diff --git a/src/backend/base/langflow/custom/directory_reader/directory_reader.py b/src/backend/base/langflow/custom/directory_reader/directory_reader.py
index 81ac913f5..fb0388059 100644
--- a/src/backend/base/langflow/custom/directory_reader/directory_reader.py
+++ b/src/backend/base/langflow/custom/directory_reader/directory_reader.py
@@ -9,6 +9,8 @@ from loguru import logger
 
 from langflow.custom import Component
 
+MAX_DEPTH = 2
+
 
 class CustomComponentPathValueError(ValueError):
     pass
@@ -135,12 +137,11 @@ class DirectoryReader:
             if "deactivated" in file_path.parent.name:
                 continue
 
-            # The other condtion is that it should be
-            # in the safe_path/[folder]/[file].py format
-            # any folders below [folder] will be ignored
-            # basically the parent folder of the file should be a
-            # folder in the safe_path
-            if file_path.is_file() and file_path.parent.parent == safe_path_obj and not file_path.name.startswith("__"):
+            # Calculate the depth of the file relative to the safe path
+            relative_depth = len(file_path.relative_to(safe_path_obj).parts)
+
+            # Only include files that are one or two levels deep
+            if relative_depth <= MAX_DEPTH and file_path.is_file() and not file_path.name.startswith("__"):
                 file_list.append(str(file_path))
         return file_list
 
diff --git a/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/components/categoryGroup/index.tsx b/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/components/categoryGroup/index.tsx
index 3756e37bf..2e54e274b 100644
--- a/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/components/categoryGroup/index.tsx
+++ b/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/components/categoryGroup/index.tsx
@@ -3,6 +3,7 @@ import {
   SidebarGroupContent,
   SidebarMenu,
 } from "@/components/ui/sidebar";
+import { SIDEBAR_BUNDLES } from "@/utils/styleUtils";
 import { memo } from "react";
 import { CategoryGroupProps } from "../../types";
 import { CategoryDisclosure } from "../categoryDisclouse";
@@ -23,20 +24,42 @@ export const CategoryGroup = memo(function CategoryGroup({
     <SidebarGroup className="p-3">
       <SidebarGroupContent>
         <SidebarMenu>
-          {CATEGORIES.toSorted(
-            (a, b) =>
-              (search !== "" ? sortedCategories : CATEGORIES).findIndex(
-                (value) => value === a.name,
-              ) -
-              (search !== "" ? sortedCategories : CATEGORIES).findIndex(
-                (value) => value === b.name,
-              ),
-          ).map(
-            (item) =>
-              dataFilter[item.name] &&
-              Object.keys(dataFilter[item.name]).length > 0 && (
+          {Object.entries(dataFilter)
+            .filter(
+              ([categoryName, items]) =>
+                // filter out bundles
+                !SIDEBAR_BUNDLES.some((cat) => cat.name === categoryName) &&
+                categoryName !== "custom_component" &&
+                Object.keys(items).length > 0,
+            )
+            .sort(([aName], [bName]) => {
+              const categoryList =
+                search !== ""
+                  ? sortedCategories
+                  : CATEGORIES.map((c) => c.name);
+              const aIndex = categoryList.indexOf(aName);
+              const bIndex = categoryList.indexOf(bName);
+
+              // If neither is in CATEGORIES, keep their relative order
+              if (aIndex === -1 && bIndex === -1) return 0;
+              // If only a is not in CATEGORIES, put it after b
+              if (aIndex === -1) return 1;
+              // If only b is not in CATEGORIES, put it after a
+              if (bIndex === -1) return -1;
+              // If both are in CATEGORIES, sort by their index
+              return aIndex - bIndex;
+            })
+            .map(([categoryName]) => {
+              const item = CATEGORIES.find(
+                (cat) => cat.name === categoryName,
+              ) ?? {
+                name: categoryName,
+                icon: "folder",
+                display_name: categoryName,
+              };
+              return (
                 <CategoryDisclosure
-                  key={item.name}
+                  key={categoryName}
                   item={item}
                   openCategories={openCategories}
                   setOpenCategories={setOpenCategories}
@@ -46,8 +69,8 @@ export const CategoryGroup = memo(function CategoryGroup({
                   onDragStart={onDragStart}
                   sensitiveSort={sensitiveSort}
                 />
-              ),
-          )}
+              );
+            })}
         </SidebarMenu>
       </SidebarGroupContent>
     </SidebarGroup>
diff --git a/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/index.tsx b/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/index.tsx
index 32e41fb34..857430ee8 100644
--- a/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/index.tsx
+++ b/src/frontend/src/pages/FlowPage/components/flowSidebarComponent/index.tsx
@@ -120,19 +120,12 @@ export function FlowSidebarComponent() {
   const sortedCategories = useMemo(() => {
     if (!searchResults || !searchFilteredData) return [];
 
-    return Object.keys(searchFilteredData)
-      .filter(
-        (category) =>
-          Object.keys(searchFilteredData[category]).length > 0 &&
-          (CATEGORIES.find((c) => c.name === category) ||
-            BUNDLES.find((b) => b.name === category)),
-      )
-      .toSorted((a, b) =>
-        searchResults.fuseCategories.indexOf(b) <
-        searchResults.fuseCategories.indexOf(a)
-          ? 1
-          : -1,
-      );
+    return Object.keys(searchFilteredData).toSorted((a, b) =>
+      searchResults.fuseCategories.indexOf(b) <
+      searchResults.fuseCategories.indexOf(a)
+        ? 1
+        : -1,
+    );
   }, [searchResults, searchFilteredData, CATEGORIES, BUNDLES]);
 
   const finalFilteredData = useMemo(() => {
@@ -305,16 +298,6 @@ export function FlowSidebarComponent() {
     [dataFilter],
   );
 
-  const hasCategoryItems = useMemo(
-    () =>
-      CATEGORIES.some(
-        (item) =>
-          dataFilter[item.name] &&
-          Object.keys(dataFilter[item.name]).length > 0,
-      ),
-    [dataFilter],
-  );
-
   return (
     <Sidebar
       collapsible="offcanvas"
@@ -342,20 +325,18 @@ export function FlowSidebarComponent() {
       <SidebarContent>
         {hasResults ? (
           <>
-            {hasCategoryItems && (
-              <CategoryGroup
-                dataFilter={dataFilter}
-                sortedCategories={sortedCategories}
-                CATEGORIES={CATEGORIES}
-                openCategories={openCategories}
-                setOpenCategories={setOpenCategories}
-                search={search}
-                nodeColors={nodeColors}
-                chatInputAdded={chatInputAdded}
-                onDragStart={onDragStart}
-                sensitiveSort={sensitiveSort}
-              />
-            )}
+            <CategoryGroup
+              dataFilter={dataFilter}
+              sortedCategories={sortedCategories}
+              CATEGORIES={CATEGORIES}
+              openCategories={openCategories}
+              setOpenCategories={setOpenCategories}
+              search={search}
+              nodeColors={nodeColors}
+              chatInputAdded={chatInputAdded}
+              onDragStart={onDragStart}
+              sensitiveSort={sensitiveSort}
+            />
             {hasBundleItems && (
               <MemoizedSidebarGroup
                 BUNDLES={BUNDLES}