Msc Industrial Direct Co Inc 10-Q for FY2025 Q1
Msc Industrial Direct Co Inc (MSM)
10-Q
2025-01-08
For: 2024-11-30
View Original
Added on
April 08, 2026
About this 10-Q
Msc Industrial Direct Co Inc filed this 10-Q on January 8, 2025, covering the quarter ended November 30, 2024 (FY2025 Q1).
Headline figures
Quarter ended November 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $928.48M
- down 2.7% from $953.97M a year earlier
- Net income
- $46.62M
- down 32.8% from net income of $69.35M a year earlier
- Diluted EPS
- $0.83
- down 32.0% from $1.22 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
______________________________
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended | |||||
| OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _____ to _____
Commission File Number: 1-14130
__________________
(Exact name of registrant as specified in its charter)
__________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
(516 ) 812-2000
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of December 18, 2024, 55,859,134 shares of Class A Common Stock of the registrant were outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward‑looking statements may be found in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as within this Report generally. The words “will,” “may,” “believes,” “anticipates,” “thinks,” “expects,” “estimates,” “plans,” “intends” and similar expressions are intended to identify forward‑looking statements. In addition, statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward‑looking statements. We expressly disclaim any obligation to publicly disclose any revisions to these forward‑looking statements to reflect events or circumstances occurring subsequent to filing this Report with the United States Securities and Exchange Commission (the “SEC”), except to the extent required by applicable law. These forward‑looking statements are subject to risks and uncertainties, including, without limitation, those discussed in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as in Item 1A, “Risk Factors” of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2024. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward‑looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward‑looking statements. These risks and uncertainties include, but are not limited to, the following:
•general economic conditions in the markets in which we operate;
•changing customer and product mixes;
•volatility in commodity, energy and labor prices and the impact of prolonged periods of low, high or rapid inflation;
•competition, including the adoption by competitors of aggressive pricing strategies or sales methods;
•industry consolidation and other changes in the industrial distribution sector;
•the applicability of laws and regulations relating to our status as a supplier to the U.S. government and public sector;
•the credit risk of our customers;
•the risk of customer cancellation or rescheduling of orders;
•our ability to accurately forecast customer demand;
•customer cancellations or rescheduling of orders;
•interruptions in our ability to make deliveries to customers;
•supply chain disruptions;
•our ability to attract and retain sales and customer service personnel;
•the risk of loss of key suppliers or contractors or key brands;
•changes to trade policies or trade relationships;
•risks associated with opening or expanding our customer fulfillment centers;
•our ability to estimate the cost of healthcare claims incurred under our self-insurance plan;
•interruption of operations at our headquarters or customer fulfillment centers;
•products liability due to the nature of the products that we sell;
•impairments of goodwill and other indefinite-lived intangible assets;
•the impact of climate change;
•operating and financial restrictions imposed by the terms of our material debt instruments;
•our ability to access additional liquidity;
•the significant influence that our principal shareholders will continue to have over our decisions;
•our ability to execute on our E-commerce strategies and maintain our digital platforms;
•costs associated with maintaining our information technology (“IT”) systems and complying with data privacy laws;
•our ability to remediate a material weakness in our internal control over financial reporting and to maintain effective internal control over financial reporting and our disclosure controls and procedures in the future;
•disruptions or breaches of our IT systems or violations of data privacy laws, including such disruptions or breaches in connection with our E-commerce channels;
•risks related to online payment methods and other online transactions;
•the retention of key management personnel;
•litigation risk due to the nature of our business;
•failure to comply with environmental, health, and safety laws and regulations; and
•our ability to comply with, and the costs associated with, social and environmental responsibility policies.
MSC INDUSTRIAL DIRECT CO., INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2024
TABLE OF CONTENTS
| Page | ||||||||
| Item 5. | ||||||||
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| November 30, 2024 | August 31, 2024 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangibles, net | |||||||||||
| Operating lease assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current portion of debt including obligations under finance leases | $ | $ | |||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt including obligations under finance leases | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Deferred income taxes and tax uncertainties | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders’ Equity: | |||||||||||
| MSC Industrial Shareholders’ Equity: | |||||||||||
Preferred Stock; $ | |||||||||||
Class A Common Stock ( | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Class A treasury stock, at cost, | ( | ( | |||||||||
| Total MSC Industrial shareholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Restructuring and other costs | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other expense, net | ( | ( | |||||||||||||||||||||
| Total other expense | ( | ( | |||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | $ | |||||||||||||||||||||
| Per share data attributable to MSC Industrial: | |||||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Weighted-average shares used in computing net income per common share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Net income, as reported | $ | $ | |||||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
Comprehensive income(1) | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest: | |||||||||||||||||||||||
| Net loss | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
| Comprehensive income attributable to MSC Industrial | $ | $ | |||||||||||||||||||||
(1)There were no
See accompanying Notes to Condensed Consolidated Financial Statements.
3
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Class A Common Stock | |||||||||||||||||||||||
| Beginning Balance | $ | $ | |||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Additional Paid-in Capital | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock, including excise tax | ( | ( | |||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock, including excise tax | ( | ( | |||||||||||||||||||||
| Regular cash dividends declared on Class A Common Stock | ( | ( | |||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Dividend equivalents declared, net of cancellations | ( | ( | |||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||
| Beginning Balance | ( | ( | |||||||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ||||||||||||||||||||||
| Ending Balance | ( | ( | |||||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Beginning Balance | ( | ( | |||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase of Class A Common Stock, including excise tax | ( | ( | |||||||||||||||||||||
| Ending Balance | ( | ( | |||||||||||||||||||||
| Total Shareholders’ Equity Attributable to MSC Industrial | |||||||||||||||||||||||
| Noncontrolling Interest | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ( | |||||||||||||||||||||
| Net Loss | ( | ( | |||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Total Shareholders’ Equity | $ | $ | |||||||||||||||||||||
| Dividends declared per Class A Common Share | $ | $ | |||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of cloud computing arrangements | |||||||||||
| Non-cash operating lease cost | |||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of property, plant and equipment | |||||||||||
| Non-cash changes in fair value of estimated contingent consideration | |||||||||||
| Provision for credit losses | |||||||||||
| Expenditures for cloud computing arrangements | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Total adjustments | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Expenditures for property, plant and equipment | ( | ( | |||||||||
| Cash used in acquisitions, net of cash acquired | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Repurchases of Class A Common Stock | ( | ( | |||||||||
| Payments of regular cash dividends | ( | ( | |||||||||
| Proceeds from sale of Class A Common Stock in connection with Associate Stock Purchase Plan | |||||||||||
| Proceeds from exercise of Class A Common Stock options | |||||||||||
| Borrowings under credit facilities | |||||||||||
| Payments under credit facilities | ( | ( | |||||||||
| Borrowings under financing obligations | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents—beginning of period | |||||||||||
| Cash and cash equivalents—end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 1. Basis of Presentation
The unaudited Condensed Consolidated Financial Statements have been prepared by the management of MSC Industrial Direct Co., Inc. (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC Industrial” or the “Company”) and in the opinion of management include all normal recurring adjustments necessary to present fairly the Company’s financial position as of November 30, 2024 and August 31, 2024, results of operations for the thirteen weeks ended November 30, 2024 and December 2, 2023, and cash flows for the thirteen weeks ended November 30, 2024 and December 2, 2023. The financial information as of August 31, 2024 was derived from the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2024.
Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to August 31st of each year. References to “fiscal year 2025” refer to the period from September 1, 2024 to August 30, 2025, which is a 52-week fiscal year. References to “fiscal year 2024” refer to the period from September 3, 2023 to August 31, 2024, which is a 52-week fiscal year. The fiscal quarters ended November 30, 2024 and December 2, 2023 refer to the thirteen weeks ended as of those dates.
Principles of Consolidation
The unaudited Condensed Consolidated Financial Statements include the accounts of MSC Industrial Direct Co., Inc., its wholly owned subsidiaries and entities in which it maintains a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Reclassifications were made to the unaudited Condensed Consolidated Statement of Cash Flows for the thirteen weeks ended December 2, 2023 to conform with the current year presentation.
Accounting Standards Not Yet Adopted
In March 2024, the SEC issued its final rule on the enhancement and standardization of climate-related disclosures for investors. These wide-ranging disclosures require annual disclosure of material greenhouse gas emissions as well as disclosure of governance, risk management and strategy related to material climate-related risks. Within the notes to financial statements, the final rule requires disclosure of expenditures recognized, subject to certain thresholds, attributable to severe weather. Outside of the financial statements, the final rule requires qualitative and quantitative disclosures about material Scope 1 and Scope 2 greenhouse gas emissions. Also required is disclosure of the risk management process and the oversight practices of the Board of Directors of the Company (the “Board”) and management related to climate-related risks. The final rule follows a compliance phase-in timeline, with the first requirements required to be adopted for the Company’s fiscal year 2026, followed in later years by greenhouse gas-related requirements. In April 2024, the SEC voluntarily stayed implementation of the final rule pending completion of judicial review of consolidated challenges to the
6
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
final rule by the Court of Appeals for the Eighth Circuit. The Company is currently evaluating the final rule to determine the impact on its consolidated financial statements and disclosures.
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 (MSC’s fiscal year 2026) on a prospective basis. Early adoption is permitted. The Company is currently evaluating the standard to determine the impact of adoption on its consolidated financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires entities, including those with a single reporting segment, to disclose significant segment expenses that are regularly provided to the chief operating decision maker, among other provisions. The ASU is effective for fiscal year periods beginning after December 15, 2023 (MSC’s fiscal year 2025) and interim periods within fiscal years beginning after December 15, 2024 (MSC’s first quarter of fiscal year 2026), with early adoption permitted. Retrospective application to all prior periods presented in the financial statements is also required. The Company is currently evaluating the standard to determine the impact of adoption on its consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires public entities to include more detailed disclosures about specific categories of expenses such as inventory purchases, employee compensation, depreciation, amortization and selling costs within the notes to the financial statements. The ASU is effective for fiscal year periods beginning after December 15, 2026 (MSC’s fiscal year 2028) and interim periods within fiscal years beginning after December 15, 2027 (MSC’s first quarter of fiscal year 2029), with early adoption permitted. The Company is currently evaluating the standard to determine the impact of adoption on its consolidated financial statements and disclosures.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to have a material impact on the Consolidated Financial Statements.
Note 2. Revenue
Revenue Recognition
Net sales include product revenue and shipping and handling charges, net of estimated sales returns and any related sales incentives. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the contract, which is determined to occur when the customer obtains control of the products, and invoicing occurs at approximately the same point in time. The Company’s product sales have standard payment terms that do not exceed one year . The Company considers shipping and handling as activities to fulfill its performance obligations. Substantially all of the Company’s contracts have a single performance obligation, to deliver products, and are short-term in nature. The Company estimates product returns based on historical return rates. Total accrued sales returns were $7,704 and $8,120 as of November 30, 2024 and August 31, 2024, respectively, and are reported as Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sales taxes and value-added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Consideration Payable to Customers
The Company offers customers sales incentives, which primarily consist of volume rebates, and upfront sign-on payments. These volume rebates and sign-on payments are not in exchange for a distinct good or service and result in a reduction of net sales from the goods transferred to the customer at the later of when the related revenue is recognized or when the Company promises to pay the consideration. The Company estimates its volume rebate accruals and records its sign-on payments based on various factors, including contract terms, historical experience, and performance levels. Total
7
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
accrued sales incentives, primarily related to volume rebates, were $23,731 and $23,386 as of November 30, 2024 and August 31, 2024, respectively, and are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sign-on payments, not yet recognized as a reduction of net sales, are recorded in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheets and were $7,200 and $7,493 as of November 30, 2024 and August 31, 2024, respectively.
Contract Assets and Liabilities
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company records a contract liability when customers prepay but the Company has not yet satisfied its performance obligations. The Company did not
Disaggregation of Revenue
The Company has determined that it operates as one
The Company serves a large number of customers of various types and in diverse industries, which are subject to different economic and industry factors. The Company’s presentation of net sales by customer end-market, customer type and geography most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and industry factors. The Company does not disclose net sales information by product category as it is impracticable to do so as a result of its numerous product offerings and the way its business is managed.
The following table presents the Company’s percentage of revenue by customer end-market for the thirteen-week periods ended November 30, 2024 and December 2, 2023:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 (2) | ||||||||||||||||||||||
| Manufacturing Heavy | % | % | |||||||||||||||||||||
| Manufacturing Light | % | % | |||||||||||||||||||||
| Public Sector | % | % | |||||||||||||||||||||
| Retail/Wholesale | % | % | |||||||||||||||||||||
| Commercial Services | % | % | |||||||||||||||||||||
Other (1) | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
(1)The Other category primarily makes up specific industry classifications that do not individually exceed 3% of net sales.
(2)Includes changes in customer end-market classifications as a result of the transition from the Standard Industrial Classification (SIC) to the North American Industry Classification System (NAICS) in the first quarter of fiscal year 2025.
The Company groups customers into three categories by type of customer: national account, public sector and core and other. National account customers include Fortune 1000 companies, large privately held companies, and international companies doing business in North America. Public sector customers are governments and their instrumentalities such as federal agencies, state governments, and public sector healthcare providers. Federal government customers include the United States General Services Administration, the United States Department of Defense, the United States Marine Corps, the United States Coast Guard, the United States Postal Service, the United States Department of Energy, large and small military bases, Veterans Affairs hospitals, and correctional facilities. The Company has individual state and local contracts, as well as contracts through partnerships with several state co-operatives. Core and other customers are those customers that are not national account customers or public sector customers.
8
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The following table presents the Company’s percentage of revenue by customer type for the thirteen-week periods ended November 30, 2024 and December 2, 2023:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023(1) | ||||||||||||||||||||||
| National Account Customers | % | % | |||||||||||||||||||||
| Public Sector Customers | % | % | |||||||||||||||||||||
| Core and Other Customers | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
(1)Includes reclassifications of certain customers during fiscal year 2024, primarily between national account customers and core and other customers.
The Company’s revenue originating from the following geographic areas was as follows for the thirteen-week periods ended November 30, 2024 and December 2, 2023:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| United States | % | % | |||||||||||||||||||||
| Mexico | % | % | |||||||||||||||||||||
| Canada | % | % | |||||||||||||||||||||
| North America | % | % | |||||||||||||||||||||
| Other foreign countries | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
9
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 3. Net Income per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of the Company’s Class A Common Stock (“Class A Common Stock”) outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of Class A Common Stock outstanding during the period, including potentially dilutive shares of Class A Common Stock equivalents outstanding during the period. The dilutive effect of potential shares of Class A Common Stock is determined using the treasury stock method. The following table sets forth the computation of basic and diluted net income per common share under the treasury stock method for the thirteen-week periods ended November 30, 2024 and December 2, 2023:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to MSC Industrial, as reported | $ | $ | |||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding for basic net income per share | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Weighted-average shares outstanding for diluted net income per share | |||||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Potentially dilutive securities | |||||||||||||||||||||||
Potentially dilutive securities attributable to outstanding share-based awards are excluded from the calculation of diluted net income per share when the combined exercise price and average unamortized fair value are greater than the average market price of Class A Common Stock, and, therefore, their inclusion would be anti-dilutive.
Note 4. Stock-Based Compensation
The Company accounts for all stock-based payments in accordance with Accounting Standards Codification Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense included in Operating expenses for the thirteen weeks ended November 30, 2024 and December 2, 2023 was as follows:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
Restricted stock units (1) | $ | $ | |||||||||||||||||||||
Performance share units (1) | ( | ||||||||||||||||||||||
| Associate Stock Purchase Plan | |||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Deferred income tax benefit | ( | ( | |||||||||||||||||||||
| Stock-based compensation expense, net | $ | $ | |||||||||||||||||||||
(1)Includes equity award acceleration costs associated with associate severance and separation, which are included in Restructuring and other costs in the unaudited Condensed Consolidated Statements of Income for the thirteen weeks ended December 2, 2023. See Note 9, “Restructuring and Other Costs” for additional information.
10
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Performance Share Units
In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term stock-based compensation program. PSUs cliff vest after a three-year performance period based on the achievement of specific performance goals as set forth in the applicable award agreement. Based on the extent to which the performance goals are achieved, vested shares may range from 0 % to 200 % of the target award amount. If the performance conditions are not met or are not expected to be met, recognized compensation expense associated with the grant will be reversed.
The following table summarizes all transactions related to PSUs under the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) and the 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”) (based on target award amounts) for the thirteen-week period ended November 30, 2024:
| Shares | Weighted-Average Grant Date Fair Value per Share | |||||||||||||
| Non-vested PSUs at August 31, 2024 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ||||||||||||||
Non-vested PSUs at November 30, 2024 (1) | $ | |||||||||||||
(1)Excludes approximately 4 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
Restricted Stock Units
A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan for the thirteen-week period ended November 30, 2024 is as follows:
| Shares | Weighted-Average Grant Date Fair Value per Share | |||||||||||||
| Non-vested RSUs at August 31, 2024 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ( | |||||||||||||
Non-vested RSUs at November 30, 2024 (1) | $ | |||||||||||||
(1)Excludes approximately 24 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
The fair value of each PSU and RSU is the closing stock price on the New York Stock Exchange of Class A Common Stock on the date of grant. PSUs are expensed over the three-year performance period of each respective grant and RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimated forfeitures. The Company uses historical data to estimate pre-vesting PSU and RSU forfeitures and records stock-based compensation expense only for PSU and RSU awards that are expected to vest. Upon vesting, and, in the case of the PSUs, subject to the achievement of specific performance goals, a portion of the PSU and RSU awards may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs and RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs and RSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock, and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying PSUs and RSUs, subject, in
11
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
the case of the dividend equivalents on the underlying PSUs, to the same performance vesting requirements. The unrecognized stock-based compensation costs related to the PSUs and RSUs at November 30, 2024 were $6,666 and $37,419 , respectively, which are expected to be recognized over a weighted-average period of 2.0 and 3.2 years, respectively.
Stock Options
Subsequent to the stock option grant in fiscal year 2019, the Company discontinued its grants of stock options. The fair value of each option grant in previous fiscal years was estimated on the date of grant using the Black-Scholes option pricing model.
For the thirteen-week period ended November 30, 2024, there were two stock options exercised at a weighted-average price of $83.21 . As of November 30, 2024, there were 97 stock option awards outstanding and exercisable, with an exercise price of $83.21 , a remaining contractual life of 0.9 years, and no intrinsic value.
The aggregate intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during the thirteen-week periods ended November 30, 2024 and December 2, 2023 was $8 and $1,499 , respectively. There were no unrecognized stock‑based compensation costs related to stock options at November 30, 2024.
Note 5. Fair Value
Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The below fair value hierarchy prioritizes the inputs used to measure fair value into three levels, with Level 1 being of the highest priority. The three levels of inputs used to measure fair value are as follows:
Level 1— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2— Include other inputs that are directly or indirectly observable in the marketplace.
Level 3— Unobservable inputs which are supported by little or no market activity.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and outstanding indebtedness. Cash and cash equivalents include investments in a money market fund which are reported at fair value. The fair value of money market funds is determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs within the fair value hierarchy. The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the inputs used to measure the fair value of the Company’s debt instruments are classified as Level 2 within the fair value hierarchy. The reported carrying amounts of the Company’s financial instruments approximated their fair values as of November 30, 2024 and December 2, 2023.
During the thirteen-week periods ended November 30, 2024 and December 2, 2023, the Company had no
Assets Held for Sale
The Company classifies an asset as held for sale when management, having the authority to approve the action, commits to a plan to sell the asset, the sale is probable within one year and the asset is available for immediate sale in its present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the asset is marketed actively for sale at a price that is reasonable in relation to its current fair value and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially measures an asset that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell. Any loss resulting from this measurement is recognized in the period in which the
12
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
held for sale criteria are met. Conversely, gains are not recognized until the date of sale. The Company assesses the fair value of an asset less costs to sell each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying amount of the asset, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Assets are not depreciated or amortized while they are classified as held for sale.
In March 2024, the Company commenced its plan to sell its 468,000 square foot customer fulfillment center (“CFC”) in Columbus, Ohio. During the first quarter of fiscal year 2025, the Company received a Letter of Intent to purchase the Columbus CFC and is currently finalizing a Purchase and Sale Agreement with the prospective purchaser. As of November 30, 2024, the related assets had a carrying value of approximately $31,758 , which is comprised of approximately $20,663 of building and building improvements, $4,097 of land assets and $6,998 of furniture, fixtures and equipment, which is included in Property, plant and equipment, net in the unaudited Condensed Consolidated Balance Sheet as of such date. As a result of the above, the Company determined that all of the criteria to classify the building as held for sale had been met as of November 30, 2024. Fair value was determined based upon the anticipated sales price of these assets based on current market conditions and assumptions made by management, which may differ from actual results and may result in an impairment if market conditions deteriorate. No impairment charge was recorded as the fair value was in excess of the carrying amount of the assets.
Note 6. Accounts Receivable
Accounts receivables at November 30, 2024 and August 31, 2024 consisted of the following:
| November 30, 2024 | August 31, 2024 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: allowance for credit losses | |||||||||||
| Accounts receivable, net | $ | $ | |||||||||
In the second quarter of fiscal year 2023, the Company entered into a Receivables Purchase Agreement (the “RPA”), by and among MSC A/R Holding Co., LLC, a wholly owned subsidiary of the Company (the “Receivables Subsidiary”), as seller, the Company, as master servicer, certain purchasers from time to time party thereto (collectively, the “Purchasers”), and Wells Fargo Bank, National Association, as administrative agent. Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to $300,000 . The RPA matures on December 19, 2025 and is subject to customary termination events related to transactions of this type.
The Company continues to provide collection services for the receivables sold to the Purchasers. As cash is collected on sold receivables, the Receivables Subsidiary continuously sells new qualifying receivables to the Purchasers so that the total principal amount outstanding of receivables sold is approximately $300,000 . The total principal amount outstanding of receivables sold was approximately $300,000 as of November 30, 2024 and August 31, 2024. The amount of receivables pledged as collateral as of November 30, 2024 and August 31, 2024 was $347,252 and $349,743 , respectively.
13
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The following table summarizes the activity and amounts outstanding under the RPA for the thirteen-week periods ended November 30, 2024 and December 2, 2023
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Receivables sold under the RPA | $ | $ | |||||||||||||||||||||
| Cash collected on sold receivables under the RPA | $ | $ | |||||||||||||||||||||
The receivables sold incurred fees due to the Purchasers of $4,202 during the thirteen-week period ended November 30, 2024 and $4,611 during the thirteen-week period ended December 2, 2023 which were recorded within Other expense, net in the unaudited Condensed Consolidated Statements of Income. The financial covenants under the RPA are substantially the same as those under the Credit Facilities and the Private Placement Debt (each, as defined below). See Note 7, “Debt” for more information about these financial covenants.
Note 7. Debt
Debt at November 30, 2024 and August 31, 2024 consisted of the following:
| November 30, 2024 | August 31, 2024 | |||||||||||||
| Amended Revolving Credit Facility | $ | $ | ||||||||||||
| Uncommitted Credit Facilities | ||||||||||||||
| Long-Term Note Payable | ||||||||||||||
| Private Placement Debt: | ||||||||||||||
| Financing arrangements | ||||||||||||||
| Obligations under finance leases | ||||||||||||||
| Less: unamortized debt issuance costs | ( | ( | ||||||||||||
| Total debt, including obligations under finance leases | $ | $ | ||||||||||||
| Less: current portion | ( | (1) | ( | (2) | ||||||||||
| Total long-term debt, including obligations under finance leases | $ | $ | ||||||||||||
(1)Consists of $210,250 from the Uncommitted Credit Facilities (as defined below), $20,000 from the 3.79 % Series 2019A Notes, $6 from financing arrangements, $204 from obligations under finance leases and net of unamortized debt issuance costs of $383 expected to be amortized in the next 12 months.
(2)Consists of $209,500 from the Uncommitted Credit Facilities, $20,000 from the 3.79 % Series 2019A Notes, due June 11, 2025, $595 from financing arrangements, $199 383 expected to be amortized in the next 12 months.
In April 2017, the Company entered into a $600,000 revolving credit facility, which was subsequently amended and extended in August 2021 (as amended and extended, the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility, which matures on August 24, 2026, provides for a five-year unsecured revolving loan facility on a committed basis. The interest rate for borrowings under the Amended Revolving Credit Facility is based on either the Adjusted Term SOFR Rate (as defined in the Amended Revolving Credit Facility) or a base rate, plus a spread based on the Company’s consolidated leverage ratio at the end of each fiscal reporting quarter. The Company currently elects to have
14
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
loans under the Amended Revolving Credit Facility bear interest based on the Adjusted Term SOFR Rate with one-month interest periods.
The Amended Revolving Credit Facility permits up to $50,000 to be used to fund letters of credit. The Amended Revolving Credit Facility also permits the Company to initiate one or more incremental term loan facilities and/or to increase the revolving loan commitments in an aggregate amount not to exceed $300,000 . Subject to certain limitations, each such incremental term loan facility or revolving loan commitment increase will be on terms as agreed to by the Company, the administrative agent and the lenders providing such financing. Outstanding letters of credit were $6,304
Uncommitted Credit Facilities
During fiscal year 2024, the Company either extended or amended all three of its uncommitted credit facilities. These facilities (collectively, the “Uncommitted Credit Facilities” and, together with the Amended Revolving Credit Facility, the “Credit Facilities”) total $211,000 in aggregate maximum uncommitted availability, under which $210,250 and $209,500 were outstanding at November 30, 2024 and August 31, 2024, respectively, and are included in Current portion of debt including obligations under finance leases in the unaudited Condensed Consolidated Balance Sheets. The interest rate on the Uncommitted Credit Facilities is based on the Secured Overnight Financing Rate. Borrowings under the Uncommitted Credit Facilities are due at the end of the applicable interest period, which is typically one month but may be up to six months and may be rolled over to a new interest period at the option of the applicable lender. The Company’s lenders have, in the past, been willing to roll over the principal amount outstanding under the Uncommitted Credit Facilities at the end of each interest period but are not obligated to do so. Each Uncommitted Credit Facility matures within one year of entering into such Uncommitted Credit Facility and contains certain limited covenants which are substantially the same as the limited covenants contained in the Amended Revolving Credit Facility. All of the Uncommitted Credit Facilities are unsecured and rank equally in right of payment with the Company’s other unsecured indebtedness.
During the thirteen-week period ended November 30, 2024, the Company borrowed an aggregate $111,500 and repaid an aggregate $99,750 under the Credit Facilities. As of November 30, 2024 and August 31, 2024, the weighted-average interest rates on borrowings under the Credit Facilities were 5.49 % and 6.24 %, respectively.
Private Placement Debt
In July 2016, the Company completed the issuance and sale of $100,000 aggregate principal amount of 2.90 % Senior Notes, Series B, due July 28, 2026; in June 2018, the Company completed the issuance and sale of $20,000 aggregate principal amount of 3.79 % Senior Notes, due June 11, 2025; in March 2020, the Company completed the issuance and sale of $50,000 aggregate principal amount of 2.60 % Senior Notes, due March 5, 2027; and, in April 2024, the Company completed the issuance and sale of $50,000 aggregate principal amount of 5.73 % Senior Notes, due April 18, 2027 (collectively, the “Private Placement Debt”). Interest is payable semiannually at the fixed stated interest rates. All of the Private Placement Debt is unsecured.
Covenants
Note 8. Shareholders’ Equity
Common Stock Repurchases and Treasury Stock
In June 2021, the Board terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of November 30, 2024, the maximum number of shares of Class A Common Stock that were available for repurchase under the Share Repurchase Plan was 1,682 shares. The Share Repurchase Plan allows the
15
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Exchange Act.
During the thirteen-week period ended November 30, 2024, the Company repurchased 219 shares of Class A Common Stock for $18,072 . From this total, 70 shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its stock-based compensation program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen-week period ended November 30, 2024 and the remainder were immediately retired. During the thirteen-week period ended December 2, 2023, the Company repurchased 1,367 shares of Class A Common Stock for $132,045 . From this totals, 87 shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its stock-based compensation program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen-week period ended December 2, 2023 and the remainder were immediately retired. As of November 30, 2024, August 31, 2024 and December 2, 2023, the Company also recorded an accrual for excise tax on share repurchases of $8 , $1,523 and $0 , respectively, which was included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets.
The Company reissued 14 shares of treasury stock during the thirteen-week period ended November 30, 2024, and reissued 13 shares of treasury stock during the thirteen-week period ended December 2, 2023 to fund the MSC Industrial Direct Co., Inc. Amended and Restated Associate Stock Purchase Plan.
Dividends on Common Stock
The Company paid aggregate regular cash dividends of $0.85 per share totaling $47,537 for the thirteen-week period ended November 30, 2024. For the thirteen-week period ended December 2, 2023, the Company paid aggregate regular cash dividends of $0.83 per share totaling $47,192 .
On December 18, 2024, the Board declared a regular cash dividend of $0.85 per share, payable on January 29, 2025, to shareholders of record at the close of business on January 15, 2025. The dividend is expected to result in aggregate payments of $47,480 , based on the number of shares outstanding at December 18, 2024.
Reclassification
In the first quarter of fiscal year 2024, the Company completed its previously announced reclassification (the “Reclassification”) of the common stock to eliminate the Class B Common Stock, par value $0.001 per share (“Class B Common Stock”). At the closing of the Reclassification, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock.
Note 9. Restructuring and Other Costs
Optimization of Company Operations and Profitability Improvement
The Company continues to identify opportunities for improvements in its workforce realignment, strategy and staffing, and its focus on performance management, to ensure it has the right skill sets and number of associates to execute its long-term vision. As such, the Company extends voluntary and involuntary severance and separation benefits to certain associates in order to facilitate its workforce realignment.
As part of the Company’s strategic realignment efforts to optimize its supply chain and distribution network and enhance operational efficiency, the Company engaged consultants beginning in fiscal year 2024, and will continue to incur consulting-related costs in fiscal year 2025. In connection with these efforts, in the second half of fiscal year 2024, the Company commenced its plan to sell its CFC in Columbus, Ohio. As such, the Company extended voluntary and involuntary severance and separation benefits to certain associates and incurred consulting-related costs in the same period
16
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
in order to facilitate its network optimization and workforce realignment that qualify as exit and disposal costs under accounting principles generally accepted in the United States of America.
In addition, from time to time, the Company incurs certain expenses that are an integral component of, and directly attribute to, its restructuring activities, which do not qualify as exit and disposal costs under accounting principles generally accepted in the United States of America. These expenses include professional and consulting-related costs directly associated with the optimization of the Company’s operations and profitability improvement, which are also included in Restructuring and other costs in the unaudited Condensed Consolidated Statements of Income.
The following table summarizes Restructuring and other costs for the thirteen-week periods ended November 30, 2024 and December 2, 2023:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||||||||||||||
| Consulting-related costs | $ | $ | |||||||||||||||||||||
| Associate severance and separation costs | |||||||||||||||||||||||
| Equity award acceleration costs associated with severance | |||||||||||||||||||||||
| Total Restructuring and other costs | $ | $ | |||||||||||||||||||||
Liabilities associated with Restructuring and other costs are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheet as of November 30, 2024. The following table summarizes activity related to liabilities associated with Restructuring and other costs for the thirteen-week period ended November 30, 2024:
| Consulting-related costs | Associate severance and separation costs | Other exit-related costs | Total | ||||||||||||||||||||
| Balance at August 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Payments and other adjustments | ( | ( | ( | ||||||||||||||||||||
| Balance at November 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
Note 10. Income Taxes
During the thirteen-week period ended November 30, 2024, there were no material changes in unrecognized tax benefits.
Note 11. Legal Proceedings
In the ordinary course of business, there are various claims, lawsuits and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters, both individually and in aggregate, is currently not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following is intended to update the information contained in MSC Industrial Direct Co., Inc.’s (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC,” “MSC Industrial,” the “Company,” “we,” “us” or “our”) Annual Report on Form 10-K for the fiscal year ended August 31, 2024 and presumes that readers have access to, and will have read, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of such Annual Report on Form 10-K.
Our Business
MSC is a leading North American distributor of a broad range of metalworking and maintenance, repair and operations (“MRO”) products and services. We help our customers drive greater productivity, profitability and growth with inventory management and other supply chain solutions and deep expertise from more than 80 years of working with customers across industries. We offer approximately 2.4 million active, saleable stock-keeping units through our catalogs; our brochures; our E-commerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; and our customer care centers, customer fulfillment centers (“CFCs”), regional inventory centers and warehouses. We service our customers from five CFCs, nine regional inventory centers, 43 warehouses, and five manufacturing locations. We continue to implement our strategies to gain market share, generate new customers, increase sales to existing customers and diversify our customer base.
Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customer’s needs. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on which the order is received. We focus on offering inventory, process and procurement solutions that reduce supply chain costs and improve plant floor productivity for our customers. We aim to achieve ongoing cost reductions throughout our business by implementing cost-saving strategies and leveraging our existing infrastructure. Additionally, we provide our customers with further procurement cost-saving solutions through technologies such as our Vendor Managed Inventory (“VMI”), Customer Managed Inventory (“CMI”) and vending programs. Our vending machines in service totaled 27,747 as of November 30, 2024, compared to 25,320 as of December 2, 2023, and our In-Plant programs totaled 369 locations as of November 30, 2024, compared to 287 as of December 2, 2023. Our sales force, which focuses on a more complex and high-touch role, drives value for our customers by enabling them to achieve higher levels of growth, profitability and productivity. Our field sales and service associate headcount was 2,723 as of November 30, 2024, compared to 2,619 as of December 2, 2023.
Highlights
Highlights during the thirteen-week period ended November 30, 2024 include:
•We generated $101.9 million of cash from operations, compared to $81.2 million for the same period in the prior fiscal year.
•We had net borrowings of $11.8 million on our credit facilities and private placement debt, compared to net borrowings of $83.0 million for the same period in the prior fiscal year.
•We paid out an aggregate $47.5 million in regular cash dividends, compared to an aggregate $47.2 million in regular cash dividends for the same period in the prior fiscal year.
•We repurchased $18.1 million of MSC’s Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), excluding excise taxes, compared to $132.0 million for the same period in the prior fiscal year. The higher share repurchase volume in the prior year was primarily due to repurchases to offset the share dilution resulting from the Reclassification.
Our Strategy
The first phase of our Company-wide initiative, referred to as “Mission Critical,” focused on market share capture and improved profitability. We successfully executed on the first phase of Mission Critical initiatives at the end of fiscal year 2023, which included solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and E-commerce capabilities and diversifying our customers and end-markets. The next phase of our mission critical journey, which began in fiscal year 2024, is anchored in three pillars: (i) maintaining the momentum of the first phase of the mission critical program and our existing growth drivers, (ii) increasing our focus on both core customers and OEM fasteners, and (iii) driving productivity improvements and reducing operating expenses as a percentage of net sales. To accomplish the next phase of our mission critical journey, we will leverage investments in advanced analytics to improve supply chain performance, maintain momentum from our category line reviews and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes. In
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fiscal year 2024, we completed our web price realignment initiative, and we are currently in the process of rolling out our E-commerce enhancements.
Our primary objective is to grow sales profitably while offering our customers highly technical and high-touch solutions to solve their most complex challenges on the plant floor. We have experienced success to date as measured by the growth rates of our high-touch programs, such as vending and in-plant programs, and the rate of new customer implementations. Our strategy is to position ourselves as a mission-critical partner to our customers. We will selectively pursue strategic acquisitions that expand or complement our business in new and existing markets or further enhance the value and offerings we provide.
Business Environment
The United States economy has experienced various macroeconomic pressures including an elevated inflationary environment, sustained high interest rates and general economic and political uncertainty. Such pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations.
We utilize various indices when evaluating the level of our business activity, including the Industrial Production (“IP”) Index. Approximately 66% of our revenues came from sales in the manufacturing sector during the thirteen-week period ended November 30, 2024. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the IP Index. The IP Index measures short-term changes in industrial production. Growth in the IP Index from month to month indicates growth in the manufacturing, mining and utilities industries. The IP Index over the three months ended November 2024 and the average for the three- and 12-month periods ended November 2024 were as follows:
| Period | IP Index | |||||||
| September | 102.5 | |||||||
| October | 102.1 | |||||||
| November | 102.0 | |||||||
| Fiscal Year 2025 Q1 Average | 102.2 | |||||||
| 12-Month Average | 102.5 | |||||||
The average IP Index for the three months ended November 2024 was 102.2, a decline from the adjusted average from the prior quarter and the comparative quarter in the prior year, which were 102.9 and 102.8, respectively.
During the first quarter of fiscal year 2025, the Company continued to experience soft demand for the products and services it offers. This soft demand was felt more acutely in the heavy manufacturing industry, which represented 57 % of our revenues during the thirteen-week period ended November 30, 2024. The IP index for the Machinery & Equipment segment indicated a contraction of 1.0% for the first quarter of fiscal year 2025. The subindexes for Primary Metals and Fabricated Metals also indicated contraction for the quarter ended November 30, 2024. As a result, the demand environment for the Company’s products was softer than the demand environment for the economy as a whole due to the concentration of the Company’s customers in these and other industries, which lagged the IP index as a whole.
We will monitor the current economic conditions for the impact on our customers and markets and assess both risks and opportunities that may affect our business and operations.
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Thirteen-Week Period Ended November 30, 2024 Compared to the Thirteen-Week Period Ended December 2, 2023
The table below summarizes the Company’s results of operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
| Thirteen Weeks Ended | |||||||||||||||||||||||||||||||||||
| November 30, 2024 | December 2, 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 928,484 | 100.0 | % | $ | 953,969 | 100.0 | % | $ | (25,485) | (2.7) | % | |||||||||||||||||||||||
| Cost of goods sold | 550,297 | 59.3 | % | 560,852 | 58.8 | % | (10,555) | (1.9) | % | ||||||||||||||||||||||||||
| Gross profit | 378,187 | 40.7 | % | 393,117 | 41.2 | % | (14,930) | (3.8) | % | ||||||||||||||||||||||||||
| Operating expenses | 303,563 | 32.7 | % | 290,633 | 30.5 | % | 12,930 | 4.4 | % | ||||||||||||||||||||||||||
| Restructuring and other costs | 2,344 | 0.3 | % | 916 | 0.1 | % | 1,428 | 155.9 | % | ||||||||||||||||||||||||||
| Income from operations | 72,280 | 7.8 | % | 101,568 | 10.6 | % | (29,288) | (28.8) | % | ||||||||||||||||||||||||||
| Total other expense | (11,678) | (1.3) | % | (10,250) | (1.1) | % | (1,428) | 13.9 | % | ||||||||||||||||||||||||||
| Income before provision for income taxes | 60,602 | 6.5 | % | 91,318 | 9.6 | % | (30,716) | (33.6) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 14,908 | 1.6 | % | 22,190 | 2.3 | % | (7,282) | (32.8) | % | ||||||||||||||||||||||||||
| Net income | 45,694 | 4.9 | % | 69,128 | 7.2 | % | (23,434) | (33.9) | % | ||||||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | (929) | (0.1) | % | (222) | 0.0 | % | (707) | 318.5 | % | ||||||||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | 46,623 | 5.0 | % | $ | 69,350 | 7.3 | % | $ | (22,727) | (32.8) | % | |||||||||||||||||||||||
Net Sales
Net sales decreased 2.7%, or $25.5 million, to $928.5 million for the thirteen-week period ended November 30, 2024, as compared to $954.0 million for the same period in the prior fiscal year. The $25.5 million decrease in net sales was comprised of $32.1 million of lower sales volume, $2.4 million of unfavorable foreign exchange impact and a negative $0.4 million impact from pricing, inclusive of changes in customer and product mix, discounting and other items, partially offset by an additional $9.4 million of net sales as a result of our fiscal year 2024 acquisitions. Of the $25.5 million decrease in net sales during the thirteen-week period ended November 30, 2024, sales to our core and other customers decreased $27.6 million, sales to our national account customers decreased $5.6 million and sales to our public sector customers increased $7.7 million.
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The table below shows, among other things, the change in our average daily sales (“ADS”) by total Company, by customer end-market and by customer type for the thirteen-week periods ended November 30, 2024 and December 2, 2023, each as compared to the same period in the prior fiscal year:
ADS Percentage Change
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||
| Net Sales (in thousands) | $ | 928,484 | $ | 953,969 | |||||||
| Sales Days | 62 | 62 | |||||||||
ADS (1) (in millions) | $ | 15.0 | $ | 15.4 | |||||||
Total Company ADS Percent Change (2) | (2.7) | % | (0.4) | % | |||||||
| Customer End-Market: | |||||||||||
Manufacturing Customers ADS Percent Change (2)(3) | (4.9) | % | (7.7) | % | |||||||
Manufacturing Customers Percent of Total Net Sales(3) | 66 | % | 68 | % | |||||||
Non-Manufacturing Customers ADS Percent Change (2)(3) | 2.0 | % | 16.5 | % | |||||||
Non-Manufacturing Customers Percent of Total Net Sales(3) | 34 | % | 32 | % | |||||||
| Customer Type: | |||||||||||
National Account Customers ADS Percent Change (2)(4) | (1.6) | % | 5.8 | % | |||||||
National Account Customers Percent of Total Net Sales(4) | 37 | % | 37 | % | |||||||
Public Sector Customers ADS Percent Change (2)(4) | 9.8 | % | 8.9 | % | |||||||
Public Sector Customers Percent of Total Net Sales(4) | 9 | % | 8 | % | |||||||
Core and Other Customers ADS Percent Change (2)(4) | (5.3) | % | (5.3) | % | |||||||
Core and Other Customers Percent of Total Net Sales(4) | 54 | % | 55 | % | |||||||
(1)ADS is calculated using the number of business days in the United States for the periods indicated. The Company believes ADS is a key performance indicator because it shows the effectiveness of the Company’s selling performance on a consistent basis between periods.
(2)Percent reflects the change from the 2024 fiscal period to the 2025 fiscal period and the change from the 2023 fiscal period to the 2024 fiscal period, respectively.
(3)Includes changes in customer end-market classifications as a result of the transition from the Standard Industrial Classification (SIC) to the North American Industry Classification System (NAICS) in the first quarter of fiscal year 2025.
(4)Includes reclassifications of certain customers during fiscal year 2024, primarily between national account customers and core and other customers.
We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our E-commerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 63.7% of consolidated net sales for the thirteen-week period ended November 30, 2024, as compared to 63.3% of consolidated net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of $378.2 million for the thirteen-week period ended November 30, 2024 decreased $14.9 million, or 3.8%, compared to the same period in the prior fiscal year. Gross profit margin was 40.7% for the thirteen-week period ended November 30, 2024, as compared to 41.2% for the same period in the prior fiscal year. The decrease in gross profit
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was primarily a result of lower sales volume, as described above. The decrease in gross profit margin was primarily a result of headwinds between sales price and cost of goods sold and, to a lesser extent, a negative impact from recent acquisitions.
Operating Expenses
Operating expenses increased 4.4%, or $12.9 million, to $303.6 million for the thirteen-week period ended November 30, 2024, as compared to $290.6 million for the same period in the prior fiscal year. Operating expenses were 32.7% of net sales for the thirteen-week period ended November 30, 2024, as compared to 30.5% for the same period in the prior fiscal year. The increase in Operating expenses and Operating expenses as a percentage of net sales were primarily higher payroll costs, primarily due to higher associate headcount to support our strategic growth investments and our annual merit increases, and investments supporting our digital initiatives and solutions growth.
Payroll and payroll-related costs for the thirteen-week period ended November 30, 2024 were 57.2% of total Operating expenses, as compared to 56.8% for the same period in the prior fiscal year. Payroll and payroll-related costs, which include salary, incentive compensation, sales commission and fringe benefit costs, increased $8.6 million for the thirteen-week period ended November 30, 2024. The majority of this increase compared to the same period in the prior fiscal year was due to higher incentive compensation and fringe benefit costs, as well as higher salary expense attributable to higher associate headcount to support our strategic growth investments and our annual merit increases.
Freight expense was $37.5 million for the thirteen-week period ended November 30, 2024, as compared to $37.4 million for the same period in the prior fiscal year.
Restructuring and Other Costs
We incurred $2.3 million in Restructuring and other costs for the thirteen-week period ended November 30, 2024, as compared to $0.9 million for the same period in the prior fiscal year. The increase in Restructuring and other costs primarily consisted of consulting-related costs associated with the Company’s strategic realignment efforts to optimize its supply chain and distribution network. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations decreased 28.8%, or $29.3 million, to $72.3 million for the thirteen-week period ended November 30, 2024, as compared to $101.6 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales decreased to 7.8% for the thirteen-week period ended November 30, 2024, as compared to 10.6% for the same period in the prior fiscal year. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, a lower gross profit margin and an increase in Operating expenses as a percentage of net sales during the thirteen-week period ended November 30, 2024.
Total Other Expense
Total other expense increased 13.9%, or $1.4 million, to $11.7 million for the thirteen-week period ended November 30, 2024, as compared to $10.3 million for the same period in the prior fiscal year. The increase was primarily due to the impact of realized and unrealized losses on foreign exchange.
Provision for Income Taxes
The Company’s effective tax rate for the thirteen-week period ended November 30, 2024 was 24.6%, as compared to 24.3% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to a lower tax benefit from stock-based compensation.
Net Income
The factors which affected net income for the thirteen-week period ended November 30, 2024, as compared to the same period in the prior fiscal year, have been discussed above.
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Liquidity and Capital Resources
| November 30, 2024 | August 31, 2024 | $ Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Total debt | $ | 519,967 | $ | 508,764 | $ | 11,203 | |||||||||||
| Less: Cash and cash equivalents | 57,266 | 29,588 | 27,678 | ||||||||||||||
| Net debt | $ | 462,701 | $ | 479,176 | $ | (16,475) | |||||||||||
| Total shareholders’ equity | $ | 1,383,406 | $ | 1,401,282 | $ | (17,876) | |||||||||||
As of November 30, 2024, we had $57.3 million in cash and cash equivalents, substantially all with well-known financial institutions. Historically, our primary financing needs have been to fund our working capital requirements necessitated by our sales growth and the costs of acquisitions, new products, new facilities, facility expansions, investments in vending solutions, technology investments, and productivity investments. Cash generated from operations, together with borrowings under our credit facilities and net proceeds from the private placement notes, have been used to fund these needs, to repurchase shares of Class A Common Stock from time to time, and to pay dividends to our shareholders.
As of November 30, 2024, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $520.0 million, net of unamortized debt issuance costs of $0.7 million, as compared to total borrowings outstanding of $508.8 million, net of unamortized debt issuance costs of $0.8 million, as of the end of fiscal year 2024. The increase in total borrowings outstanding was driven by higher net borrowings under our credit facilities to fund the repurchase of shares of Class A Common Stock during the first quarter of fiscal year 2025. See Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
We believe, based on our current business plan, that our existing cash, financial resources and cash flow from operations will be sufficient to fund anticipated capital expenditures and operating cash requirements for at least the next 12 months. We will continue to evaluate our financial position in light of future developments and to take appropriate action as it is warranted.
The table below summarizes certain information regarding the Company’s cash flows for the periods indicated:
| Thirteen Weeks Ended | |||||||||||
| November 30, 2024 | December 2, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 101,868 | $ | 81,168 | |||||||
| Net cash used in investing activities | (20,408) | (18,433) | |||||||||
| Net cash used in financing activities | (53,359) | (87,191) | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | (423) | 209 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 27,678 | $ | (24,247) | |||||||
Cash Flows from Operating Activities
Net cash provided by operating activities was $101.9 million for the thirteen weeks ended November 30, 2024, compared to $81.2 million for the thirteen weeks ended December 2, 2023. The increase was primarily due to the following:
•an increase in the change in accounts payable and accrued purchases as compared to the prior year period primarily due to the decrease in accruals for incentive compensation in the prior year; partially offset by
•a decrease in net income.
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The table below summarizes certain information regarding the Company’s operations as of the periods indicated:
| November 30, 2024 | August 31, 2024 | December 2, 2023 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
Working Capital (1) | $ | 580,104 | $ | 582,662 | $ | 643,108 | |||||||||||
Current Ratio (2) | 1.9 | 2.0 | 2.0 | ||||||||||||||
Days’ Sales Outstanding (3) | 40.5 | 37.9 | 40.8 | ||||||||||||||
Inventory Turnover (4) | 3.3 | 3.3 | 3.2 | ||||||||||||||
(1)Working Capital is calculated as current assets less current liabilities.
(2)Current Ratio is calculated as total current assets divided by total current liabilities.
(3)Days’ Sales Outstanding is calculated as accounts receivable divided by net sales, using trailing two months sales data.
(4)Inventory Turnover is calculated as total cost of goods sold divided by inventory, using a 13-month trailing average inventory.
Working capital as of November 30, 2024 declined slightly compared to August 31, 2024 and declined compared to December 2, 2023, while the current ratio declined slightly compared to both August 31, 2024 and December 2, 2023. The decrease in working capital compared to December 2, 2023 was primarily due to lower inventory balances, partially offset by lower balances in the Current portion of debt including obligations under finance leases and Accrued expenses and other current liabilities.
Days’ sales outstanding as of November 30, 2024 remained comparable to December 2, 2023, whereas the increase in days’ sales outstanding as of November 30, 2024 as compared to August 31, 2024 was primarily due to the receivables portfolio consisting of a greater percentage of our national account program sales, which typically have longer payment terms.
Inventory turnover as of November 30, 2024 remained comparable August 31, 2024 and increased compared to December 2, 2023. This improvement in inventory turnover compared to December 2, 2023 was due to growth in cost of goods sold outpacing growth in inventory. Recent lower inventory balances were due to lower purchase volumes, category management efforts and supply chain efficiencies.
Cash Flows from Investing Activities
Net cash used in investing activities for the thirteen weeks ended November 30, 2024 and December 2, 2023 was $20.4 million and $18.4 million, respectively. The use of cash for both periods was primarily due to expenditures for property, plant and equipment mainly related to vending programs and other infrastructure and technology investments.
Cash Flows from Financing Activities
Net cash used in financing activities was $53.4 million for the thirteen weeks ended November 30, 2024, compared to $87.2 million for the thirteen weeks ended December 2, 2023, primarily due to the following:
•$18.1 million in aggregate repurchases of Class A Common Stock during the thirteen weeks ended November 30, 2024, compared to $132.0 million in aggregate repurchases of Class A Common Stock during the thirteen weeks ended December 2, 2023;
•$47.5 million of regular cash dividends paid during the thirteen weeks ended November 30, 2024, compared to $47.2 million of regular cash dividends paid during the thirteen weeks ended December 2, 2023; and
•net borrowings of $11.8 million under our credit facilities and private placement debt during the thirteen weeks ended November 30, 2024, compared to net borrowings of $83.0 million during the thirteen weeks ended December 2, 2023.
Capital Expenditures
We continue to invest in E-commerce and vending platforms, CFCs and distribution network, and other infrastructure and technology.
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Long-Term Debt
Credit Facilities
In April 2017, the Company entered into a $600.0 million revolving credit facility, which was subsequently amended and extended in August 2021. Subsequent to the fiscal quarter ended November 30, 2024, the Company made additional net payments of $20.0 million through December 18, 2024 on its revolving credit facility. The current unused balance of $528.7 million from the revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. As of November 30, 2024, the Company also had three uncommitted credit facilities, totaling $211.0 million in aggregate maximum uncommitted availability. As of November 30, 2024, we were in compliance with the operating and financial covenants of our credit facilities. See Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
Private Placement Debt
In July 2016, we completed the issuance and sale of unsecured senior notes. In June 2018 and March 2020, we entered into additional note purchase agreements. In April 2024, the Company completed the issuance and sale of senior notes. See Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these transactions.
Leases and Financing Arrangements
As of November 30, 2024, certain of our operations were conducted on leased premises. These leases are for varying periods, the longest extending to fiscal year 2031. In addition, we are obligated under certain equipment and automobile operating and finance leases, which expire on varying dates through fiscal year 2029.
From time to time, we enter into financing arrangements with vendors to purchase certain information technology equipment or software.
Critical Accounting Estimates
On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, inventory valuation, allowance for credit losses, warranty reserves, contingencies and litigation, income taxes, and accounting for goodwill and long-lived assets. We make estimates, judgments and assumptions in determining the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying Notes. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimates are used to form the basis for making judgments about the carrying values of assets and liabilities and the amount of revenues and expenses reported that are not readily apparent from other sources. Actual results may differ from these estimates.
There have been no material changes outside the ordinary course of business in the Company’s critical accounting policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended August 31, 2024.
Recently Adopted Accounting Standards
See Note 1, “Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding our exposure to certain market risks, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Interest Rate Risks” under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2024. Except as described in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this Report, there have been no significant changes in our financial instrument portfolio or interest rate risk since our August 31, 2024 fiscal year-end.
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Item 4. Controls and Procedures.
Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of November 30, 2024 due to the material weakness in internal control over financial reporting as described below.
Material Weakness and Remediation Plan
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended August 31, 2024, we identified a material weakness in our internal control over financial reporting relating to deficiencies in the operating effectiveness of our information technology general controls (“ITGCs”) relating to user access for certain information technology systems that support financial reporting processes for revenue and inventory transactions. The deficiencies specifically affected the quality of the data used in execution of our ITGCs, the assessment of the risk of inappropriate activity and the review of user access, which was not performed with the necessary level of precision. As a result, certain of our business process controls related to recording revenue and inventory transactions that are dependent on the affected IT systems or the information from such IT systems were also deemed ineffective.
We have commenced implementation of, and made substantial progress on, a remediation plan to address the material weakness mentioned above. As part of such plan we have, among other things, evaluated and implemented enhanced process controls around user access management and expanded documentation and review procedures to monitor, evaluate and support control effectiveness. We have not identified any errors or misstatements in our consolidated financial statements as a result of such material weakness, and our Chief Executive Officer and Chief Financial Officer have each certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-Q, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-Q.
We will continue to address and test for additional opportunities for remediation on an ongoing basis. However, the weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Other than with respect to the remediation efforts described above in connection with the previously identified material weakness, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act) during the fiscal quarter ended November 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of business, there are various claims, lawsuits and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters, both individually and in aggregate, is currently not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the risks and the uncertainties discussed in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended August 31, 2024, which could materially affect our business, financial condition and/or operating results. There have been no material changes in the Company’s risk factors from those disclosed in our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth repurchases by the Company of its outstanding shares of Class A Common Stock, which are listed on the New York Stock Exchange, during the thirteen-week period ended November 30, 2024:
Issuer Purchases of Equity Securities
| Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(3) | ||||||||||||||||||||||
| 9/1/24-10/1/24 | 139 | $ | 84.97 | — | 1,830,545 | |||||||||||||||||||||
| 10/2/24-10/31/24 | 115,307 | $ | 82.16 | 115,000 | 1,715,545 | |||||||||||||||||||||
| 11/1/24-11/30/24 | 103,277 | $ | 83.12 | 33,792 | 1,681,753 | |||||||||||||||||||||
| Total | 218,723 | 148,792 | ||||||||||||||||||||||||
(1)During the thirteen weeks ended November 30, 2024, 69,931 shares of Class A Common Stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our stock-based compensation program and are included in the total number of shares purchased.
(2)Activity is reported on a trade date basis. Average price paid per share excludes excise tax levied by the Inflation Reduction Act of 2022.
(3)In June 2021, the Board of Directors of the Company terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of November 30, 2024, the maximum number of shares of Class A Common Stock that may yet be repurchased under the Share Repurchase Plan was 1,681,753 shares.
Item 5. Other Information.
Insider Trading Arrangements
During the quarter ended November 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”
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Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit No. | Description | |||||||
| 101.INS | Inline XBRL Instance Document.* | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | |||||||
* | Filed herewith. | |||||||
| ** | Furnished herewith. | |||||||
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MSC INDUSTRIAL DIRECT CO., INC. (Registrant) | ||||||||
Dated: January 8, 2025 | By: | /s/ ERIK GERSHWIND | ||||||
Erik Gershwind Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated: January 8, 2025 | By: | /s/ KRISTEN ACTIS-GRANDE | ||||||
Kristen Actis-Grande Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer ) | ||||||||
29
EXHIBIT 31.1
CERTIFICATION
I, Erik Gershwind, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 8, 2025
/s/ ERIK GERSHWIND | |||||
Erik Gershwind | |||||
Chief Executive Officer (Principal Executive Officer) | |||||
EXHIBIT 31.2
CERTIFICATION
I, Kristen Actis-Grande, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 8, 2025
| /s/ KRISTEN ACTIS-GRANDE | |||||
Kristen Actis-Grande | |||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended November 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Erik Gershwind, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 8, 2025
| By: | /s/ ERIK GERSHWIND | |||||||
| Name: | Erik Gershwind Chief Executive Officer (Principal Executive Officer) | |||||||
A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended November 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kristen Actis-Grande, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 8, 2025
| By: | /s/ KRISTEN ACTIS-GRANDE | |||||||
| Name: | Kristen Actis-Grande Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||
A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.