MSC Industrial Direct : Quarterly Results (FY25 Q4 Earnings Presentation 6981f470)

About this update from Msc Industrial Direct Company, Inc.

FISCAL FOURTH QUARTER 2025 EARNINGS OCTOBER 23, 2025 1 Average daily sales returned to growth in 4Q'25 with improvement of 2.7% YoY driven by benefits from growth initiatives and price but down 1.3% in FY'25, primarily due to softness in the first half of the fiscal year 2 Return to growth in Core and Other Customers with average daily sales up 4.1% YoY in 4Q'25 driven by improving volumes and price 5 Free cash flow conversion* slightly ahead of target with free cash flow* of $241 million achieved in FY'25, representing 122% of net income 3 Gross margin slightly below expectations but improving with 4Q'25 gross margin declining 60 bps as higher cost inventories worked through P&L faster than anticipated 4 Reported and adjusted* operating margin down 90 bps and 70 bps YoY, respectively in 4Q'25 due to higher operating expenses primarily due to increases in personnel and depreciation related costs, but above expectations 6 Repurchased approximately 496,000 shares in FY'25 and returned approximately $229 million to shareholders during the fiscal year in the form of dividends and share repurchases * Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations investor.mscdirect.com 3 Net Sales (millions) Gross Profit (millions and % of sales) Operating Profit (millions and % of sales) Earnings (per diluted share) $952.3 $978.2 $390.6 $395.0 Reported Adjusted* Reported Adjusted* 41.0% 40.4% Q4 2024 Q4 2025 Average daily sales ("ADS") growth of 2.7% primarily driven by benefits from price of 170 bps and improving volumes Public Sector up 9%, Core and Other Customers up 4%, and National Accounts down 1% Sales to customers with an In-Plant program up 11%, representing 20% of total sales Sales through vending machines up 10%, representing 19% of total sales Q4 2024 Q4 2025 Gross margin down 60 bps YoY Relative to our outlook, gross margins were ~50 bps below the mid point with ~20 bps of the miss being attributed to mix and some other factors The remaining ~30 bps of the miss was driven by price/cost as the combination of the rapid surge in supplier price increases, compressed supplier notification periods, and greater mix of direct ship orders resulted in higher than anticipated cost realization 9.5% 8.6% $94.2 $90.3 $90.9 $84.3 Q4 2024 Q4 2025 Q4 2024 Q4 2025 9.2% 9.9% Reported operating profit in Q4'25 includes $4.6 million in restructuring and other costs and $1.5 million in share reclassification litigation costs Reported operating profit in Q4'24 includes $2.7 million in restructuring and other costs and $0.6 million of acquisition related costs Operating margin impacted by lower gross margin and higher operating expenses that were primarily driven by personnel and depreciation and amortization related costs $1.03 $1.09 $0.99 $1.00 Q4 2024 Q4 2025 Q4 2024 Q4 2025 Q4'25 reported EPS includes $0.06 of restructuring and other costs and $0.02 of share reclassification litigation costs Q4'24 reported EPS includes $0.03 of restructuring and other costs and $0.01 of acquisition related costs Lower interest and other expense, which includes FX revaluation contributed $0.08 to adjusted EPS* * Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations. investor.mscdirect.com 4 PERFORMANCE AGAINST INDUSTRIAL PRODUCTION IMPROVING AS MOMENTUM BUILDS FROM GROWTH INITIATIVES MSC Total Organic Sales Growth 3-Month Average - IP Index MSC Total Growth (3 Mo Avg) IP Growth (3 Mo Avg) 15% IP Index Performance YoY of MSC's Top 5 Industries 10% 5% 0% -5% -10% -15% 20% Industry Group 4Q'25 Machinery & Equipment 2.3% Primary Metals 3.9% Fabricated Metals (0.2)% Automotive 1.7% Aerospace 9.1% -20% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Data as of September 16, 2025; investor.mscdirect.com 5 FISCAL YEAR 2025 REPORTED AND ADJUSTED RESULTS Net Sales (millions) Gross Profit (millions and % of sales) Operating Profit (millions and % of sales) Earnings (per diluted share) $3,821.0 $3,769.5 $1,572.8 $1,536.1 Reported 41.2% 40.8% 10.7% 8.4% Adjusted* $407.2 $315.8 FY 2024 FY 2025 Reported $4.58 $3.57 Adjusted* $4.81 $3.76 FY 2024 FY 2025 FY 2024 FY 2025 $390.4 10.2% 8.0% $301.6 FY 2024 FY 2025 ADS decline of 1.3% driven by lower volumes and a 20 bps headwind from FX, partially offset by price of 60 bps and carryover benefits of acquisitions in the prior year of 50 bps Public Sector ADS up 8% while Core and Other Customers and National Accounts each experienced a decline of 2% Sales to customers with an In-Plant program up 10%, representing 19% of total sales Sales through vending machines up 6%, representing 19% of total sales FY 2024 FY 2025 Gross margin down 40 bps primarily driven by negative price/cost and mix Acquisitions represented a ~10 bps headwind YoY FY 2024 FY 2025 Reported operating profit in FY'25 includes $11.0 million of restructuring and other costs, $1.2 million in loss on sale of property, and $2.1 million on share reclassification litigation costs Reported operating profit in FY'24 includes $14.5 million of restructuring and other costs, $1.1 million of acquisition related costs, and $1.2 million of share reclassification costs Operating margin down due to higher operating expenses YoY on lower levels of sales combined with carryover sales of lower margin acquisitions that occurred in the prior year FY'25 reported EPS includes $0.15 of restructuring and other costs, $0.02 in loss on sale of property, and $0.03 of share reclassification litigation costs FY'24 reported EPS includes $0.19 of restructuring and other costs, $0.03 of acquisition and share reclassification costs Declines reflect lower volumes YoY on higher levels of operating expenses Lower interest and other expenses, which includes FX revaluation, represent an adjusted EPS benefit of $0.12 FISCAL FOURTH QUARTER 2025 BALANCE SHEET AND CASH FLOW Free Cash Flow* (millions) Net debt down approximately $50 million as a result of lower debt levels and higher cash on hand Maintaining a healthy balance sheet with net debt to EBITDA currently at 1.10x* Target net debt to EBITDA ratio between 1.0x and 2.0x* Strong operating cash flow conversion** of 143% in the fiscal fourth quarter despite a step up in accounts receivable associated with higher sales Free cash flow conversion* of 104% in fiscal 4Q'25 resulting in 122% for the fiscal year to come in slightly above 120% target and similar to prior year levels Quarterly Year to Date $311.3 $240.9 $81.2 $58.5 Q4 2024 Q4 2025 FY 2024 FY 2025 Net Debt and Financial Leverage (millions, except ratio) Net Debt Net Debt to EBITDA* $429.5 $479.2 1.10x 1.02x * Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations Q4 2024 Q4 2025 Q4 2024 Q4 2025 ** The Company defines Operating Cash Flow Conversion as Net cash provided by operating activities as a percentage of Net Income. The Company's management uses Operating Cash Flow Conversion to evaluate the Company's operating performance, in particular how efficiently the Company turns its sales and profits into cash, and to assess the efficiency of the Company's use of working capital. The Company believes Operating Cash Flow Conversion is useful to investors for the foregoing reasons and as a measure of the rate at which the Company converts its net income reported in accordance with GAAP to cash inflows, which helps investors assess whether the Company is generating sufficient cash flow to provide an adequate return Long-Term Priorities Dividends and Share Repurchases Strategic Optionality Significant capital allocation optionality after deprioritizing special dividends; potential uses include organic growth investments, strategic M&A, debt paydown, or further deployment to shareholders 23% Capex Ongoing investment to strengthen operations, digital capabilities, and service offerings 47% ~ $1.5B CAPITAL DEPLOYED (FY 2022 - FY 2025) 7% Growth Spend M&A Bolt-on acquisitions with a focus on underserved regions, adjacent product categories, technologies, and high-growth end markets Share Repurchases Targeting to offset annual stock-based compensation dilution at a minimum 23% Ordinary Dividend Targeting modest annual increases in the ordinary dividend Disciplined focus on Return on Invested Capital* and value creation EARLY MOMENTUM IN GROWTH INITIATIVES DESPITE MACRO UNCERTAINTY Core and Other Customers National Accounts Public Sector ADS & IP QOQ TRENDS INDEXED TO 100 105 100 95 90 85 Core Customer ADS IP Index Launch of Recent Growth Initiatives 1Q'24 2Q'24 3Q'24 4Q'24 1Q'25 2Q'25 3Q'25 4Q'25 105 100 95 90 85 National Accounts ADS IP Index Launch of Recent Growth Initiatives 1Q'24 2Q'24 3Q'24 4Q'24 1Q'25 2Q'25 3Q'25 4Q'25 130 120 110 100 90 80 Public Sectors ADS IP Index Launch of Recent Growth Initiatives 1Q'24 2Q'24 3Q'24 4Q'24 1Q'25 2Q'25 3Q'25 4Q'25 Launched web enhancements and marketing campaign exiting fiscal 2Q'25 Territory redesign completed in early 3Q'25 Continuing to experience improving Core Customer ADS Trends with return to YoY growth in 4Q'25 Initiatives aimed at maximizing seller potential and effectives, including territory redesign launched at 2Q'25 end Recent momentum and continued growth in solutions strongly positions National Accounts for above market growth in FY'26 Completed initiatives designed to maximize seller coverage and effectiveness at calendar year-end Experienced building momentum throughout the year, resulting in HSD growth in FY'25 with plenty runway for further share gains SOLUTIONS Vending Installed vending machine count up 10% YoY and LSD QoQ In-Plant In-Plant program count up 20% YoY and LSD QoQ SELLER EFFECTIVENESS Customer Touches Customer location touches logged by field sales up double digits YoY Sales Per Rep Per Day Up MSD both YoY and QoQ WEB AND MARKETING Web ADS up LSD YoY and QoQ Marketing Experiencing increased return on advertising spend on increased spend TO FURTHER DIFFERENTIATE IN THE MARKETPLACE Jahida Nadi SVP of Sales Dynamic global executive with a 20 plus year track record of delivering above market growth Most recently served as the EVP and GM at Hilti where she consistently exceeded business objectives with over 30% bottom-line growth in consecutive years Kim Shacklett SVP Customer Experience Industry leader with over 30 years of metalworking and customer care experience Joined MSC in 2006 and has played a leadership role in driving MSC's vending strategy and applying technology to help customers better manage their inventories Driving customer acquisition through disciplined sales execution while strengthening customer retention by delivering unmatched customer service and support… investor.mscdirect.com 11 BEGINNING STAGES OF MARGIN EXPANSION 1Q'26 OUTLOOK Up 3.5% to 4.5% YoY AVERAGE DAILY SALES (ADS) 8.0% to 8.6% ADJUSTED OPERATING MARGIN* ADS YoY TRENDS ASSUMPTIONS 10% 0% 1Q'25 (3)% 2Q'25 (5)% 3Q'25 (1)% 4Q'25 3% 1Q'26 QTD 5.1% 4%-5% ADS improvement reflects building momentum in growth initiatives combined with benefits from price Low end of the range assumes the government shutdown lasts through the remainder of 1Q'26 to reflect timing uncertainty Gross margin expected to improve from 4Q'25 levels and to be 40.7% +/- 20 bps (10)% Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Incremental depreciation and amortization, incentive compensation, marketing investments, and merit increases resulting in adjusted operating expenses* to step-up approximately $7M to $10M from 4Q'25 levels *Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations investor.mscdirect.com 12 FY'26 GUIDED METRICS AND HISTORICAL AVERAGE DAILY SALES SEQUENTIAL PERFORMANCE WITH CONSIDERATIONS FY'26 MODELING $95-$100M ~$35M $100-$110M*** ~90% 24.5%-25.5% ASSUMPTIONS Depreciation and Amortization Interest and Other Expense Capital Expenditures Free Cash Flow Conversion* Tax Rate 1Q to 2Q 2Q to 3Q 3Q to 4Q Historical QoQ Average** (2)% +6% Roughly Flat Considerations Potential for customer shutdowns being longer than normal in December and early January with holidays falling during the middle of the week QoQ trends over the past two years have declined ~4.5% on average Limited visibility into macro conditions in the first half of calendar 2026 driven by tariff uncertainty but cautiously optimistic Momentum in growth initiatives expected to build throughout the fiscal year Potential for further pricing actions if inflationary pressures persist Business Days 2Q: 63 3Q: 64 4Q: 64 1Q'26 ADS Mid Point $15.6M AVERAGE DAILY SALES CADENCE *Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations **5-year historical ADS average (FY'21-FY'25) *** Includes expenditures associated with cloud computing arrangements investor.mscdirect.com 13 1 Average daily sales returned to growth in 4Q'25 with improvement of 2.7% YoY driven by benefits from growth initiatives and price but down 1.3% in FY'25, primarily due to softness in the first half of the fiscal year 2 Return to growth in Core and Other Customers with average daily sales up 4.1% YoY in 4Q'25 driven by improving volumes and price 3 Gross margin slightly below expectations but improving with 4Q'25 gross margin declining 60 bps as higher cost inventories worked through P&L faster than anticipated SUMMARY 5 Free cash flow conversion* slightly ahead of target with free cash flow* of $241 million achieved in FY'25, representing 122% of net income 4 Reported and adjusted* operating margin down 90 bps and 70 bps YoY, respectively in 4Q'25 due to higher operating expenses primarily due to increases in personnel and depreciation related costs, but above expectations 6 Repurchased approximately 496,000 shares in FY'25 and returned approximately $229 million to shareholders during the fiscal year in the form of dividends and share repurchases * Represents a non-GAAP financial measure. See appendix for non-GAAP reconciliations investor.mscdirect.com 14 APPENDIX Non-GAAP Financial Measures To supplement MSC's unaudited selected financial data presented consistent with accounting principles generally accepted in the United States ("GAAP"), the Company discloses certain non-GAAP financial measures, including return on invested capital (as defined below), non-GAAP operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP provision for income taxes, non-GAAP net income and non-GAAP diluted earnings per share, that exclude items such as restructuring and other costs, loss on sale of property, share reclassification litigation costs, share reclassification costs (prior year) and acquisition-related costs (prior year), and tax effects, as well as free cash flow conversion, which is a measure calculated using free cash flow, which is a non-GAAP measure. These non-GAAP financial measures are not presented in accordance with GAAP or alternatives for GAAP financial measures and may be different from similar non-GAAP financial measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measure and should only be used to evaluate MSC's results of operations in conjunction with the corresponding GAAP financial measure. Financial data may also include certain forward-looking information that is not presented in accordance with GAAP. The Company believes that a quantitative reconciliation of such forward-looking information to the most directly comparable financial measures calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts because a reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of potential future events such as restructurings, M&A activity, capital expenditures and other infrequent or unusual gains and losses. Neither the timing or likelihood of these events, nor their probable significance, can be quantified with a reasonable degree of accuracy. Accordingly, a reconciliation of such forward-looking information to the most directly comparable GAAP financial measure is not provided. Free Cash Flow ("FCF") and Free Cash Flow Conversion ("FCF Conversion") FCF is a non-GAAP financial measure. FCF is used in addition to and in conjunction with results presented in accordance with GAAP, and FCF should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. FCF, which we reconcile to "Net cash provided by operating activities," is cash flow from operations reduced by "Expenditures for property, plant and equipment". We believe that FCF, although similar to cash flow from operations, is a useful additional measure since capital expenditures are a necessary component of ongoing operations. Management also views FCF, as a measure of the Company's ability to reduce debt, add to cash balances, pay dividends, and repurchase stock. FCF has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, FCF does not incorporate payments made on finance lease obligations or required debt service payments. In addition, different companies define FCF differently. Therefore, we believe it is important to view FCF as a complement to our entire consolidated statements of cash flows. FCF Conversion is useful to investors for the foregoing reasons and as a measure of the rate at which the Company converts its net income reported in accordance with GAAP to cash inflows, which helps investors assess whether the Company is generating sufficient cash flow to provide an adequate return. Non-GAAP Financial Measures Results Excluding Restructuring and Other Costs, Loss on Sale of Property, Share Reclassification Litigation Costs, Share Reclassification Costs (prior year) and Acquisition-Related Costs (prior year) In calculating certain non-GAAP financial measures, we exclude items such as restructuring and other costs, loss on sale of property, share reclassification litigation costs, share reclassification costs (prior year) and acquisition-related costs (prior year), and tax effects. Management makes these adjustments to facilitate a review of the Company's operating performance on a comparable basis between periods, for comparing with forecasts and strategic plans, for identifying and analyzing trends in the Company's underlying business and for benchmarking performance externally against competitors. We believe that investors benefit from seeing results from the perspective of management in addition to seeing results presented in accordance with GAAP for the same reasons and purposes for which management uses such non-GAAP financial measures. Return on Invested Capital ("ROIC") ROIC is calculated using a non-GAAP financial measure. We calculate ROIC by dividing non-GAAP net operating profit after tax ("NOPAT") by average invested capital, a GAAP measure. NOPAT is defined as tax effected income from operations. Average invested capital is defined as net debt plus shareholder's equity using a trailing 13-month average. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate operating performance. This method of determining non-GAAP ROIC may differ from other companies' methods and therefore may not be comparable to those used by other companies. ROIC should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. The financial measure calculated under GAAP which is most directly comparable to ROIC is considered to be the ratio of Net income to Average invested capital. See below for the calculation of ROIC and the reconciliation to the comparable GAAP measure. Net Debt to Earnings before Interest, Taxes, and Depreciation and Amortization ("EBITDA") Net debt to EBITDA is calculated using a non-GAAP financial measure, EBITDA. The Company defines EBITDA as GAAP net income adjusted for taxes, total other expense and depreciation and amortization for the preceding 12 months. Net debt, a GAAP measure, is calculated as total debt less cash and cash equivalents. The Company presents net debt to EBITDA because it more clearly represents the operating profitability of the company and is a more accurate representation of the Company's financial position and its ability to cover its net debt obligations with results from its core operations. The Company's management uses net debt to EBITDA to evaluate the timeframe it would take to pay back its debt if net debt and EBITDA are held constant. The Company believes net debt to EBITDA is useful to investors for the foregoing reasons and as a measure of the rate at which the Company can cover its debts, which helps investors assess whether the Company has ability to grow its debt to support future growth initiatives. This method of determining non-GAAP EBITDA may differ from other companies' methods and therefore may not be comparable to those used by other companies. EBITDA should be considered in addition to, rather than as a substitute for, other information provided in accordance with GAAP. 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