MSC Industrial Direct (MSM) 9 Jan 192019 Q1 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the MSC Industrial Supply Company Fiscal 2019 First Quarter Results Conference Call. All participants will be in a 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. At this time, I would like to turn the conference call over to John Chironna, Vice President of Investor Relations and Treasurer. sir. ahead go Please

Jilla, and first everyone. me quarter our and Erik Denise, Officer. our today you fiscal Gershwind, Rustom Officer; Executive XXXX conference Chief Chief good you, Financial Welcome morning, to are our Thank call. With

refer we on of accompany data of that various financial comments which statistics, the both as section well can During in will and website. presentation found the Investor today’s Relations our to call, operational be slides our management as our

under statement of Harbor Private Safe Securities Act our reference me Reform the XXXX. Litigation Let

and These Our by information expected noted XX-K comments release as in these Factors latest our from cause risks with of Annual from Form SEC these filed ability future to expected is the Report laws, gain the forward-looking and our statements market on forward-looking the actual press share, the this securities call the Risk on and as about about well earnings statements. materially anticipated within we MD&A website and uncertainties forward-looking plans, statements investment the results sections on these expectations forward-looking results, in other well filings. obligation to recent undue benefits reliance based statements. as expectations strategic that not place acquisitions. SEC as the Investors on expected statements. statements our meaning these our current those supplemental U.S. guidance company on update are These of risks and to no assumes are cautioned Information our involve regarding and the are our benefits providing including differ could to including from contain

to non-GAAP versus Please financial most now we in call directly GAAP the I’ll turn may presentation, non-GAAP results, which of the financial refer this to comparable during addition, which to refer call, measures GAAP adjusted In certain the course to reconciliations reconciliation contain the over our measures. the Erik. of adjusted measures. are the

fiscal and quarter this us about our And review brief New John. provide joining you Rustom, up this morning’s call, we environment then then first off results. for Thank second I’ll thank and offer the for the morning. I’ll everybody, to Good our of To guidance. turning Happy line over open to quarter the up morning, a our Year. it it kick you, first overview I’ll performance quarter details provide before questions. wrap the to recent and of specifics before

range, share started gross guidance above better expected growth our guidance. XXXX fiscal $X.XX first performance of line the with Our quarter margins the a range, slightly which midpoint above per included and midpoint earnings our guidance of in than with sales

Turning to like uncertainty lower the strong. environment, months macro the headwinds. the volumes rolling readings in points despite positive market, to than the territory U.S. MBI, XX.X, and continue are industry Tariffs more industrial remained the remained XX indices, the recent XX.X October XX.X in November, in in of headlines in and choppiness markets, reading financial adding the with in economy some brings although December down of XX.X and recent the there Sentiment month of there although and for two end continued metalworking oil sentiment, this general potential in six growth average the see ago. to to we to customer prices overhangs MBI is was months with create and and order which

roughly We’ve softens respect ends. create tariffs, does exposure our arise. played and directly end into reflecting shutdown in as increases With initially passing is the sight. demand area sold, it own have increases the we’re successful have although they some as well pent out spending, from we tariffs. up the Historically, Since budget now a uncertainty no time, that our a as last our tariff been to exposure those cost call Another on we’ve anticipated shutdown with generally and expected. in shutdown goods along is sourced framed are that and of to that things we the of government that indirectly China those once seen pretty the as approved apparent X% goods much of and

tariffs gross had not a As a material have margins result, today. on impact

to Of everybody watch way good come respect course suppliers last And and our January happens on up the month March see we the what in will with from activity that’s raising we’ve with and our along call pricing expect expected, Since list in discussions. seen a based to significant recent more environment. XX%. step potential come segue prices else to their to as this

this implementing customers a we last result, well of month as supplier to advance. so begin to month later compared decided year’s midyear in capture as We we more can As specifically order in meaningful increase extra and many wait as moves notifying price anticipate quarter to increase a that and possible, February. in the an

midpoint Turning national now quarter’s in to last came account growth fiscal trends digits to and to range. our lift accounts. guidance above the in the of growth was our high single was performance as continued revenue in quarter, first Similar the core sales

saw double anticipated, near decline. a digit government As

this mentioned result we of is losses. As on a couple contract the the of last call

encouraging prospects. being government bodes expect well to vending headwind. Sales signings More points basis customers quarters, the accelerated vending is contributed peak implementations our of growth We for XXX with our that growth a next third remain the sales to of to headwind we’ve growth. for future and couple to roughly quarter that which

stepped function in-house. vending QX brought of the and up more the support double up high considerably entirety service and digit In part funnel In sequentially organization this growing prior over our now strategy our service have of were year. of as and fact, signings touch we’ve

for at support of are the the year remainder fiscal headcount to levels the are We now that needed growth.

was our total Finally, SKUs. net salable XX,XXX by up quarter roughly from million count SKU active approximately X.X last

transformation, our behind force now now it us. Moving to is recent sales

in where continue changes improvement rates We the core underlying aimed. our to see of in growth particularly most were

second net move and remainder up sales in field This and of of add will environment, to or service or XX added expect results ramp upon strong deliver the we’re continue efforts to a the consecutive additions contributing meaningfully a We for market in personnel they We to tight now new the so XXXX. rate. XX the speed a based another through course performance fiscal labor recruiting quarter. roughly up upon that few based quarter. our fully and the take quarters seeing. down The start could before to growth Our

line continues on to growth cross-selling delivering to solid expectations Finally, line make MSC. AIS beginning in headway according to top and our with progress plan, with

now encouraged the to things I’ll Rustom. turn over We’re nice by start.

morning and you good Thank Eric everyone.

QX total company results both that that’s and AIS base details, our provided and guidance for we into our total getting impact company Before let the remind me the you acquisition. of had business, excluding

to I’ll So numbers. of both talk sets

were XXX growth average daily versus same of business was basis $XX.X of quarter million, of an total X.X% our the growth Our guidance. guidance. increase year points also and last AIS of X.X% our midpoint first quarter while X.X% contributed midpoint above sales X.X% the a base about

continued about positive coming our XX% and gross of mix quarter base basis increase with the in was contribution headwind. business for reported remained year however, our XX from from midpoint margin guidance the Our the with points costs AIS. to line of remained last was This In expected, decline down purchase half price a as range. roughly

the timing, fiscal our Our little very February we benefit XXXX will next in quarter. see price increase but this, will second given help mitigate

$X to even QX year growth versus drive from up of year’s productivity QX Total sales with We last in continue pick, this $XXX million such cost, OpEx $XX million, investments; volume to XX.X% at and from higher attributable commissions. and and last roughly was to million as QX. freight pack, variable about coming AIS ship, with OpEx $X was related million flat

up service the Eric sales vending roughly including referred service initiative inflation additional net earlier $X Another of stepped million growth $X marketing, million personnel, was to investments productivity. of and field and that

the QX also OpEx with of XX.X% Our offset in through and line operating flat roughly the top our to line guidance, the as and year’s to benefits budget. higher and sales base With business leverage. our with our sales the margins coming of investments profit above last and in OpEx was stronger in flowed guidance benefits gross our line to a with operating sales sales guidance

XX quarter decrease year due with was the half roughly first from AIS. fiscal of points to the operating approximately margin prior reported XX.X% down Our basis

base XX.X% business about entirely XX ago, this and both to operating points of better year a that’s quarter was down gross margin was same Our margin these slightly basis than lower earlier, from due and the guidance. were noted as

quarter basis Our expense was XX.X% compared a of on total as first favorable slightly to XX.X%. the for guidance tax percentage

resulted $X.XX. year’s above share per $X.XX AIS of reported impacts on reported midpoint this of was no All our earnings the of guidance. reported EPS. Last in had EPS $X.XX

net the tax However, rate year’s if $X.XX to have QX and million XX.X% tax to would last last QX, lower $XX amounted the added of benefit we to EPS. year’s applied

the X% quarter. our excluding this therefore So for prior roughly QX year’s was benefit first EPS up

Now the sheet, XXXX days, turning year. seasonal our line of collections pattern to three quarter our broadly the DSO was towards our calendar of flowing end balance days and with up typical fourth fiscal from in the XX of

Our to and of to price QX, buy as turns continued million likely to end quarter inventory X ahead rebate supplier calendar Total we slightly year X.X also XXX opportunities. also increased inventory of take increases during advantage times. decreased to the company up from million

buy coming difficulties possible addition, our purchasing. year. competitive the inventory we quarter, we $XX slow make further do of a up operating in ahead are us to in to activities And against them price almost strong disruptions classes, Should see cash decide first when was ahead as off, distributors not market. quarter the faster versus of the to the expect last million Looking $XX for but any to local supply million we the envisage we the disruptions, entirely a of item versus rate advantage second increases Net majority creates continue we position chain down inventory again our vast from particularly and that by burning increase provided increases. protect moving

$XX paid $XX the last capital flow subtracting cash to provided from shares $XX activities million out were million quarter. compared in the expenditures and capital was during during million price $XX year’s brought share cash quarter our by in QX. of $XX quarter, operating million back XXX,XXX Our ordinary per in as XX dividends expenditures the after and million an $XX at average net first We free for

debt facility the the long-term was as of quarter borrowing. and the on our of comprised uncommitted total revolving at $XXX XXX million end $XXX balance million fixed of rate first Our mainly million credit

leverage both Our at remained and sequentially time QX. one unchanged versus last

in let’s the which the base acquisition. the in fiscal Please in to you included slide and our can XXXX, remember only is without move is is and and second F’XX shown of see now business four quarter acquisition. with on guidance DECO Now for that that AIS is it

quarter the second two Eve turning Monday. single from December, growth Overall basis year high fiscal for of a we XX% than this we impact growth and operating includes Eve digits another the total on points closed during to this weeks New was by first period. to Christmas and organic as on Through XXX and X.X% negative December, total three versus before year minimal range holidays. with ADS But a the weeks AIS. X.X% and expected for company larger We Our to holiday fall sales of the Christmas particularly profit. Year's expect Year’s prior This last includes negative increase X% QX, played sales. New Eve out the see typical on when Eve

average the on in our selling website boosted total year growth one to fewer December daily by see can closure XXth. day XX.X%. offset was at due sales that December’s That this You came on

the outweighs about ADS and to QX at When growth ADS higher that assumes guidance holiday fewer Our the for similar in drag forecast running. it evaluating growth X% ADS where slightly from its day be January outweighs, selling fair been entirety, one our we’d rate to would timing. guidance say February --

AIS. roughly On down points, Our be the XX plus points supplier through is headwind that basis would QX is XX increases expected last decline until year-over-year, and of points price increase. XX.X% noted call, sequentially down minus margin I cost our gross points or we due XXX put basis and media basis a year-over-year that’s to reported a be to basis XX

increase our of in to As the Therefore, do the as not in worsens incremental include possible. January we second expect supplier as increases quarter. many significant price we’ll taking our Eric as contribution while be fiscal headwind so February cost the noted,

don’t should to have million service and typical to volume margin is up the increase of fairly decline So QX year’s much we while in would where that some we on sales it an fiscal expect early price spending. A X midyear have inflation impact year’s be -- growth million. comes absorbing our field million. a another increase OpEx The our QX accounting XX years in be net and higher than as account to $XX expected After million added our with Variable roughly higher Recall sequentially primarily styling. our second another was from for to fiscal that third to last remainder after we’ve productivity. the OpEx fiscal investments QX in be second $X for ratio well quarter fourth added meaningful, midyear on first quarter million XX.X% quarter. to quarter. quarter more and service Operating in sequential gross and price our these serving vendor AIS we movement allowing expenses our Growth XX expenses roughly are our it. vending up another attributable roughly headcount of our million, base vending in sales service associated $X over prior quarter, with with the associates investment again sales to $XXX expected sales around and team business be including of costs, around -- support accelerated as is flat expected $X

the the [ph]. is total second basis to more midpoint operating with The year’s decline of coming timing roughly, a of points course in the expect basis basis from the decline. About largest XX.X% guidance, approximately be another company XX.X% gross We holiday XX margin coming at margin XX due pronounced XXX is over point to quarter’s from last the December. driver AIS points

and and by sales fiscal additional margin the QX, fiscal in roughly XX basis Finally, service added operating headcount XXXX points. XXXX QX, another reduced

the annual midpoint operating XXXX. XX% of fiscal be roughly for the of of Assuming quadrant guidance, the of the operating left below QX of margin the would is bottom first framework. our XXXX lower range half at margin This we end our

margin about seasonality. operating half to our second points our basis have versus higher However, XXX due been on first half average

AIS the half We reasons, for minimal with year second programs, sales fiscal lift would meaningful in year. contributing this for from be is full and in expect our mind half loaded sales the end of to there a a on -- investment do is meaningful traction better to continued front few the May. including for acquisition the less the midyear increase, framework in the This be in and within AIS fact first Keep profit. in XXXX that operating price

estimated quarter. Turning it first to XX.X% our tax quarter, the rates is with in for the second line

the reported diluted QX that option. with rate $X.XX in period to count QX the Our EPS. EPS year, applying quarter guidance reevaluation year’s fiscal relating was of a of related our XXXX an second even AIS year-to-date this our lower included additional $X.XX average of is guidance XX.X onetime also $X.XX break last includes tax $X.XX to the the assumes $X.XX. but a weighted net this on range declines tax roughly Last benefit liabilities and the And per shares. to deferred Note impact impact EPS share to roughly share million tax

EPS our QX a $X.XX Eric. year’s only the QX comparison, an as of XX.X% of we income flat this midpoint -- expected QX to now QX simply year’s back XXXX our apples-to-apples year of guidance As part would to year-on-year. apply applies fiscal last be result last and to tax year rate for to pre-tax turn I’ll at of facilitate fiscal then

you Rustom. Thank

price to gross able discussion. by advantage. on margins to competitive that a recent this money the share documented as years over save few I’ll ability the in said which in our of savings I’ve increase before, itself reason we key important manifests our been is enter face of past sustain we’ve engineering this. One customers, particularly our fiercely plant example technical element that floor. for the that environment customers a A demonstrates productivity important cost an way now are expertise competitive As is is our

conduct plant of metalworking regularly specialists customer Our floors. reviews

was its in costs extra was West right a the as the were actually such strong used tied and different It During he efficiently running identified being a ships drill machines even running in tools, enough to not avoid was felt raw for choice. on resulted time, review excess material. a one at slowly that material machines order specialist and breaking Coast, too the to This cut customer the customer result, different machine the up in their and our labor not speeds.

Our of coating specialists drill customer version higher It was tool, the XX times using. that recommended a a was much higher had in the on different than currently one priced, cutting a piece fact it. the that special

customer, the compelling that test them convinced to coded the produced tooling, results. specialists with for test our run Fortunately a and

the of total one of the cutting annualized While cost change of between over generally somewhere and X% manufactured X% part, is drove this tools savings cost $XXX,XXX.

more by increased times reduced For three cycle parts tool were four per tool example, times, than times. and the of about produced number quadrupled, life

to standardize machine the day. its full Additionally, increased per now by was shift speeds shifts, able a speeds and and customer across almost availability

is as All are by replace success, on same tool on this other as customer’s with way in this the based well of our of routine other metalworking we’re the calculation. now customer kinds the group. examples These among application. Based working sizes this to

questions. And mission. brand our possible strong this value offering team’s team’s you, combined bring in due the all and we’ll open proposition and this our of to only Our broadest each to expertise, to our now our customers with day. to thank allow as the lines customers, and such I us to is the metalworking industry a for every dedication up

question first Please Your Gordon ahead. be Haskett. will Inch Instructions] go of [Operator sir. you John Thank from

Good you. Thank everyone. morning

you? Hey John, are how

categories be where thanks. guys. Year. is, or prices to it product if there prices. fine, Eric, some are versus be easier where difficult to others of so, And say expecting because say example? corollary going I’m it’s categories you’re New could the raise give to or the morning dynamic, raise there are maybe Happy channel to whatever Good us competition more just you

and I I say upcoming would so guess John, to what referring you’re the increase. price

Correct.

of is success of size a it’s then look Generally what the our of increase number realization function factors. and so and happens the a

in factor one with key what’s product happening So suppliers line. the is that

position materials our happening Another and to importance what’s is of relative costs. that A the with raw competitive the drive is third the the customer. course

all past increase how successful big mix, than just and in the tool as our So has things to up over business, us. suppliers more mean, driven in had in of out larger we’ve for the an there are to specifics that’s and increases looking we into it. categories to the upcoming and one primarily would is the they give the going market since because those drive many of yet, but raise just careful increase the tungsten, years, it an couple and hasn’t of too the one more steel, other be I’m example more factor how cutting has commodities have not called of metals we’ve realizing I hit been be back about prices

It expecting the in kind how magnitude would a be because makes given should overall of it we the that frame price obviously increases, change, supplier your it? prices based increases or, around or is different is midyear we’re of raising X% And I is dynamic the X%, Grainger like sense. you looks I just maybe think X%. mean, traditional is and cost by increase and that

Yes.

So, yes. so

larger we’ve the the would we give than were John color the in and remarks So few the meaningful I that last be taken. increases on used meaningful words prepared

based several and if last be back now we and is So -- bit [ph]. the go to expect back over on the that [growth] would you a bigger this look

but just recession I what be in curious, what’s good maybe realize debatably it’s and one your I’m playbook. really Understood is more. but clear, playbook? peaking things time, your are just today, Eric, a recession could we not

some even mean, costs the other look manner, to stop the you all do for or you talked led do effectiveness, have have maybe the to team. return think like economic basis this as about you, actually even it management downturn? that sales how sales modified above an a does then does with Do how points do dovetail get in You XXX still hiring? -- I does XXX must you to in market

market business to out have sign I’ve playbook -- so do we spent caution to benefits look before. and out discretionary recession. is reduce feel I’d we we the would things we what John, want and the Yes recession. down. is future continue that where are up look part standpoint, our our There’ll things look no Things, down important gate What is through. we looking right they and and mode. other occur, market, as clamp a for we’ve today, very probably recession. take it see performing our done always spending perform expenses what growth seen it get operating not spending. something be at on goal would of look to as careful this the of down There to We -- Should management outgrow it goal is sign John, from one plow move are our of of and if if investment that that are I’ve we our of much What we’d the the is did a certainly to then on do to into would be across several market. a that on we be thing solid. spending and point, a to certainly it And if say a a couple up would really clearly and to We’d would outgrow growing that flags we gauge would relative business our side at there, say we been to a now were measure yes, yellow this What different very modify cycles are signs we of time and because of responsible certainly tell be about is to the as wanted talking would I would at success one we robust. be Things it. we’ve no be discretionary certainly don’t to team you, But in flag try are how change. clamp somewhere could industrial

describe So it. I broad strokes, that’s how

appreciate Thanks it. very much, Got it.

Robert will Research. question Buckingham from ahead. of be Please go Barry next The

Hey guys, good Happy morning. New Year.

Rob are how you?

thanks. Good,

Just wanted number clarifying December on to one ADF, start the actually XX.X. the at much comment by that by less XX.X? day How was selling boosted the having

mean is it look if – to that. would been that an So if you I this you estimate, have number. obviously I But of -- mean if be at north it X% coming would

So the XX.X down number would dropped to… have

just Something north X%? of

Yes, ADS of X% from the the the would day X.X%. be in north In December. – month about quarter, one in of month boost the

Got it.

you a the So, respect to as moving holiday what couple to Rob, timing because clear parts way we have just be a refer to by day. of with and

in Monday with day So did community. on business no virtually we Christmas because there's the going simply Eve a on the -- falling closing math Christmas closing which there's the activity on

Okay.

there's the back add So day what simply you math happens. extra the of if

that bring growth The second would that be the effect, -- so down. would

Rustom is pronounced holiday in the Christmas December, drag, see remarks of tried prepared New sort two that numbers to Year's moves why give we of a effect down some is on with description which second actually The direction other which months. the takes the Tuesdays falling so tale and of a more that

which is turns holiday two digits. high weeks last timing. of the then picture is three of pre-holidays, a result a first the negative, true It the single weeks. at looked That was business you turning up negative If

you even Right, you the days? on weren’t weaker had some closed, days open

Yes.

the was really and New were so us -- the really day full of So slow full was a day it really dragged really in count that specifically Christmas weak we slow. had day Eve Eve Day; closed really a but several numbers we one was down as Year's and – days,

Got it, it. got

So at is M&A like point it versus excluding be revenue growth the just the XQ. a half and to the down looks about looking going a XQ for

lot or that selling is on day on something the going So else all …?

the right? No. but the that's I holidays And the mean sales if the coming the -- actual the to at Tuesdays that that we number we just business QX. the pull right, X.X%, number, in by actual I if we X% Mondays, out, mechanical, half, you having number closer pretty be Christmas base just two Erik why mean our looked Eve the I it, to explain the -- much at lost would you sales for if why had stepped on answer look coming even in that’s adjusted that on -- were you I about lost our explain second and mean and mechanical you that's to felt talking No, the

time account the But stronger with year comparatives other were year. factor we take thought is everything how here the little strongly and a about in January had taxes things number, changes January of -- Now, the talked matters that's just the at that out. to X the other and it because we of comes the the have in last post and effect last

flat that's adjust it it So number it makes growth why of and number. that's around X% our course of incorporated into seem is kind you

guess it cetera, some XQ? I XQ ex similar to sounds guess M&A a ISM et of been selling in robust, Got versus you're still the the forecasting organic I less the days loop that little growth it. has data the is and it, the close Yes. the the, And like just call MBI,

Yes.

right, business has when similar pretty for to Rustom base the think looks net extra exactly the of rate you out QX. darn in QX the holidays, described Rob, the it I growth timing day the effect basically that

I think that's description. fair very a

January, pattern. guidance so belt. February we particular provide he's and a we’ll tricky and at under with then historical quarter a look It's of our February, sort we at point is quarter one January guide because we And our sequential forecast adding this normally we the there we you go -- look is into always so do have to modeled one December in what

into first do of part sequential slightly an of We Feb December think there tax lift. a guidance the implicit November change how year lift because this what got in November So and bigger lift the our thinking Jan, the to of February normal this was and we've last a first January year of part outsized from year. we and December we than saw is modeled less and compared

So what this a in something year. we've modeled lift to normal closer is

Thank right. Got it. it pass on. I'll you. All

The Capital. Mazari ahead. Please Hamzah of question be next from Macquarie will go

Good Happy just Year. on My question first pricing. morning. is New

commodities through your discussions? price different rolled than know this do about come how changes get others. some lot You base cycles? prior cost have makes competitive in oil, then, maybe that price if just customer to off, you Maybe like anything your some cycle quickly could there in it a feels has talk more is commodity And

so pricing you certain but business commodities as I that that the was I for business freight, pressures and that you discussion include as -- a call of say some up, would what aggressive would for of But pricing would was at a I right include feeling what environment to sort there's is look characterize and come a have wages, come really is robust in include tariffs, look of look, that off. growth Hamzah, there of are off would would commodities have time now. every when that landscape overall nearly so think you're regarding some period there and the good broad time pricing that

works good say strategy. particular way have is a same I sustained specifically in think to that before quite typically the reductions price for suppliers you'd our who think us that that would prices impact for would change the of on are really period time I in like to list commodities passing the ones on a increases I view in What see with the it way respect environment actually up the is pricing.

the Got your exposure I I it. government that's mentioned the just of previously, but think And on federal side government had state, believe contract then you on most losses anything is versus going in that ex in you shutdown? pulling which is segment? causing competitive in on any there share purpose dynamic the Is Are lose shutdown? the to aside business you back government from change

comps. on opportunities, important working contracts I direction, mentioned point just a lot a it us, change can in program I area team approach. really you're a the contracts in work Hamzah, way inside so some lost the of two of mean I that no focus share no on and the it, and to tell this At government from wins to it's is focused the an of our what no our really those recapture matter try Outside of on numbers the call. two through contract for or from other it's through last that and of and going function their change with change seeing on and though us there's in we're those you

I'll there around think just we And can over. integrated force Maybe how realignment. it bonds, what issues by about investors that were mean last risk, turn frame for should some us you sales if Okay. execution transformation is, question force I sales

change recent sales had you in just think I leadership as a well.

forward? add to headcount a Thank you. thoughts beginning -- sales you're Now just of force for any execution the potentially cycle. but on not and going in It's MSM risks strategy late headcount ton

fair encouraged very sales I'm and on what and point. by we’re seeing. moment force What feel the challenge at about good the I very is I tell Hamzah, fair quite where front actually you

would is we other concern. say a really Dave through I the the We're ago -- time on is not timing the leaving, now. worked changes what of the risk really side going execution was the with as out, the a changes. year So way highest probably were

it's plan, the place. been changes have The in have made. We

We have a playbook.

yes, that think pipeline leading on growth single side and some sales in pieces I is for really through some just force why have touch a And of the one to late the vending didn't be continues. an the particularly in what demand from we but growing did growing, the of there growing in where improvements is is, business last growing predicted really the focused core. which marketing when happened we It's And I been as sales aimed just With as to in And pilot, proof time accounts to when the connected rate of to increase high points two strong last was changes. getting our at had underlying force prospects accounts, point out one. sort start digits. core the there seeing would these remarks. should double like were is time there strength the changes. a mentioned we in growing We small since the on changes adding number that's digits, call of program of our point is that the Small a may I'll which the the Hamzah, team. while a are predicted The look proof we I'm more digits, prepared that they're time, this seeing. good be sales improvements single is our -- We encouraged that's pilot Point cycle, our I'm result back customers and market in is, that vending. high front

So early of declaring I I And in reward no I’m, victory want net-net means risk here. balance. us But Obviously the encouraged. it's I think to terms and like I'm perform. still see by

Thank Great. you much. very

Graham ahead. will of BMO question Capital go The be next Scott from Markets. Please

me? Can Hi. hear Good morning. you

Yes, loud and clear, Scott.

different all. and Happy -- you that of lot a a that obviously industrial meaningful the other would bit any call robust, on end end negative you've either to there the you here you New that perhaps go but Year little there markets. on cite? view hoping to you are we pretty government markets, a growth Thank the down hole know I there Erik, Yes. even flipping in was than maybe a have and got environment months, I out six can rabbit seen in slowdowns the if last Is

Right.

generally obviously, government, strong. would on, say, So hit Scott, I we

out could So caution right strong. flags there, were things right? there's that again change, now So some signs there yellow but

couple, one if and a I out think no gas. were surprise, to oil I call

last oil gas. seen you'll extended So is with has question, prices soften, related beyond that around from oil our not bigger that but – with the that remember direct our indirect I'm to customers down. way the oil all exposure Certainly trickle gas low sure our no obviously we've exposure and digits, single call is and low, direct oil

be down is leveling, two. extended. would areas automotive, in around I'd other the oil not really at last seen but out gas call call came So, I softness those softness point. one. Texas this more think prices where We've in the the And where that would and But than be really acute where

be, Got of you. any pushback customers getting on to from We’ve price on guess, and this commodity-related again, the Are your you back in you. to would follow-up question channels kind bit heard Thank in to horse beat the a surcharges little increases, opposed I list price not business? you that if increases? pricing my see, dead. would are getting pushed customers? and what prefer as way in certain that of pockets so, But

proof getting direct regard been not are getting the them -- tariff not along your have question Obviously, we they've no, passed been to we understood. specifically, give that related Customers an we give there understood. there was pushback when that is actually answer so increase. and are was a in them has and specifics, our Those quite Scott, increase we point good. and success have documentation that

we savings, with value case and doing bringing you cost a price becomes good. ever More But has increase, this our it to and in as West there how job broadly, customer talk one next for we our we're do. much delivering it's this I'll that documented look no let of been but know discussion. a likes about if success our most we're would look, So, customers, important expect I we're quarter were Coast easier

I know so you we let next do. guess I'll though quarter And how

to X just to along here this tariff? February know are increase that question contemplate Yes, mean, I same sort that that's XX% Are your lines. you with I customers Erik, contemplating ask, at stay? that if make price one, are price end, tariff discussions tuck-in the February sort your going to second going of in List allow two-way Yes, increases of the your to XX% but increases? a question And I in to a hard

No. We're not.

-- So specific it the happen identified. a tariff been to-date we March then from have different, sort very that new but have passed I we passed them and point through to have that data through should would increases come of have think and not. we'd there, they but Even successfully, be assess then

the approach. customers surcharge to understand customers there too, So that that had the as it of with that is look, back is kind the is, and this tariff back so more we you of well, were as tariff rolled that idea increased the roll and if the referring

Yes, Thank you. very good.

from of And question the next go ahead. be will Volkmann Stephen Jefferies. Please

I a just for of Then the want if understand quick ups follow sort could. like the in maybe to operating does quarter. second in first half? of that guys, couple was it morning will me second in expenses. investments it mostly of I And the the I cadence good sounds guess similar go sort It additions. sales force be away the Hi then basically it than quarter in

up. Well, we’ve talked investments. built We we've

we've service, insourcing know we've sales there. vending, in the service which So vending heads and added over includes in added, you we've added the in

some people demand, ship. – do and back CFCs, that tick the shows in in we've up know the that’s so You added

that put we increases are the headcount cost Now in layered in.

on see have So QX, obviously amount and of coming right? hire so mean costs would the a quarter. quarter, clearly is I partly you mean when occurred the in. some average through layered That them of and -- I you'll through into higher

the the really surge except that flag for additional other for sort of company our that a most most there about. sales service talking after moderate for small size part of part be Erik hiring and wouldn't For the big field, we're of sort that any

implementation sales weigh vending through. that's expect people while little you'd see really positive the kind we've to headcount we’ll second didn't So flow QX cover as roll. that in that a the half, looking and into coming impact more in what and you're over all get bit brought we And much of QX see up beginning the and occur half all to fact for? of have for showing the talked build the for implementation point It’s we in they little QX. the so people now of up there's ads that of had will people, additional Is that reflected, of time stuff to In the from benefits that as is right? in some and so second and by because history, sales lot transformation been occurring a weigh, through

right. Yes, That's exactly.

that. for So thank you

just of still are impact contracts you any shutdown? and you are but the you had the open to you the couple one the business, switching Next served know sites Or I sort significant government of that that working? also specific seeing customers lost,

So directed holiday impact what tell It’s shutdown they're during tell. so the holidays and hard to those during impact early the where number But from weeks. our hard is what so and occurred be a where of because of -- minimal minimal, to far. lot very far we is be far, is, because impact is the tell most it's ground our so to spent intelligence versus shutdown the discreetly appears can it when and funky see would of to Anyway, the on

happen color then inventory my quick And what on final give And us terms your comments chain build understood. chain around Okay, one, you you of in potential just supply think disruptions. additional if Thanks. more some might can Rustom, a just little disruption? supply I mentioned you wonder in

anything when like have do inventory or a that moves of occurs. know to cautious, that's strong that we told all deliberate points being I’ll I And you stuff need customs is and those -- are have disruptions in that chain before I the talked we willing again Just through of products, supply right is to March sheet U.S. not being category we'd and earlier, this The that's the tariff with balance there is if repeat why that leverage any But made. all XX% be. it, fast. it we're that. if very about like side to and more on increases we we're the in buying go the it it's

our tariff resolution So down these okay, tune quickly. burn and will then yes off if fairly then there's don't we and increases occur, it buying for instance

Thank Understood. you much. very

Thank you.

The Manthey Baird. will be next David question go from ahead. Please of

Year. New Happy guys, morning Good Hi.

New Happy Dave. Year, Hey,

as expectations, at as at look implies front they've investments when end quarter clearly would acquisition much an the half the second there it outlook? your in negative to on on fiscal pull-through back clearly to XX here, your framework XX% factors is half, factors leverage those looking sales thinking margins can margins off, the hope comments plus. year, contribution the imply get you’re you been quantify even operating give And to think of you I But below First second you as in about a your and improvement you result. us there loaded comfort the clarity mentioned Rustom closer and that way force price some that contribution any or with effectiveness;

of those mean look to XXX difference at that, right? probably HX be full these add at compared no mean AIS and Yes. that's the a sequence between why on just about months you points, see basis by you their don't just HX, I XX the others, months Christmas that Eve Eve. having shouldn't I we a about have we average, of there's in but sort all in only by loss it's mean ADF two getting the -- the four operating margin reason and normal AIS So It price impact, look. of basis that the that I I'm increase, minimum I the six, forget the size then Monday mean that, absolute two from timing Year's that sales again mean and just holiday average, to the talked I that and we of New would point away I just four like if last earlier years, mean normal -- the in effect

we'll about you and that's the why be the confidence what gives that So, talked absolutely, during year. the in that's framework it gives us that others us -- and

think tricky like But holiday in drag about to mentioned the of little in impact XX basis a was QX QX. to Dave try Rostum a I points

will hard environment, a say look execute to the others that there we half point highly. the strong these roll major basis the of properly quantify how say do it in with to nothing of in at we're lift, here is leverage Some we and growth XXX considerably HX if are several to of tailwinds Growth of we know the HX are changes see average – the the is and how if how function tough four-year be to other than to particularly push wait much back going you pricing out. is a us,

Okay. Thanks to them second, then you watching the Erik. expect force efforts, And you think in what are about half the results. reflect manifest how would metrics effectiveness second most? the that will themselves mean, think benefits when financial you most I sales you

of should accounts looking points to growth of a up we I’m like productivity. sort good just a didn’t sales Yes. added are we to would to seeing of making, anticipate be started, core that part force signings, be offshoot vending, you out – fourth be coming improved that the overtime. here think of question, that people vending. in what’ve you be because heads internally signing Look, there's we Sunday. Look, growth and a layer were that sales then all tell a going started to of I imagine sellers for into the I tangible is new think we’ve changes the going for sales national time. acceleration growth bit Obviously evidence because of quarter a an going What more changes, be like that force some terms the we of we that I into which going could take you itself you done until seeing rate translate ways is honest for But that measure we’re time while the there necessarily free also And national rate just that things takes to in going and biggest hadn’t over the to it’s Dave. in given was That’s I time. the account metrics are little XX little think are proof

if see there the as layer contribution So what growth contribution and see growth overtime vending as see you'll implementations improved we over execute you'll in should we from signings their properly these time.

And sales looking as think over the productivity settle headcount metrics at for we’ll So now. -- those I time majors. are in as the be people

That is a sales don’t to do approach And internally one-size-fits-all we transformation. right? our because wholesale look, anymore, a ��

inside at we’re growth all way hunters and sales different the look terms we people sign. plans at their look account we of to categories whether internally sales hiring and and are new from in the So of things they revenue achieving that

Thanks Great. for color, guys the

Thanks you Dave.

be ahead. Research. from of will Please question Uhlman Adam next go Cleveland The

everyone morning and Good Hi. New Happy Year.

Adam. New Happy Year,

maybe go we increase the a that on more Could of February into to you're are a to the updating – delayed the it timely there the a did hearing what timing the was just why issue to the Could your expand from increase increase? that bit from you function manner there just just back little Was the of better what price I’m or price January suppliers like led delay last trying ago? you’re off of I you an understand guess in was February? file magnitude price price absolute of versus get may you seeing of months relative number guard increases several that year?

we which look, with go when simple, is pretty increases It’s number the of Yes. we that minimize times this. we increases, best our hit with price as out hit I’ll can absolutely, Adam, we customers try to okay.

in year described we’ve for early the the up from of into in we were put tariff are number a significant January usually seeing very calendar Look, list inflationary into that’s period taking but our usually real What summer where two month been increases instance, was be look, around our this hoping in a that’s is we late the three, around year. year, But So pricing there what the let’s suppliers. could cycle a and because to four calendar specific year. meaning a while. times times aside, times a Rustom

it trade to increases us waiting was an But month our us it. allowed think go that to as what in we it was to much pretty opposed time expected. more to coming fruition I on capture That's extra opportunity. to came missing and out by customers for one do January as the

negative time, Thanks. growth how margin but you this the mix same was at I digit, the year? Okay. small were than that up quarter, do helpful. through the the was a that to single-digit customers mix think discussion on Got the experience up you. headwind mentioned back high was being about guess core customer we gross was That’s as a then, the and product double rest of that And

won that some mean margin been been mix lower lower example I within we've of our gross gross so had margin national accounts, also had accounts categories, or relatively faster. have It’s for have either we national renewed account, have the growing –

I mean positives vending So is mix but national look Erik point Then of growth, of at and in does come sort vending strong vending, that’s vending negative one account. gross revenue margin. a the through terms in at about of our a made lower

and there’s Adam, out at. numbers parts or to pretty look, call moving we broad a underneath umbrella XX like in you’re that look saw the right mix the our mix bucket thing, same looking we’re XX is

bucket mix out in there’s particular. and couple out faster, too that calling a to accounts national would slower, Rustom that are of being You Core government that tailwinds. being the other where growing be growing mix called vending within offset

XX quarter level it top stats, bit in up price/mix this in I QX. little basis the detail, point, XX the was was our into our about gone about I if it having – Now mean, very is take to in segregation, with this last

price/mix a business many So is we the from products as way positive to the at with been has perspective so and customers there’s to, look actually different that have.

you. Thank Okay.

Blair. Ryan from of will question go Merkel William ahead. The next be Please

morning. me good thanks, Hey, fitting in. for Thanks

Hey, Ryan.

the would So, to say I part want Erik, framework? margin year. how expansion of going we’re likely that be you to the gross margin for start with gross

little It’s year a we QX obvious was point, to it framework obviously. as off price line this and of kind the on of hinge this sort right. out our -- there a Ryan, did going that basically the what that of put know early, is the we lot you of middle Look, jump stating

or minus was the of or sort around So XX.X. range XX plus

hit let’s midpoint in the at we if XX.X. of guidance look QX roughly the half take XX averages first XX.X, that a hit around So was we

line. the of right the underneath close sort but We’re underneath line

state to more line. one of So the obviously I’m obviously above going get the middle the time to

QX. of We north have north QX, and to be where of we XX were

of up. it hand, QX lot meaningful one is hand increase late to going to that’s in we going and realization. a we on keep have the the are going on do how price in But hinge costs look a other coming On

hate have the Ryan, we’ll a better I think realization on feel but pause to you under to So how with goes. I our quarter see belt

was quarter current the have missed for headwind get I I then All the price it, but right. cost, XQ what And may it, understood. then there and Yes. for the guide?

if actually basis its look price/mix we in about this have an we -- XX See, a tailwind segregation points at you the numbers about improvements. had

was cost making costing average on QX, the every sequentially this in So the through. point year system cost prices the in way work months, leading and last price next time into actually summer, know to put increase which steady I quarter better put last of is month bit going into point cost six point so right. in and than the our things There once right, The each through go effect we after increase because was on right? mean I occur a was compared it price we our the of we system, the that more have our lag increase you February up as at

our late those So points see the Ryan, take basis which net price pricing the on -- sequential next is decline. proxy the what changes XX resulting go and QX two our much that mixing prices the models that in up given look assume a in our real price you comes on not in the QX cost simple. you is of things, basis at yet QX, increase are points, runs those and and QX, -- plus of XX best From to price growth price decomposition will which

sort half. in about bit going Yes. correct? increase, to price the Was about actually then was seems my current to but a little be to of the was basis really because progression, presumably be asking pushed its to you quantify in price quarter the headwind second positive cost because understanding I’m a in XQ just maybe that point XX back be

Yes.

actually more price right. negative, which better up. going increase result the QX in cost, go so -- are we cost again lot Ryan, in QX, that got We reason. we bid cost get for in on pricing a if no price cost You don’t worsens Price and And have have it much expect price then up realization I’d more right, we again get the good will

Right.

pass lastly Okay, national just from six you account for price. and this to there’s window price you have but I is month typically get a investors contracts these a where question along

know is how So you You are any and is that that? offset? a there headwind navigating

there’s it each so depends Look, getting different different a in without contracts. each there's sensitive lot contract ways commercial But so terms. information our -- and of too it’s Ryan with there’s customer

virtually doing based terms we gone documentation cost the to pricing expectation we look on that start. of discussions expect by it’s contract have when years our what customers I we periods pricing So get for set varies. you one. accounts our from a times there in what then to allowed the arise, we we’ve get where prevents for timing that that’s is the on all cases when historically, say is happening is us and what’s fits through mid all getting are what’s on contracts, would that given of through to day pricing and we’re price know for And national what costs, look savings expect But the in there seen size all those are one not of all and for

Got you. it. Thank Very good.

And question the Research. final this Please Cieslak be Northcoast from of ahead. morning will Ryan go

Thanks in here. fitting me for

I So benefit you want saying understand is go sure focus to make Eric. I obviously want you least here on realization go just to a see, the to back. that demand Commodity back you that’s that to type because slow going maybe this costs the the have But at the to to versus it bit. slow confidence seeing past I that you’re to type the in a going that’s the realization, what don’t I hate to you of just what year little pricing. forward. that’s Obviously seems less realization you forward. of because want market there’s the and like actually starting continue sustain potential over just going gives like rolled environment the realization bit. to saw confidence here market a is gives lynchpin seems for can What see little But that ultimately, the

question. couple what softened tariffs good -- significant, go No, businesses, a the significant. inflation backdrop commodities The inflation significant, are for been a freight a One have lot while is, Yes. have point wage has back I’d of inputs. again Look, of Ryan. to many the large been things. to

when that going it’s having sake a up. a where suppliers is lot the costs with increase price passed up, of of and our meaning our backdrop to not detail we there just a for So price we’re one. point bring backup, long can pricing It’s taking taking up to of we Two, customers, list increases. supported the pricing

engineer the get back the and win a and we’re So fact proposition, I going most into it’s value time in we of think of but are documenting savings there’s customers, shame it's a that we we’re in us, on our win money and three, relationships If cases it's invest with and generally win value most and documentation. to justified then and helping for with bringing value. think to relationship look, we’re the most show not, I And cases ton and most customer customer effort if we an paid entitled win. understanding in

we those realization pricing confidence. determined seeing that the me are with solid we’ll the would the our be belt Ryan So under are the have but in things do -- those level. are I again, reasons would confidence give And see to those how

XXs get you to worse that better, Okay. get of saying typically stable, being market a on significantly year, and are doesn’t you high saying higher trends think you you assume what the percent get different comment the pieces half end if margin given, moving made back it’s or that you’ve the here? higher. And to better your actually margin being towards just type demand to a go that the that based say, than the XX dynamics. Is outlook trying doesn’t that just about that lot then that Are can XX all range? of you incremental of the to that can drive it that you’re back of from even what seeing you low Are stays look there’s actually like

our terms in I No, off half high the I margins, of around HX, growth. expected know of incremental rest saying, that but early we're about only of between all where to the operating it revenue likely the would mean, saying that of I say it, that at was mean be that most the of it discussion the end all really of the incremental was for earlier that. the XX.. conversation is was gross we as other operating I HX the the expenses more would so saying margins margin of coming mean, -- a we because the terms and in mean, margin too in I many expected it's call things. and them right, difference we’re the in mean, year the I in of operating factor one of the not margin we're you second occurred

the couple us. ground of Yes, points to make to right, just A right. ground

long that you slightly So midpoint midpoint. annual take implied if incremental you at below the annual the framework one term that our at look of and range XX% is, framework, margins it actually

begin. XX. to As quadrants, be look, grounded high up get up was of thing you just the reality. to But the the you is second midpoint got in in high But north

hit assume Let’s midpoint we the of QX.

it negative. Manthey quarter I think were in Dave second early mentioned incremental the

realistically we’re do margins were we range, should to unlikely. close the digits is for the though average, low the I back half like at the mean If the would That’s we be, the longer long which half that XX% like absolutely look That back for first to get year. term in better. was believe the XX% as term getting that What could to this of the year single That year, Rustom still something said is point. considerably where that's incremental it’s I across mean makes but have incrementals be half. of to we’d trying you

shouldn’t XXXX, since XX% the no we positive in reason back there’s looking But XX%. be to

but get when early, I to Any I last if one be some you thought wanted and Thanks. directionally just a the know, I’ll just here. sales the update have see Okay. of hiring initial off line And might timing on decision still new then lead. made? of a it’s

is would underway. Yes say Ryan. search is What I there

strong finding strong in in in place have interim, me. way top to that’s searches for the a of right to going we’re priority the find the [ph] get We time the it’s in get going move leader a right let the obviously And but interim and interim timeframe, we’re way exact darn person very those tough Search sure not person, in that line quickly, and an you the is under but give one way right make so the place. things of process. to

Thanks guys. Okay.

conclude conference over gentlemen, ladies closing to session. the to would back Chironna hand comments. for like this and question and answer will John And I the

today. you you joining Thank everyone and thank us for Denise,

you earnings XXth quarters, Take to with trips for set XXXX. attending forward of seeing speaking months. next be date so the Our number you and a coming field over conferences April We’ll the over I coming look is care. and

again lines. this disconnect once today’s you concluded, has And for you Thank the your and disconnect presentation. may you. conference concluded. attending has Ladies time, gentlemen your may At the Thank lines. you conference