][110] Results of Operations - Thirty-Nine Weeks Ended May 31, 2025 Net sales decreased 2.7% to $2.79 billion for the thirty-nine weeks ended May 31, 2025, with income from operations declining 27.5% to $217.3 million due to lower sales volume and increased expenses YTD FY2025 vs YTD FY2024 Performance (in thousands) | Metric | YTD FY2025 | YTD FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,791,346 | $2,868,667 | ($77,321) | (2.7)% | | Gross Profit | $1,141,156 | $1,182,175 | ($41,019) | (3.5)% | | Income from Operations | $217,261 | $299,529 | ($82,268) | (27.5)% | - The decrease in gross profit margin was primarily a result of higher inventory cost and customer mix, as sales to national account and public sector customers carry lower margins[121] Liquidity and Capital Resources As of May 31, 2025, the company had $71.7 million in cash and $449.3 million in net debt, with net cash from operations at $253.5 million for the thirty-nine-week period Key Liquidity Metrics (in thousands) | Metric | May 31, 2025 | August 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $71,692 | $29,588 | | Total debt | $521,033 | $508,764 | | Net debt | $449,341 | $479,176 | | Working Capital | $592,498 | $582,662 | - Net cash from operating activities decreased to $253.5 million from $303.4 million in the prior-year period, primarily due to lower net income[134][135] - Net cash used in financing activities decreased significantly to $169.6 million from $244.5 million, mainly due to lower share repurchases ($39.1 million vs $167.2 million YoY)[139] Quantitative and Qualitative Disclosures About Market Risk The company refers to its Annual Report on Form 10-K for detailed market risk information, noting no significant changes in its financial instrument portfolio or interest rate risk since August 31, 2024 - There have been no significant changes in the company's financial instrument portfolio or interest rate risk since the fiscal year-end of August 31, 2024[148] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of May 31, 2025, due to a material weakness in IT general controls related to user access - Disclosure controls and procedures were concluded to be not effective as of May 31, 2025[150] - The ineffectiveness stems from a material weakness in IT general controls (ITGCs) related to user access for certain financial reporting systems, specifically affecting revenue and inventory transactions[151] - A remediation plan is underway and has made substantial progress, but the weakness will not be considered fully remediated until controls operate effectively for a sufficient period[152][153] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits filed with the Form 10-Q Legal Proceedings The company is involved in routine legal claims and a specific class action lawsuit filed March 14, 2025, regarding stock reclassification, which it intends to vigorously defend - A class action and derivative lawsuit was filed on March 14, 2025, by Macomb County Retiree Health Care Fund against the company, officers, directors, and shareholders related to the company's stock reclassification[156][89] - The complaint alleges breaches of fiduciary duties and breach of contract, seeking unspecified damages; the company intends to vigorously defend itself[156] Risk Factors There have been no material changes to the company's risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended August 31, 2024 - There have been no material changes in the Company's risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended August 31, 2024[157] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 117,494 shares of Class A Common Stock during the quarter, with 1,413,423 shares remaining available under the repurchase plan as of May 31, 2025 Issuer Purchases of Equity Securities (Thirteen-Week Period Ended May 31, 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 3/2/2025-4/1/25 | 54,184 | $75.50 | | 4/2/25-5/1/25 | 62,300 | $70.96 | | 5/2/25-5/31/25 | 1,010 | $81.14 | | Total | 117,494 | | - As of May 31, 2025, the maximum number of shares that may yet be repurchased under the Share Repurchase Plan was 1,413,423[159] Other Information Kimberly Shacklett, SVP, Sales and Customer Success, adopted a Rule 10b5-1 trading plan on April 9, 2025, for the sale of up to 4,259 shares of Class A Common Stock - On April 9, 2025, Kimberly Shacklett, SVP, Sales and Customer Success, adopted a Rule 10b5-1 trading plan[160] - The plan provides for the sale of up to 4,259 shares of Class A Common Stock and will expire on October 16, 2025[161] Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL data files for interactive reporting - The filing includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[164] - Inline XBRL documents are included as exhibits for interactive data reporting[164]