MSC Industrial Direct Co., Inc. (MSM) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Tommy Moll, Analyst here at Stephens. We appreciate your joining us in Nashville for our Annual Investor Conference. Also appreciate your interest in MSC Industrial Direct where I'm delighted to be joined by CFO, Kristen Actis-Grande to my right; as well as Ryan Mills, who heads Investor Relations, here at the end of the table. Kristen, Ryan, good to see you both, and thanks for your time.

Thanks for having us, Tommy.

So in terms of formatting for this session, we'll run at about 45 minutes. I have questions prepared for at least the first 30, and then absolutely, once we get to the bottom of the hour, anyone from the audience should feel free to shoot up a hand. We've got a microphone we can pass around for any questions you want to ask directly. But I'll do my best to give us a good 360 high level and double-clicking on a few items as we go through the first half hour here.

And Kristen, maybe just to start very high level, there's been a transition within the company to move from a spot buy supplier to a more mission-critical partner. For those who have followed your company, this mission-critical phrase is familiar, but this is a generalist conference and so not everyone has necessarily dialed in on some of these items. But what is that transition that you've intended to effect?

Yes. So the spot buy chapter of the mission-critical history was really, really oriented around providing the broadest and largest product assortment, providing next-day delivery, exceptional customer service and then using that umbrella to scale nationally. And that's how MSC grew very rapidly for many decades. In the early 2010s, what started to happen, not just to MSC, but to the industry more broadly, you obviously had e-commerce taking hold in the B2B space that created this dynamic of price transparency for industrial distributors. And all of a sudden, it's a lot easier to shop around your product, you're not just like picking indirect supplies out of a big book catalog anymore. Now you can just pop online, see our price relative to the competition. And it really created a shift in the space. So at the time, what we heard from our customers amidst all this competitive pressure that we were facing was, hey, we need better price, we need more digital offerings. At the same time, the increased competitive pressure that we saw as a result of that, our customers were experiencing the same thing. So we also start hearing this drumbeat around like, okay, well, don't just sell me stuff, how can you help me run better? How can you help me save money? How do you help me to be more productive? And that was really the genesis of this pivot from being a spot buy supplier to a mission-critical partner on the plant floor where we use the expertise that we were offering in the industrial distribution space to now support delivering productivity for our customers. So what that looks like because we do anchor around metalworking as our leading product category, is we can go to the customer's production line, engage with them at the spindle to save them money. And we do that through running a process called the business needs analysis or customer needs analysis, which basically identifies a variety of opportunities where that customer can be more productive with us guiding them to do that. And then from the production line, we can branch out words into the janitorial closet, the safety closet. We can sell Class C fasteners, OEM fasteners. It's a much different level of conversation when the customer has already invited you to their production line as opposed to trying to work your way into the facility through the janitorial closet.

Metalworking, you referenced, Kristen. But again, for those who are not specialists on MSC, that's a term that's not commonly used at other companies. So what is that? And what's the core of the value you try to deliver to your customers?

Yes. So metalworking products are about 45% of our business, and you'd be thinking here about it's still indirect product but selling cutting tools, all types of metalworking equipment to other customers, notably manufacturing, which is about 70% of our revenue. And we differentiate in the space by offering technical expertise. So unsurprisingly, when you're selling a cutting tool, you need to really know what you're talking about. You need to know what you're guiding the customer to do, and we use that expertise to help them save money. So again, kind of coming back, delivering productivity, one of the ways that we've been able to create unique value is by doing things like optimizing the customers' machines, reducing their scrap output, increasing their throughput. Those are all ways that we're able to engage and leverage that expertise to support our customers.

Family ownership is another theme, Kristen, that's been in the headlines lately. So just quickly sketch for us the -- your CEO's family founded the business, I think, over 80 years ago. And then most recently, there was a reclassification transaction where you collapsed Class A, Class B structure where the family was the Class Bs into a single class. So I know that's a lot of history to cover, but just give us some of the high points there.

Sure. So the abbreviated versions were founded in early 1940s. Our founder was Sid Jacobson, and he basically started the company by selling metalworking and equipment cutting tools to the naval shipyards New York City. So MSC actually stands for the Manhattan Supply Company, if it's a little bit of a fun fact if anyone didn't know that. And from there, we really grew the company rapidly. And it was run by Sid for quite a long time. His son took over at some point, took the company public in '95. We had one independent CEO in between the founder's grandson taking over in 2013. So after the company went public, there was 2 classes of shares, As and Bs. The family, through their Class B shares, which had 10:1 voting rights, had about 70% voting control over the company, a little bit more than 20% economic interest. Earlier this year, the family made a proposal to the Board to collapse the dual share structure, and that was approved by our the Class A shareholders in early October. And basically, what that did was it eliminated the dual-class structures. The Class B shares went away. They were converted to A shares for a 22.5% premium. And then in addition to several other provisions that our shareholders voted on, including a cap on voting rights to the family at 15%, the company has basically moved towards a more full independence, which is a great change. It's one we're excited about, and it's one that the family is still fully invested in. That's a really short story.

Yes. No, that's helpful. Thank you. Moving on to the demand environment and the economic cycle. What's your general take on demand, the tone of conversations internally and with customers in terms of where we sit in this economic cycle? And here, I'm just thinking about some of the factors you hear that come up all the time, inflation, supply chain, channel dynamics. Anything else that comes to your mind, what would you want us to take away?

Yes. So we released our fiscal Q4 earnings in mid-October. And I'd say, for the 2 quarters prior to that, you would have heard us characterize our fiscal quarters in terms of like leveling demand. So not falling off a cliff, like everyone kind of seems to be waiting to happen, but plugging along, very neutral in terms of what our customers were relaying to us on their opinions on demand, what they were seeing and what we were seeing leveling was the best word to characterize it. And our fiscal year-end was on August 31. So what we did see happen in September though, which is now our fiscal '24, was a step-down in demand. And it was really 2 things driving that. The first is that we are tied to auto. So the UAW strikes impacted our demand. We have direct exposure to auto of around 10%. And then we have indirect exposure. So I think other parts of the auto value chain that we also support. And then the second thing that kind of happened was we saw a general softening in other parts of the manufacturing end markets, notably primary metals and heavy machinery and equipment. We also saw a step down there in September. So September growth was a little bit better than 1%. And then when we released earnings in Q4. In the middle of October, we were 2 weeks to our fiscal month. And when we run rated out our fiscal October, it looked like we were going to land in a similar range, our back half of October. So we had 2 weeks left to October after we released, we did see another softening there. So basically, where we are right now is, we're pleased that the UAW strikes are resolved. I say, we're not seeing so much of a rebound from that yet, but it's, of course, step 1 to being able to recover auto demand. And then in terms of the softening that we saw in other end markets, I think we're really watching that closely to see how the rest of the year plays out.

You referenced a couple there, Kristen, primary metals and machinery. Are there aspects of those markets that are noteworthy and might explain that change? Or no real pattern that you could call out for us?

Yes. So we've heard a lot about destocking. Like in the -- machinery is a good example where you hear feedback on that. And I get a question a lot, like how sensitive are we to destocking? And the answer is it's not immediate because we are an indirect supplier to manufacturing operations, but if destocking results in lower manufacturing output, which sustains for a long enough period of time, eventually, that does catch up to MSC's demand. So I think some of that is happening right now. But you -- Tommy and I were just chatting before the meeting started. Given that we're at the end of the calendar year, it will be interesting to see how much of this is sort of just other companies hunkering down to ride the year out versus what's really more kind of fundamentally tied to soften in the broader economy.

We haven't talked about pricing yet or price cost. So again, just situate us in that cycle where you -- I think you'll say you've seen the pace of supplier price increases taper on the cost side. And then on the pricing side, anything you've seen there, is there an increasingly competitive marketplace or no signs as of yet?

Yes. The main takeaway is it definitely appears like we're moving into a more normalized environment. So we've seen over the course of the past year, a decelerating number of increases being passed to us by our suppliers and for lower amounts. Distributors love price. So we're not going to complain if the inflationary environment were to continue, but that's definitely not proving to be the case right now. For our fiscal '23, we ended up benefiting to the tune of about 4 to 5 points of price on the top line. We're expecting that to be 1 to 2 points in our fiscal '24, which would look more like a normal pricing environment for us. And then in terms of what the suppliers pass, we're not expecting that to continue at anything other than a normal pace. But to the extent it does, there could be opportunity there on price.

And Kristen, you referenced your expectation for price in this fiscal year. Worth pointing out, there are plenty of distributors who do not provide annual outlooks. You do. And so maybe you could just walk us through what that process looks like, where, as you just referenced, the underlying demand can change pretty quickly. But you do make the best efforts to provide that annual outlook and distinguish pricing and volume trends. So what's your process to arrive at those ranges?

Sure. So we're -- first of all, we do put a pretty big broad range on the guidance because of what Tommy described. So our guidance for fiscal '24 is on the top line, 0% to 5% ADS growth. But of course, price is one of the first things we're looking at in addition to what we think the broader economy is going to do. And in that range that we've provided, we've kind of contemplated flat to down low single digit on the macro side, which we use the industrial production index to benchmark the economy. So that's kind of 1 point we anchor in. We are assuming that, again, priced is more normalized. That will be 1 to 2 points. And then beyond that, we're looking really at what we think we can deliver from a share gain perspective. And we've been quite successful in that regard. We just came off of a 3-year transformation program, also called Mission Critical. And we did a really nice job driving organic share gain through those programs. We see a lot of runway to continue there, but we also are really excited about several new growth levers that will continue to deliver share gain going forward.

So let's move on to mission critical, Kristen. You've laid out -- well, you had the program recently concluded where you had achieved several objectives. And then you laid out some new objectives, specifically in terms of market outgrowth. I think it's 400 basis points a year. And then incremental margin, you'd like to keep in the 20% range. Just walk us through some of the underlying assumptions there, where you've moved from the first 3 years of an exercise where the -- you hear the starting gun and then it's off to the races, and now you're into a more continual improvement mindset and just how that planning evolves.

Yes. A lot to unpack in that question, but I'll break it down, maybe kind of walk through the P&L a little bit on our thinking here. So we have indicated going forward the intention to deliver 400 basis points of share gain through the cycle. And what we're doing there is kind of 2 things. One, broadly, is a continuation of the things that drove our success on the first 3 years of Mission Critical. And there's a couple of things I'd point out there, like notably our success in solutions, which is really when we're leveraging vendee- and vendor-managed inventory or an actual MSC associate at the customer's location to help them support their operations. Incredible success there. We don't see that slowing anytime soon. We've seen that portion of the business grow at a much higher CAGR than the company average overall. Second thing I would really highlight that will continue is our success in the public sector. And this is ever from local to federal contracts. Definitely a lot of runway there. What we're very excited about on the new side, really, I'll point out a couple of things relative to new growth levers. One, we've kind of branded as reenergizing our core. So again, great success coming off the first 3 years of Mission Critical, but if you were to kind of decompose growth inside the company, the areas that we really focused on growing through Mission Critical grew really, really well. They grew above the company average. So the flip side of that becomes like, okay, well, what didn't grow as high as a company average. And the answer there would be our core customer, which is typically small and medium-sized customers, oftentimes where job shops and machine shops fall. And we have not grown as rapidly there. I'll maybe elaborate on that a little bit more once I get to your first question, Tommy, but reenergizing the core customer is a big part of that. Second part of it, I would say, is the opportunity to continue cross-selling all the components of the MSC portfolio to our customers. So I touched on this a little bit earlier, but when we are able to support the customers' productivity generation, it's very easy for us to kind of earn the trust of the customer and branch out from there. So we have 4 main parts of our business. It's metalworking, which we talked about, kind of other MRO products, Class C and OEM fastener businesses, and we see an opportunity to really leverage the relationship with the customer to expand the growth in all 4 of those areas. So that's the top line. If you're still with me, I'll keep walking through the P&L. On the productivity side, Tommy kind of mentioned this notion of continuous improvement. And we've done a lot of things to really change how the company operates. We took a lot of cost out over the last 3 years by working in a number of really, like, big rock projects that remove costs from the business. But at the same time, what we're really trying to pivot to is something that's quite basic for companies that are premier performing companies, but how do you really get an ongoing productivity engine going through things like lean and continuous improvement? You're having a disciplined business operating system that allows you to continue to fund investments and cover inflation on an ongoing basis. And that's a big part of how we continue to see opportunity driving profit on the bottom line. And then ROIC, we've been quite successful in increasing that. Our original goal was to increase ROIC in the high teens. We hit that a year ahead of schedule, and we don't -- we're not done. We see the opportunity to bring ROIC into the 20s. Obviously. Increases in NOPAT drive a big part of that. We also see an opportunity to optimize working capital, which is another set of plays that we'll be running over the next few years. Really long answer to your question.

And I appreciate it. I want to double-click on the comments you made about the core customers, Kristen. As you disaggregate your customers. There's the national account customers, there's the core customers. Are there other buckets we should be thinking about or are those really the 2, to frame the discussion?

National accounts is one. Public sector is another encore of the 3 main grouping.

Okay. And if you could just sketch for us what a typical customer might look like in that core category? You mentioned a job shop or a machine shop. But just give us a sense of how much revenue in a given year or what a range might look like there.

Yes, of course, roughly half of our business overall, to kind of size what that population of customers looks like for us. And we, again, we've undergrown there. There's a couple of reasons for that, that we're working on improving right now, which is where we see the unlock coming from on the top line. The first is really around our pricing strategy, and the second is around the e-commerce experience. So we have a pretty complex pricing strategy. Some of that had to do with the systems that we had. Some of it had to do with just how we've evolved and grown as a distributor over those last several decades. But what that's kind of resulted in is a pretty complex and confusing pricing structure for the customer. And it may mean that, depending on how that customer is interacting with us, the first price they see may not look like a fair incredible price to them. And of course, when that happens, it opens the door for the customer to wonder if their pricing more broadly is fair and credible. So what we're working on right now is really simplifying that pricing strategy to make sure that the first price the customer sees, wherever they interact with us, is a fair incredible price. The second thing is the e-commerce experience. So we've invested pretty aggressively here over the past 3 years. Unfortunately, a lot of the investment we had to do first wasn't really the type of thing the customer benefits from. We had to make a lot of upgrades to our tech stack, for example, the customer doesn't really see that directly. But we are really excited about the launch that's coming up in January, which will be the biggest rollout of the benefits that the customer will really see when they're interacting with us on mscdirect.com. And thinking about things there being the search experience, how quickly can you find what you need, how do you know you found what you need and what the product discovery features are. And that's a big change for us. It's one that we know has kind of alienated that population of customer, particularly because they are often interacting with us in a digital environment.

And Kristen, maybe you could just give us an example, you talked about how the pricing can be confusing for a core customer, depending on how they're interacting. So just give us an example of how they might interact through this channel and see this price in this channel another. And then how do you reconcile at all?

Yes. So we'll use an example Ryan has been giving lately. If you're a Ryan Mills, working in a small machine shop in Nebraska, and you need to log on and buy some kind of metalworking tool, maybe you're not the one that usually does it, you just pull up mscdirect.com, maybe you're not logged in with your MSC ID, therefore, you don't see discounted pricing. And you may not even be the one that does the purchasing all the time, but you know that the price you're looking at is crazy. And maybe you're having a conversation about that with the guy that's the actual buyer or the woman that's the actual buyer, and that really starts to make you question the pricing you're getting on all the rest of the products. So that's a really simple example, but you can go on to mscdirect.com right now and not be logged in and search for something that maybe you don't buy all the time, and it probably looks like a pretty unusually high price to you.

Understood. That's helpful. Some of the themes that you've mentioned in terms of the core customer initiatives or continued cross-selling and increased personalization layout, what you mean by those?

Yes. So on the cross-selling side, we've got those 4 kind of main groupings of businesses under the MSC umbrella, which is Class C, OEM, metalworking and MRO. And over the past 3 years, with our first Mission Critical set of targets, one of the things we're really focused on was how do we grow our Class C business by really focusing on selling kind of core metalworking and MRO products in addition to Class C to the same customers. And we've been quite successful there. Again, it really helps when you're engaging the customer in something that is core to their operation. It makes it quite easy to then broaden and get share of well, and the rest of the customers' operation. And OEM fastener scenario, we have not been as aggressive at doing that, and that is something that we're going to change going forward, really work on driving inclusion between both OEM business and the core -- the kind of the rest of the core grouping some MSC products.

You talked about January as a time frame to roll out some of the enhanced e-commerce features. And so my follow-up question there is, if I've understood correctly, when you provided guidance for the coming fiscal year, there are some embedded assumptions about daily sales tailwinds from some of these initiatives. Question would just simply be, what gives you the confidence that you'll see that kind of a pickup within the same fiscal year?

Yes. A couple of things we're looking at. So first one, we're really setting up the framework, maybe going back to one of your original questions. We're kind of really looking at the lost opportunity there, and it is significant. The second thing is we need to prove out the hypothesis through pilots, which are running right now. And then the third thing is, once you're live, how do you really win back that customer or win back the full share of wallet purchase from that customer? And that is, I think, probably going at something. I didn't touch on your last question, which is around increased personalization. We don't -- we're not ever going to be the lowest cost provider, first of all, and we're not necessarily looking to attract a customer that's going to buy 1 thing from us 1 time a year. It's maybe not core to what we do as a business. But we do want to find a way to leverage a light version of the expertise that we bring to bear on the customers that we're interacting with more often into a digital-only transaction. And that is what makes MSC unique. And if we can find a way to deliver that expertise digitally, and that will really allow us to support that Ryan Mills machine shop operator in Nebraska, the same way that we can support a large national account that we have a seller inside every day.

Yes. And so it would still be achieved digitally, you're saying, but through the curation of a website rather than a phone call from a salesperson, for example.

Yes. Or maybe it's both. But we really want to be able to wrap our arms around them in additional transaction.

Yes. Okay. Last one on the core customer initiative. One of the common themes that's come up in recent years, particularly with your national account customers, is where you can pivot to more of a total cost of ownership conversation, rather than just a pricing discussion. Is that not a little bit harder to achieve in the context of a smaller customer, like in a job shop or a machine shop, like we've been talking about today?

Yes and no. And I think, what you're outline there is the opportunity, like how do you really get that full-scale model operating at a customer that is smaller that we touch less often. But maybe to just anchor everyone on kind of what the total cost of ownership selling looks like. So envision a large national account, they have a RFP out to bid. MSC is participating in that process. We'll send a seller in that's running something called the business needs or customer needs analysis. And it basically outlines a variety of different ways that MSC can deliver value to that customer. And that would include some of the obvious things like how do you consolidate spend to drive a lower purchase price for the customer. It also includes things that are more proprietary to MSC, and that's around some of our metalworking innovations like MillMax, which can actually save the customer money in their core operation. But a whole list of things, and we use that to present to the customer, the value that we can bring, and then we report back out on that quarterly to show the customer how we're saving them money. So to your point, Tommy, that requires a lot of touch to the customer to be able to deliver that. Some of those things, we can leverage to a smaller customer, but we think there's an opportunity there. And this kind of goes back into the personalization, how we "touch" a customer in a digital manner, how else can we accelerate the delivery of all of those methods of productivity when we can't physically be there with the customer?

In-plant is an initiative you talk about pretty regularly, which I think it's probably fair to assume, again, doesn't apply really to the core customer base that we're talking about here. So if that's correct, maybe we'll just pivot the emphasis to the national account customers and in-plants. Where would you situate us on that journey? And what's the go-forward look like there for in-plants?

Yes. So an in-plant is really when you have an MSC associate that's located at the customer's location. And it can be doing a variety of services for them, anywhere from doing their purchasing, helping to stock their inventory. But the reason it's so successful is now we have an MSC associate that's forming close relationships. They understand the day-to-day of the customer's operation. And they're really effective at responding quickly to the needs of a customer. And either they, themselves, will do something to address that customer's need, or bring someone else in from MSC, like a metalworking expert that can help the customer with whatever the problem they're having. So that is the area, by far, we have been the most successful since we started Mission Critical 3 years ago. In-plant revenues grew at a 35% CAGR over the last 3 years, and that's relative to about 570 basis points for the company overall. But they still only represent about 13% of revenue. So we see a ton of runway there. Customers are responding to it really well. We're adding a lot of value there. We're expanding share of wallet and we actually just hit a high watermark on signings in our fiscal Q3. So really seeing tremendous success in that regard.

And if you think about the core product categories you laid out, MRO, metalworking, Class C and OEM. Is there a typical pathway where you may have 1 pieces of the business to start and then the in-plant is the catalyst for more? And there's a very common like A to B pathway, or does it just on the customer?

It's likely we won the in-plant through metalworking and/or MRO, one or the other or both. And then we can expand out into Class C and OEM.

Okay. Supply chain, we've touched on a bit, but I wanted to attack it from a different angle. For a scale distributor such as yourselves, I think it's fair to say that the supply chain challenges resulted in market share opportunities because you have the scale, the purchaser or you got the call earlier. More availability for you than a smaller competitor, potentially. So as the supply chain heals, what's your conviction level on being able to retain a lot of that market share you've captured? Because it's not like we read about a lot of bankruptcies in your industry, I mean, even the smaller players are cash-generative. So they're still around, they're still competing. So how does that resolve when the supply chain is back to normal?

Yes, it's definitely something we're looking at closely, we continue to monitor. We have not seen that, that dynamic has reversed much. The customers we acquired in that environment, we've largely been able to retain. And one of the reasons is, you may have been able to finally get a foothold at a customer location that was pretty boxed out by a local distributor before. But now because you have product, it really gives our sellers a chance to come in and show what we do best around total cost of ownership. And then once we're in there, we're really able to highlight that, yes, our price on an individual discrete product may not be the same as a local distributor that gets quite aggressive on price, but at the end of the day, we're a better partner for that customer holistically. That's allowed us to stay in there. The -- to your point, though, the local distributors are there still, they are very aggressive. And typically, what we would be looking for, from a defensive perspective, is local distributors trying to kind of pick 1 or 2 product lines off the fringe to maintain a foothold. So they're there. We wouldn't underestimate them. But at the end of the day, we're much better able to deliver holistic value to the customer.

So we're at the half-hour point. I definitely want to provide anyone in the audience who'd like to ask a question an opportunity to do so. So just stick up your hand if there's anything you'd like to ask. Otherwise, I can keep us busy for the full 45. I do want to give anyone and everyone a chance. I'll keep going.

Max looks -- he's ready to move.

Yes, Max might want to ask the question. Well, I had a couple of CFO-specific questions for you, Kristen. In your tenure at the company, which a couple of years now?

Three.

Three years now, believe it or not. Oh right, so Mission Critical. Yes. Okay. There have been some key changes in terms of personnel. In addition to you taking over as the CFO, there's been a -- in the sales leadership, in the COO seat, there's also been a pretty big shift in the culture and shifts in some of the annual planning processes. I know that's a lot to throw at you, but there -- I just try to think of all the different elements, stepping away from the numbers, just in terms of process, culture, et cetera. And those were some that came to mind. So I wonder if you could comment on your experience.

Yes, happy to. So the culture at MSC is pretty unique. It's very strong. Some of that has to do with the presence of the founding family and really strong stakeholder focus. It does make it quite different to look at MSC. It's hard to even describe until you're in there, but that was pretty important to me and it's one of the things that brought me there. One of the biggest things is really because of the family's presence, we do tend to have a pretty long-term focus. But one of the things that I was charged with you when I came in was to take all those great things about the culture, but then shift some of the behaviors that laid on top of it, one of them being how we drive performance, how we execute, how we kind of instill broader discipline and rigor into making sure that not only are we setting the company up for long-term value creation, but we're also delivering on the short term at the same time. And I've seen a really big shift in the company's performance in that regard over those 3 years. So I came from a company where we worked under a pretty disciplined business operating system. We've begun to introduce that into the MSC, not the culture, but -- it's our own MSC operating system, really, at the end of the day, being mindful of what our starting point is. And having seen companies kind of do this successfully and unsuccessfully, we're moving slowly, and interesting, something that fits the MSC -- kind of the DNA of MSC. With respect to the leadership team, yes, it's totally different. I'm actually technically the most tenure now aside from our CEO. But we had a good mix of internal and external promotions. So our Chief People Officer was promoted into that role, our GC is internal, our Head of Sales, is internal, she's incredible. I think she's been in the role about 1.5 years now. And then externally, we brought in a Chief Operating Officer, Martina McIsaac, who is the CEO of Hilti North America previously, and she brings with her great expertise in driving organic growth, adjacencies, expanding into service models, really been a fantastic fit. And then our Chief Digital and Information Officer. John Hill, most recently came from Carhartt. He has a ton of experience with e-commerce, ERP implementations. He runs our innovation team and has done some great things on metalworking innovations. I am very excited about our leadership team. It is night and day from when I joined, and I can't say enough good things about them.

Capital allocation has also evolved a bit, partly in connection with the reclassification that we discussed earlier. One of the key points you've made recently is just the deemphasis of special dividends, and then otherwise balancing regular dividend increases, repurchasing, which appears to be more of a dilution offset rather than a core piece of capital allocation and M&A as well. So maybe just walk us through each of those and what message you want to make sure we take away?

Sure. So broadly, we have never had a specific formula on capital allocation. We've always said the dollar is going to go to its best and highest purpose. Typically, our top priority is organic reinvestment, and we are seeing a step-function increase in our capital expenditures coming up this year. So definitely, a strong priority around organic reinvestment. To Tommy's point, we did commit to regular, steady increases in the ordinary dividend. We just took that up about 5 -- we took it up 5% recently. On the share repurchasing front, to Tommy's point, because of the transaction that was completed in October, we are repurchasing more shares to offset the dilution from that transaction, which was about 1.9 million shares. We've been working to repurchase that dilution effect since the summer in anticipation of that transaction closing. And then going forward, we do want to have a regular commitment to repurchasing and dilution from stock-based compensation. M&A, we've been quite active there recently, in bolt-on acquisitions, and we definitely see opportunities continue to be presented to us that are interesting. So I think it's likely that, that will be something that you continue to see from MSC, assuming that the company is right and the economics of that deal are right. And then debt paydown, we don't -- we're fortunate not to typically have a ton of it, but given where interest rates are right now, always something that we'll be mindful of.

Kristen, we appreciate your time. We're at the end of our scheduled time together. But really appreciate you joining us in Nashville. And to everyone who joined the fireside, we appreciate your interest in MSC. Thanks, everybody.

Thank you.

Thank you.