Good morning and welcome to the MSC Industrial Supply Fiscal 2023 Third Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ryan Mills, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. I'm excited to have joined MSC just last week and I look forward to getting to know each of you over the coming months. Welcome to our third quarter fiscal 2023 earnings call. Erik Gershwind, our Chief Executive Officer and Kristen Actis-Grande, our Chief Financial Officer, are both on the call with me today. During today's call, we will refer to various financial and management data in the presentation slides that accompany our comments, as well as our operational statistics, both of which can be found on our Investor Relations webpage. Let me reference our Safe Harbor statement, a summary of which is on slide two of the accompanying presentation. Our comments on this call, as well as the supplemental information we are providing on the website contain forward-looking statements within the meaning of the U.S. securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks are noted in our earnings press release and our other SEC filings. In addition, 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'll now turn the call over to Erik.

Thank you, Ryan. Good morning, everybody, and thanks for joining us today. On today's call, I'll begin with some perspective on our recent performance and our longer term outlook. I'll then provide color on the current environment. Kristen will provide more specifics on our fiscal third quarter mission critical accomplishments, our financial performance and updated expectations for the balance of the fiscal year. I'll then wrap things up before we open up the line for questions. Before I dig into our performance, though, I'd like to discuss two topics. The first is to welcome Ryan Mills, our new Head of Investor Relations, who joined us earlier this month. He brings several years of Investor Relations and sell-side experience, including the coverage of MSC and our peers. We're thrilled to have Ryan on the MSC team as we continue striving to increase shareholder value. The second topic is the recent agreement with the Jacobson and Gershwind family to eliminate the company's high voting Class B shares. The details of the agreement and the associated shareholder benefits are outlined in the press release that we issued last week. And more information will be provided in a proxy statement that will be filed with the SEC later on this summer. At a high level, though, we're confident that this will make MSC a more attractive investment and broaden its scope of investors through several aspects, such as replacing the two-thirds voting rule to approve mergers, asset sales and other significant transactions to instead a simple majority of votes outstanding standard. Limiting the family's voting to 15% of shares outstanding. Adding a new independent director and exploring share repurchases to offset dilution from the transaction. I'd also note that our families receipt of the premium in shares increases our economic ownership position and reinforces…

Thank you, Erik, and good morning, everyone. Please turn to slide five of our presentation where you can see key metrics for the fiscal third quarter on a reported basis. Slide six reflects the adjusted results, which will be my primary focus this morning. Before I dive into the numbers, as Erik mentioned, public sector growth was very strong this quarter, primarily driven by a recent contract win related to small capital purchases. Wins like these are dilutive to margins but have strong cash flow attributes. This is causing some compression and growth in operating margins during the back half of our fiscal year. As a result, I will provide some color on the impacts from related sales as I walk through our results and updated outlook. Moving onto third quarter performance, successful execution across our mission critical initiatives resulted in ongoing share gains and strong cash generation. Combined with a 4% contribution from bolt-on acquisitions and more modest benefits from price due to actions taken in the prior year average daily sales improved 11.7% year-over-year to 1.054 billion. That compares favorably to the IP index, which grew just 30 basis points year-over-year during the quarter. By customer type, on a year-over-year average daily sales basis, public sector sales increased over 80%, while national accounts as well as core and other customers grew in the mid-single-digit range. Despite the sequential step down in national accounts growth since last quarter, we feel good about our prospects for ongoing growth based upon new customer wins. Looking at our sales through the lens of our mission critical growth drivers, we continue to make strong progress. Erik mentioned the five growth initiatives earlier. I will run through each of them briefly. In metalworking, our ability to improve customer productivity levels through our best-in-class technical…

Thank you, Kristen. We are nearing the end of our three-year mission critical program, and I'm pleased to see how our team has performed. We remain on track to meet or exceed all goals we outlined nearly three years ago. As we look to the future, we view the next quarter, not at the end of the journey, but rather as the first base camp along our march to fulfill our mission of being the best industrial distributor in the world as measured by all four of our stakeholders. I thank all of our associates for all their hard work and I'll now open up the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from David Manthey with Baird. Please go ahead.

Thank you. Good morning, everybody.

Hey, Dave. Good morning.

Good morning, Dave.

So first question on the new business. You talked about this as a contract win, but then you said it's a large number of small capital purchases. If you can give us details on what that means and then any concrete numbers you can give us in terms of revenues, I think, Kristen, based on what you said, I'm thinking maybe it's $20 million in the current quarter. But what does that look like in the fourth quarter and then kind of run rate at '24, if you can help us there.

Hey, Dave. I'll take the first part, Kristen.

I'll answer the follow-up, yes.

You got it. So just so a little more color, Dave. I'll put the caveat that we're going to be a little bit nondescript here. This is, as you can imagine, competitively sensitive in terms of the contract win itself. But just to put some more color on it, by a contract win, what we mean is there's an ongoing relationship with an entity here as opposed to just a one and done or a onetime order. Inclusive in the contract, though, were a number of specific items that we described a small capital purchases. And what I mean by a small capital purchase is something akin to a small machine as opposed to a consumable. And the reason that's relevant is those, the capital purchases, capital like purchases tend to come with lower gross margins than consumables do. So what you're going to see is you saw a pretty big healthy clip of that in the third quarter. I'm infringing a little bit on Kristen's part of the question. You'll see some more in the fourth quarter, probably at around, somewhere around half of what we saw in the third quarter and then there'll be some continuation into fiscal '24. I think a couple of points, Dave, on the benefits here. Obviously, there's an immediate revenue impact on the machines. There's also higher margin business that follows along it, consumable type of business that follows along and then I think most importantly, what I see happening with the public sector team is we're using these contract wins to establish a relationship with customers or entities that we may have not had a big relationship with before and that creates the opportunity for creating an ongoing permanent revenue stream with more general MRO products.

And Dave to add on to your question about kind of sizing it, the way I would suggest thinking about it, if you refer to the half debt, the public sector growth as a percentage of revenue, for Q3 '23 and Q3 '22, I would take about two-thirds of that and attribute it to the win that Erik is discussing. And then you can apply similar logic. We mentioned in the prepared remarks about 160 basis points of gross margin headwind from mix. I would apply a similar two-thirds logic to that to try to size gross margin. And then in terms of how to translate it to profit, the orders do come with a lower cost to serve, but wouldn't let the normal variable OpEx rate on that. I would have find maybe cap-ish or so to the -- on to the number you come up with on the top line. That will kind of frame for you what happened in the third quarter with the noise from that win out of the picture. And perhaps a simpler way to say it is, if you take the impact of that went out and the noise that's created in the margin, we performed as we would have expected to, the one sort of unanticipated item being the health care cost that we discussed in the prepared remarks. And then for the fourth quarter, I would think about the impact being about half the size of what we saw in the third quarter.

Okay. That's helpful. Thank you and just along the same lines here of the operating income and the change in guidance, just a couple of thoughts there. If I take the midpoint of the new guidance and compare it to the midpoint of the old guidance, it looks like operating income dollars are up just slightly. And as you said, if you assume a low margin on the, that government business, that would tell me that expectations underlying that new government win would be roughly the same. And I'm just checking because Erik, when you just talked about levelling, I'm not sure if that was your expectation 90 days ago or if that's gotten worse from what you thought? I'm just trying to gauge what the expectation is in the underlying business based on the guidance you gave, excluding this government win.

Yes, Dave. Good question. Look, I would say that essentially, the underlying business, our outlook is unchanged is the punch line. If you go back even beyond 90 days ago, Dave, from the start of the year when we outlined the framework, given that we saw IP coming down, the sentiment indices, et cetera, we said, look, we project the growth rates to moderate. It doesn't mean that anything is dropping. It's just that the growth rates would moderate between the leveling in the environment, the lapping higher comps, lapping pricing, and that's what's playing out. So no real surprises.

And Dave, on your question on the guidance, your thought on like if you think about the midpoint of what we had indicated when we spoke to you after the second quarter, the change is really two things. If you think about moving from the midpoint to the approximately 12.7%, it's roughly the impact of the public sector mix, 20-ish basis points and then the increased health care costs, which is about 10 basis points.

Okay. Thank you very much.

You're welcome.

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

Good morning. Thanks for taking my questions.

Hey, Tommy.

Hey, Tommy.

I want to start on price cost. You've addressed it a bit, but any more context you could provide there on where you sit today and based on what you know now, how the -- how that should unfold over the next few quarters would be helpful? Thank you.

Sure, Tommy. So in the prepared remarks, we mentioned about a 20 basis point gross margin headwind from price cost. So we're still positive in price cost on a dollar basis, but it was a headwind to gross margin in the third quarter. And then we would expect that headwind to grow in the fourth quarter, more so from the decelerating benefit of price cost, I think we mentioned last quarter, costs have peaked in Q2, and it's I think a peak and sort of implies you come down right away. I'd say we've entered a flat tow on the cost inflation that's rolling off the balance sheet. And '24 we'll size some more when we get to the next quarter, but probably unsurprisingly, that pressure continues, particularly in the first half of fiscal '24, as we continue to unwind those higher product costs off the balance sheet. So more to come on '24, hopefully, it helps color Q3 and Q4 a bit more.

Thank you. That's helpful. And then maybe one for Erik here on the reclassification agreement. In terms of timing there, Erik, do you have any sense for when the shareholder vote may occur and presuming as fast as how long it would be until the change becomes effective. And if I could make this a two parter, hopefully, that's not too greedy, but I was just curious from a very high level of capital allocation or business strategy perspective. Could we imagine there may be a change resulting from the reclassification? Or should we think of this more as a distinct issue?

Tommy, I'll take that one. I'm going to answer the first part of your question. I might ask you to just repeat the second part. We were having a little bit of trouble hearing you at the end. But let me start on the timing part of your question. So next steps with the submitted S4 to the SEC, that's followed by the proxy. So you can quite sort of assume late summer is a reasonable ballpark for the proxy to be issued. And then if everything goes according to plan, you can expect to both probably in the fall as a reasonable expectation on timing. And then assuming that, that vote is approved by shareholders, the reclassification was closed a few days after that. Can you just clarify the second part of your question again, I want to make sure I caught that right.

Yeah. Thank you and apologies for the noise. My question was regarding the reclassification and the extent to which it may have an impact on capital allocation and/or business strategy at the company or if we should think of those as for the most part, distinct issues. Thank you.

Got you. Yes. I'd say think of them as distant issues or maybe another way of saying that is that we -- if we are able to move forward with the share repurchase and off is the dilution of about $2 million, which we're working through that now. We would absolutely be able to accommodate that and not compromise on our capital allocation priorities. We've got plenty of room in terms of available funding. We're doing some different scenario planning now, but we don't see anything that would prevent us from committing to the capital allocation priorities we've outlined previously.

And Tommy, the only color, I'll add is, I think Kristen answered the capital allocation portion on business strategy, look, we feel really good about the direction of the company. I mentioned in prepared remarks that the family if this goes through, would receive the premium in the form of shares, which is a sign of the confidence in the strategy that we have. So I think you can feel good that we are going to continue forging ahead on the direction that we've been on.

Great. Thank you and I'll turn it back.

The next question comes from Stephen Volkmann with Jefferies. Please go ahead.

Hi. Good morning, folks.

Good morning, Steve.

Good morning. I'm going to back to the price cost kind of question. And I'm curious how this sort of plays through. Kristen, you mentioned maybe the pricing is still a little higher, I think you said in the first half of '24. Is this a situation where you have sort of deliveries that are coming in, containers that are coming in that were sort of at higher rates and that we sort of just have to work through that. And then we would expect the cost side to come down after that? Or is it that the cost is sort of unlikely to come down and that sort of a new higher level that we'll have to live with.

Yes, I can take that, Steve. So the way I would think about it, you've got kind of two parts that are relevant if you're thinking about price costs like for Q4, but then into '24 and the first part of it is what's really already sitting on the balance sheet. So because of the average costing method we've been absorbing higher priced items onto the balance sheet since this inflationary period began and the impact of that rolls off onto the P&L, depending on how fast the item sells, what the inventory turns are et cetera. So there's a big portion of this is really about how quickly the impact of what's on the balance sheet hits the P&L. That's a little bit easier for us to size and model now because it's in there. We know what it is. We just have to make some assumptions about the timing of the impact. But then the second thing that complicates estimating '24 is the impact of additional cost increases that may come online from our suppliers and how we would choose to respond to those through price. So that's where it gets a bit complex, especially if you start thinking later into '24.

Got you. Okay.

Steve, one other color I'll add here is just having been in the business for a long time, over two decades now. This is very -- what we're going through now is very typical of -- in the inflation cycle, early stages of the cycle when we take price, we get it right away and the cost because of our average costing system will work its way through the P&L, whereas later in a cycle, the costs are working their way. So this is largely timing and is very typical of other cycles.

Understood. Thanks. And then, Erik, I think in past calls, you've been kind enough to give us your sense of sort of the cadence of business as the quarter progressed. How was May, how does June feel? Anything to call out there?

Yes. I think, Steve, the words that we used in the prepared remarks of leveling are probably the most appropriate. I mean certainly, look, we've seen a moderation. No surprise there, given IP, a moderation from where we were six, nine months ago, but not a big change interestingly, if you look at our numbers, the one thing that is the biggest change from Q2 to Q3 was there was a step down in our national accounts growth rate. And I have to tell you, the feeling on the ground there is probably the best it's been in a long time. And sometimes what's tough to tease out there is how much of that is macro, meaning how our customers are doing and how much of that is micro because I know our team is feeling good about a number of recent wins that haven't yet hit the numbers. So it's hard to tease that out. But in general, we're not feeling like things are falling off. A lot of this, what we're seeing is the growth rate in June certainly is going to be less than it was in Q3, but we're lapping an acquisition, we're lapping higher comps that there's sequentially not a ton of change.

Great. Appreciate it.

The next question comes from Patrick Baumann with JPMorgan. Please go ahead.

Hi. Good morning, Erik. Good morning, Kristen. Thanks for taking my questions.

Good morning, Pat.

Good morning, Pat.

Good morning. Just first one to clarify on the public sector win. So you said two-thirds of the 80% growth in that customer group is from, I guess, those capital purchases. So I calculate that to be close to $40 million. And then if I were to line up your prior expectations on gross margins, which I think were to kind of improve quarter-on-quarter by like 30 to 40 basis points. It kind of suggests this revenue came in at 15% to 20% gross margin, all else equal, but then you're saying only two-thirds of the 160 year-over-year gross margin compression is from that public sector win. Can you just help kind of tie that all together like am I way off on my 15% to 20%? Or is there some other part of the business that's a little bit below where you thought it would be?

So you're a little high on the volume number, Pat, and you're a little bit high on the gross margin impact. Maybe the simplest way to put it, you mentioned the guidance we gave previously on gross margin improving 30 basis points to 40 basis points sequentially. If you take out the impact of the contract win, that is exactly what happened.

Okay. All right. So I think my math is pretty close. But okay. If I move on to the next question, if I may, kind of various adjustments related to the growth you're seeing in the mission critical programs, vending, VMI, and also the government business growth. I back into kind of sales for the rest of the business that were down maybe high single-digit, that 35% of sales that is kind of nonpublic nonsolution subset of customers. Can you just address, you mentioned strategic investments you're making focused on the website in terms of driving better results in that subset. And then any other initiatives maybe to reinvigorate growth in that bucket of business? Any color you can give on any of that stuff would be helpful?

Yes, Pat, sure. So look, I think, a few years back, we made a pivot and the pivot was to enhance the value proposition to become higher touch and more technical on our customers plan for us. And a lot of the programs that you're talking about are aimed at just doing that. And we're really encouraged because we're winning there. And I think what you're referring to, and I don't know, I didn't follow all the numbers and I saw, I can't confirm or deny exactly the numbers, but directionally, yes, where we're touching customers with the new value proposition, we're growing at much higher rates than where we're not. So you asked about where we're not touching customers, what are we doing? And we mentioned digital investments. So there's a couple of kind of pillars to our digital investments. One is e-commerce, for sure. And there's a lot of work going on right now. And we've always felt like we had a strong e-commerce program. We also have always felt that you never stand still, and we're going to be enhancing our platform. We're enhancing our product discovery so work to make the transaction with MSC even better, that's one. Two, would be digital partnerships. That extend the reach of MSC and allow us to bring our high touch and technical value proposition to a larger and larger audience of customers. So certainly, in the past, we've talked about MillMax which has become a key ingredient now in our value proposition. We mentioned Machining Cloud. So extending the reach of MSC through digital partnerships would be the second pillar. Both of those are key areas where we've been investing and intend to drive growth in the smaller customers.

Understood. Any thought just a follow on to that, to any tweaking approach to the list price plus discount approach that you continue to have?

Yeah. Look, Pat, we always evaluate, if you're talking about pricing, look, there's always a trade-off to be had between pricing and volume. And we've designed a value proposition that is high value add, higher cost because it's high touch and more technical. And we believe appropriately that we should charge for that value and we do. And we focus on customers that are looking for a total cost of ownership reduction and not just going to price up. So I would say, in general, that's our approach is the pricing we go with is commensurate with the value that we bring to customers. I'd also say that anywhere we're touching customers in those higher touch models were priced competitively. So I think what you're referencing is for customers either who are new to MSC or who don't have one of these programs in place, yes, there are times where our prices are going to look high. We evaluate it all the time. I think you could expect to see us tweak, but I would say, when I say tweak taking more surgical approaches as opposed to anything massive and broad brushed at one time.

Understood. Thanks a lot for the color. Best of luck.

Thanks, Pat.

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

Hey, good morning, everyone.

Hey, Ryan.

Hey, Ryan.

So I wanted to ask on gross margin. Just high level, just given it sounds like there's some puts and takes. So sort of over the next three to four quarters, could you talk about the high-level tailwinds and then the high-level headwinds, it sounds like net-net, you typically talk about gross margin mix being down like 30 bps to 50 bps. And it sounds like it might be in that range, maybe a little worse. Correct me if I didn't hear that right.

I think, Ryan, you're talking about like the kind of typical way we would size the margin mix headwind from the different growth through the areas where we have more tailwinds like a public sector growth solutions, I think that's what you're referring to, right?

Right. And it sounds like with the public sector win, the price cost, it just feels like there's a little more incremental pressure. I just want to make sure I sort of understood the puts and takes, high level, just the next couple of quarters for modeling purposes.

Yes. So you're spot on. That mix impact was definitely exacerbated in the third quarter. Public sector in general tends to be a margin headwind for us. But then because of the nature of a good portion of that public sector growth in Q3 coming from that large contract win, which was at lower gross margins. And, yes, that mix was absolutely higher than we would normally expect that be. In Q4, there will be a similar dynamic, but on a lower amount of revenue for the fourth quarter, probably about half the size of what you saw in Q3. And then I think we touched on this earlier, but there's a lot of moving parts in Q4. So the other thing on margin, I would just reiterate is you have decelerating price benefit the cost levels will stay relatively flattish to Q3 such that the price cost headwind on gross margin is worse than the 20 basis points that we saw in Q3. And then going into '24, it's a little hard to say so. We'll put more color on that next quarter. But because of how the costs roll off and what the inflationary period looks like, it's reasonable to think that the first half is going to be tougher on margins than the second half.

Got it. That's helpful.

Kristen, the one other thing I'd weigh it, you weigh in with is just Ryan. So Kristen summarized it perfectly. Two other potential tailwinds that, to Kristen's point, we've got to size all of this before giving a '24 outlook would be the category line reviews, which will. So if price cost is negative and worse in the first half than the second half, category line reviews should hit into that. And second is some benefit from freight as that moves through our P&L. So putting that all those are kind of the puts and the takes, and then by next quarter, we'll put it together for you.

Perfect. Okay. And then just high level, back on the macro conditions have moderated. We can all see the IP is down slightly now. What are you hearing from customers in terms of the drivers. Is it destocking? Is it higher interest rates is causing people to tighten up a bit our small and medium customers a little bit slower maybe any end market color you throw in there? I'm just trying to figure out what are the drivers here of sort of this moderating conditions.

Yes, Ryan. So look, I would say, it's definitely not a surprise to your point, given the indices. I think things have actually held up pretty well considering what the headlines in the indices show. As we probe into it, I would say, first of all, the levelling, the moderation, the pockets of softness, this is not across the board because you have pockets where things are softer, I mean, oil and gas would be one example. And then you have pockets where things are booming. Aerospace is doing well. Automotive is doing well. Medical is doing well. So this is not across the board at all. We didn't see -- it's always hard to gauge destocking, but we didn't see a ton of destocking. I think part of this, no question, the higher interest rates having some impact. But overall, Ryan, I mean, moderating is the word I'd use as opposed to anything that would -- we don't see signs of like things falling off a cliff. I don't know if that's helpful color.

No, it is. I appreciate it. I'll pass it on. Thanks.

The next question comes from Ken Newman with KeyBanc Capital Markets. Please go ahead.

Hi. This is Katie Fleischer on for Ken today.

Hi, Katie.

Hi, Katie.

Hi. Good morning. So I know you guys really aren't ready to give any full year '24 guidance yet. But I'm wondering just at a high level, we can talk about EBIT margins for next year. So if you're able to keep sales up low to mid-single digits, just given some of these mix impacts and price cost headwinds. Can operating margin be up or flat in fiscal '24?

Yeah, Katie, I'll take that. So definitely still too early to definitively answer the question. The price cost piece is a big driver. We've got to get our arms around. And then, as Erik mentioned, we're really aggressively moving on the line reviews, sizing those, sizing other productivity opportunities that we have and looking at the horizon for when those would come online. So there are a lot of moving parts. What I would say a higher level if you zoom out, we're still targeting 20% incrementals over a cycle and more to come on the specifics to '24. We're really trying to get our arms around those moving pieces, just some scenario planning and model the sequencing for the year.

Okay. Yes. That makes sense. And then on -- going back to some price questions here on the public sector. Is that typically a headwind to price? Just trying to get a sense of like without the impacts from that win, wood prices have been up more than 3.5% in the quarter?

No. It's probably maybe a little bit higher, Katie. The way I would say we think about public sector impact on gross margins. It's a little bit lower generally than the core. So like when we talk about the big growth initiatives that our margin headwinds public sector is definitely one of them because the average gross margin like taking the one win out like in general the public sector margins are below the average of the rest of the business. So we would call that a gross margin headwind on a typical basis.

Okay. Great. Thank you.

You're welcome.

Our last question today comes from Chris Dankert with Loop Capital. Please go ahead.

Hey, good morning. Thanks for taking the questions. I guess, Erik, you mentioned medical and EV has got some pretty exciting opportunities going forward here. I guess maybe if you could touch on just what does customer engagement look like there today? I mean can these be like much more meaningful markets quickly? Or is this something that we're going to really see moving the needle, say, like five years out?

Chris, look, I would say both. I think you're starting to see the impact -- medical, certainly, we're seeing the impact now. And EV, I would say, we are beginning to see a bulge right now with the infrastructure for the electric vehicles and the hybrid vehicles build out by infrastructure, I don't just mean charging, but batteries, et cetera. I think we are beginning to see benefit now. And I would say the other one that we called out, Chris, is aerospace that we think has no pun intended long runway with the kind of backlog that we've seen there. So all of those, I think, we're beginning to see benefit now, but we would expect good things to come for the next quarters and years. And by the way, the one other point I'd make, Chris, is we mentioned Machining Cloud. So partnerships like that. So I talked about the reason behind the partnerships is to extend our reach and bring our value proposition to more customers. We do try to line up and partner with customers -- with partnerships and entities that are going to bring us closer to those end markets, those higher, more sophisticated end markets and Machining Cloud would be a great example of that.

Perfect. Yeah, thanks so much for that, Erik. And then I guess on in-plant, growth has been really strong there. Any update or comment on just kind of where you see that as a percent of sales kind of the dot plot for growth there going forward?

So we -- it's been going at a nice clip. I mean, look, we would say, if you look at the total addressable market, for customers with an in-plant, and we'll look at it by size and complexity of customer, Chris. And this is going -- if you go out five years, 10 years, this should be a pretty healthy chunk of our national accounts business that ends up with whether it's full in-plant or the full suite of solutions that makes so much sense. And we're seeing the benefit for MSC is obviously the penetration, the growth and the high retention rate, but it's a real win for the customer especially as the labor market remains challenged, the skills gap remains. Customers are putting a premium on being able to essentially outsource lower value-add functions so they can focus on the core operations, which is manufacturing. So I would tell you that over the long run, a good chunk of national accounts ought to end up with an in-plant, if not the whole suite of services.

Got it. Thanks so much for the color there.

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

Thank you for your time and interest this morning. As a reminder, our fiscal 2023 fourth quarter earnings date is set for October 25th and we look forward to seeing you in person at investor conferences or on the road in the coming months. Thank you for joining us today. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.