Hello, and welcome to the Fastenal 2024 Q1 Earnings Results Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Taylor Ranta of the Fastenal Company. Please go ahead, Taylor.

Welcome to the Fastenal Company 2024 first quarter earnings conference call. This call will be hosted by Dan Florness, our President and Chief Executive Officer; and Holden Lewis, our Chief Financial Officer. The call will last for up to one hour and will start with a general overview of our quarterly results and operations with the remainder of the time being open for questions-and-answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until June 1, 2024, at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Dan Florness.

Thank you, Taylor, and good morning, everybody, and thank you for joining us for our first quarter call. And I'm going to go right to the flip book, page 3. And my comments on page 3 can be summarized with five statements. First one is, a tough quarter. Second one is, tricky calendar. Third one is, highlighting the customer expo. Third [sic] [Fourth] is strong performance on our growth drivers. And then the final is financially strong and that strength is continuing to build as we've seen in recent years. Going back to the tough quarter. So we grew about 2%. Coming into the quarter, we anticipated a number that was probably in that 4% neighborhood. And the tricky calendar was really a function of January and February are seasonally weaker months for us. Then March starts to pick up as we move into the spring. So having two days shifted out of March and into January and February, respectively, wasn't helpful, but that was a known event coming into the quarter. And having the quarter end on Good Friday being in March versus in April is negative. But that's probably more of a function of trying to rationalize and figure out things on the quarter. The truth of the matter is the core issue remains sluggish demand. A positive we saw is after 16 consecutive months of sub-50 Purchasing Managers Index, we broke above 50 in the month of March. And the other day, I chatted with Holden and I said, how long have they been checking the PMI statistics and he said, yeah, since early 1970s. So, we did a look and there's been two periods that have had longer duration of 16 months. The one would have been in the early 1980s, I believe it was a 19-month duration. The other was in the dotcom meltdown year of the early 2000 that was about a 17 or 18-month duration. Now in full disclosures, they were a little bit longer. They were actually more severe as far as where it went into -- how far into the 40s that it went or even into the upper 30s. There were a few other periods, obviously, the 2008, 2009 period, much shorter in duration, but pretty steep, but we feel positive about the 15 March, and time will tell if it's a head fake or if it's real, but that speaks to what we think might be happening as we move into the second half of the year. The customer expo, which we'll host next week on the 17th and 18th in Nashville, Tennessee. I'm upbeat about that from the standpoint. One aspect that's challenged us in recent years with customer acquisition has been the fact that starting about 20 years ago, we started doing an employee event or we bring employees in, engage with our suppliers, and it was a great opportunity to hold in the month of December, some planning discussions for the next calendar year, but also have a trade show where employees get to interact directly with suppliers and learn about their products, learn about their supply chain. And also over time, learn more and more about some of the FMI devices that are coming out, which started up in the kind of the 2007, 2008 time frame when we started vending. What we learned a number of years into it that a lot of employees want to bring their customers to this. They thought to be a great means to expose our customer to their supply chain. And we started doing that probably five, six years later, and we've been doing that for many years. In 2020 and 2021 because of COVID, we had to shut down the event. And we felt the impact of that over time, and it shows up in things like on-site signings. It shows up in how we're engaging with that customer. What I'm pleased to say is, after restarting the event in 2022 and continuing it in 2023 and 2024, in 2024, we were surprised by the overbooked status of the show, and we've had to dramatically expand it. And Holden will touch on some of that in his comments about what that means for the second quarter as far as expenses. But we'll have 50% more people attending this year than did last year, and we'll have double the number of people attending this year than we did last year. I believe that speaks well to our ability to capture market share with that subset of customers. And that's been challenging us for the last several years because we just couldn't engage in the same way. So, it's an expense issue for the second quarter. It's a really high-class expense issue for the second quarter. On the next page, I'll touch on growth drivers. So flipping to Page 4. On-site, we had 102 signings during the quarter. So the number of active sites we had operating at the end of the quarter was up about 12% from what it was in the first quarter of last year. And our sales going through that channel grew low single-digits, which tells me that that's where we're seeing the demand issue play out in our numbers is because that number should be closer to what we're seeing in unit growth. The FMI Technology, we signed 105 devices a day, and I believe we've only had one quarter that we've ever done over 100. And if you think back to a few years ago, what we really challenged our team to do back in that 2017, 2018 time frame, we geared up our infrastructure to support 100 signings a day. And we challenge everybody to engage with our customer and to get there. And by 2022, we were doing about 83 a day. In 2023, we had grown that to about 90 a day. And those numbers are based on the average of the first three quarters of the year. So, last year, we did 92, 106, 95, average of about 98. Officially, we've always said that we want to get that over 100. Internally, what we've challenged our team to do is to get that number up into the 120s. And so, we feel really good about Onsite and FMI Technology as far as the progress we're making to take market share. In a similar comparison that I did with the unit growth of Onsite. So FMI, we have 10.5% more devices today than we did a year ago, but you can see some falloff in the revenue per device. And in safety, for example, we grew about 8%. And when I look at our revenue per device, it's down 1% to 2% from a year ago. It's been pretty flat as we've gone through the year so far. And again, that's a demand, but ultimately, it's a market share. It's a land grab. And so, we will take market share by deploying more devices. And then we have to live with what the actual consumption is in those customers, whether it's robust or less than robust. It's a sign of permanent market share, and I'm pleased with the progress we're seeing there, and how it shines through in things like our safety because about half of our vending sales involve safety products. E-commerce continues to get nice traction. And our digital footprint continues to expand. We're approaching 60% of sales. And our anticipation is sometime this year that number will hit the mid-60s, 66 is our target. And ultimately, we believe that ends up being 85% of sales. So on the second page, I feel really good about the progress, but I'll finish where I started. It was a tough quarter, and we feel good about where we're going. With that, I'll turn it over to Holden.

Great. Thanks, Dan. Good morning, everyone. I'm going to begin on Slide 5. Total and daily sales in the first quarter of 2024 were up 1.9%. Q1 is seasonally low volume to start, but this year contended as well with severe weather in January and a good Friday holiday that fell in March for the first time in five years, an impact that was compounded by a following on the last business day of the quarter. This timing is estimated to have cost us 30 to 50 basis points of growth in the quarter. No matter how one treats this noise, however, it doesn't mask that the primary challenge remains poor underlying demand. Industrial production declined slightly in January and February, but the components that most directly affect Fastenal such as machinery, were much weaker than the overall index. Overall, end market and product dynamics are unchanged from prior periods. Total manufacturing grew 2.6%, continuing to moderate from prior periods, while our fastener product line was down 4.4% with contraction in MRO and OEM products. This reflected soft industrial production, particularly for key components such as fabricated metal and machinery, and in the case of fasteners, negative pricing. Non-residential construction and reseller continued to contract though at moderating rates as we experienced easier comparisons. Sales into warehousing, which are the fulfillment centers of retail-oriented customers remained healthy in the first quarter of 2024, albeit not quite at levels experienced in November and December of 2023. This combined with good FMI signing contributed to 8.3% growth in sales of safety products. The tone of business activity from regional leadership is best characterized as steady at weak levels. We are encouraged by the forward-looking PMI moving above 50 in March for the first time since October '22. However, current conditions remain better defined by the string of sub-50 readings that prevailed in the latter part of '23 and at the start of 2024. Now to Slide 6. Operating margin in the first quarter of 2024 was 20.6%, down 60 basis points year-over-year. Looking at the pieces, gross margin in the first quarter of 2024 was 45.5%, down 20 basis points from the year ago period. Product and customer mix was a drag, partly offset by slightly positive price/cost, which continues to recapture the negative price/cost that we experienced in the first quarter of 2023. In addition, with stocking levels largely rightsized, we experienced an increase in product movement across our network, which produce leverage of internal and external trucking resources. SG&A was 24.9% of sales in the first quarter of 2024, an increase from 24.6% from the year ago period. Total SG&A was up 3.2%. Occupancy and other SG&A expenses were well contained, increasing just 1.5% collectively. The deleverage was from labor costs, which increased 3.9%, which included a 3.3% increase in average FTE in the period and substantially higher health care costs. The consistent low growth in SG&A over the last five quarters reflects the Blue Team doing a good job, spending where appropriate to support growth and scrimping where appropriate to preserve margin, but at some point, sales growth is the core issue. And as growth accelerates, we believe we will leverage the P&L. That said, I wanted to provide a little color on some factors that may affect margins in the second quarter of 2024. First, we continue to make investments in travel, hardware and personnel to support near and intermediate-term growth. This won't necessarily to any greater degree than was true in the first quarter of 2024, but it was a reason for deleverage in the period and could be again, if growth doesn't accelerate in the second quarter. Second, the expansion of attendees at our customer expo will result in an increase in expenses in the second quarter of 2024 on both an annual and sequential basis. Third, our success solving customer -- certain customers' supply chain challenges in the fourth quarter of 2023 has created opportunities to service these customers at greater scale in the future. This will require certain near-term investments to ensure that we can meet these customers' needs. The latter two items could impact second quarter 2024 operating margins by approximately 30 basis points. We do not expect these costs to carry over into subsequent periods. Putting everything together, we reported first quarter 2024 EPS of $0.52, flat versus the first quarter of 2023, with net income up just slightly at up 0.6%. Turning to Slide 7. We generated $336 million in operating cash in the first quarter of 2024 or 113% of net income. While below the prior year, when we deliberately reduced layers of inventory, the current year's conversion rate is consistent with historical first quarter rates. With good cash generation and a soft demand environment, we continue to carry a conservatively capitalized balance sheet with debt being 5.5% of total capital down from 10.9% of total capital at the end of the first quarter of 2023. Working capital dynamics were consistent with recent periods. Accounts receivable were up 5.5%, driven primarily by total sales growth and a shift towards larger customers, which tend to have longer terms. Inventories were down 9.4%, which continues to reflect primarily the reduction of inventory layers built a year ago to manage supply constraints and modest inventory deflation. While we will continue to focus on continuous improvement as it relates to inventory management, the rate of decline in our inventory balances will likely moderate going forward as the process of rightsizing our stock is largely complete. Net capital spending in the first quarter of 2024 was $48.3 million, an increase from $30.9 million in the first quarter of 2023. This increase is consistent with our expectations for the full year where we anticipate capital spending in a range of $225 million to $245 million, up from $161 million in 2023. This increase remains a result of spending for hub automation and capacity, the substantial completion of an upgraded distribution center in Utah, an increase in FMI spend in anticipation of higher signings and in information technology. Now before turning to Q&A, I wanted to offer a higher level perspective on the quarter. Quantitatively, as Dan noted, it was challenging. But qualitatively, it was an encouraging quarter. We've touched on our disappointment with the pace of customer acquisition over the past several quarters and the changes made in mid-2023 to begin to address this. We view customer enthusiasm for our expo, the solid performance of our growth drivers and trends in our contract business as manifestations of those efforts starting to take root. Change takes time and success can be uneven. However, we do believe we are seeing good indications of progress, which should reaccelerate market share gains as we proceed through 2024. With that, operator, we will turn it over to begin the Q&A.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Tommy Moll from Stephens.

Good morning, and thank you for taking my questions.

Good morning.

I wanted to double-click on Onsites where the KPI this quarter was quite strong, as you referenced. And Holden, you alluded to some of the leadership changes from recent months. I assume there's a connection there. But what can you do to just bring us in a little deeper on that Onsite performance in Q1 and what you might expect going forward? What's changed?

I think we -- one of the changes we made, and this was -- if I go back 15 years, we made a decision to split our business into three distinct entities, essentially, the Eastern US, the Western US, and international. And in our national accounts team, we split into three pieces to as we align with those three business units. We did that for about seven years. And around 2014, we saw that national accounts being three distinct entities, it was a little chaotic. And so we rolled that back into one umbrella. When we're going through 2022, we're putting up really good numbers and the economy is rebounding. But when I look at things like what was going on with our Onsite signings, what was going on with our contract acquisition numbers, they were softening and it's not about a person or a thing. It's about sometimes are we aligned to pursue a common goal, or are we too fixated on our individual goals? It seemed like we had so many groups talking about how well they were doing. But somehow if every group is doing well and the organization is slipping, something's wrong with how we're looking at it. And so in the spring of 2023, we realigned everything under one sales leader and realigned the US back into one business unit. And there's disruption when there's change, and it takes time to gain traction. But I think a manifestation of that is the Onsite signings and one month isn't a trend, but they improved. The fact that we're scrambling in the last 45 days, the last 30 days, and I say, we – there's a team that's coordinating our trade show. So it's been extremely busy lining up additional hotel rooms, additional space for an event that's much larger than we anticipated two months ago. That's a function of an engaged sales team and a customer that's engaged with us of understanding how we can help their business. So that's what the 102 means to me and of equal importance, the record sign-up relative to post-COVID world on folks attending our show and learning about how we can help. And I know personally, the visits I've been on, there's some really good traction going on out there, and I feel good about it. We just have to work through the fact that we were taking market share from the standpoint of contract signings at an unacceptably low rate for a period of time. And the time between changing your sales focus, getting traction and that turns into revenue, doesn't happen in a quarter.

Probably what I might add to that is I think an area where some of the changes are, perhaps, having the most rapid beneficial impact is probably on the contract side of the business. We've seen improvements in sort of the rate of signings on the contract side as well. And bear in mind, when you're talking about national accounts and large customers, those also tend to be the kinds of customers that are signing up Onsites, utilizing more vending machines, right? And so some of the early indications of success we're having in that group, I think, also lend itself to that area. So again, it's uneven. I know Onsite signings can be lumpy. But you just look at a lot of those indications as a sign that the steps that we've taken are beginning to take root.

Thank you, both. As a follow-up, I wanted to ask about a new disclosure you introduced today, just breaking out your OEM versus MRO fastener business with some new granularity there. I was just curious what was the decision-making process to do that? And is there a takeaway you want us to make sure to have today? I mean one that comes to mind is just the relative size of those two businesses where OEM is nearly 2x the MRO in terms of revenue contribution. But if there's something you want to make sure we take away, please flag it for us.

We've been looking at that number internally for a number of years. And in full disclosure, when we first started delineating it, we had to figure out how to do it because it isn't always evident what is an OEM sale, what's an MRO sale. In the early years, the way we did it, OEM sales are not taxable. MRO sales are taxable. So our initial take at estimating what the two pieces were was to look at it in that lens. And that actually proved to be pretty accurate. And then we fine-tuned it and fine-tuned it. I think the biggest change is why Holden is willing to put it in a document because I didn't know he was putting it in this quarter until I read it in the draft of the press. The biggest reason, I think he feels more comfortable talking about it in print rather than talking about it in concept. And other than that, I don't know if there's a message behind it and Holden you might tell me I'm full of it, and he's got a message there.

Now as I usually say, we're not playing a three-dimensional chess here with data. We gather the information, we figure we'd provide some information. Now I will tell you that both OEM and MRO tend to move with industrial production directionally the same way. But I think there's certainly.

As far as fasteners are concerned.

As far as fasteners are concerned. Now I think there's some information that could be in there, right? I mean when you think about Onsites. Onsites are probably more oriented towards OEM fasteners than MRO fasteners. And so there's some information in there about how Onsites are going. It gives you a little bit more granularity and the cyclicality because again, OEM fasteners tend to be -- while the directionality may be the same, the order of magnitude may be different. So it gives you a little bit of color into that as well. So as Dan indicated, we gathered the data anyway. We saw no reason why we shouldn't share it. Question is about to come up on the call, and so you can have it.

Appreciate it. I'll turn it back. Thank you.

Thank you. Your next question is coming from Chris Snyder from UBS. Your line is now live.

Thank you. And I appreciate the question. Maybe first, starting on SG&A and the willingness to spend and invest in the business. I felt like the past couple of quarters the message was really tightening the belt in response to lower growth. This quarter, it seems like it's more willing to spend to support and drive that higher growth. So is that the right takeaway? And do you feel like maybe more spend is needed to get back to the more normalized historical levels of market outgrowth and customer acquisition? Thank you.

Yes. I guess, I would maybe phrase that differently in one regard. We've been investing to grow throughout the cycle. But we had some offsets and we talked about this in the January call, and that was we were closing locations for a decade, and that gave us a little nugget of an offset. As we went through 2023, one nugget of an offset was the fact that in 2022, our earnings grew quite dramatically. And in our incentive comp, which is linked to earnings growth, a big piece of it grew quite dramatically. That softened as we went through 2023 and quite frankly more normalized. And but as we get deeper into that, moving away from the 2022 time frame, some of that benefit isn't there. So I don't know that it's a function of -- and I'm looking at it from a growth standpoint and expense, not an absolute. I think it's probably more of a function. Our investments to grow are shining through a little bit more now than maybe they were in the last six to eight quarters

Yes. And I think really, I think what's changed is the rate of growth, too. I often get asked, where is that delineation point where you can expand margin or contract margin. And I've always said it's kind of around that mid single-digit number. I think we've done a nice job limiting over the last five quarters our SG&A growth to 5% or less in each of them. And at the levels of growth, which were unsatisfactory, but not first quarter 2024 unsatisfactory, we were able to defend the margin. I think part of the point I wanted to make is we're not panicking over the deleverage. We don't have a cost problem. But at the same time, there are some things that we're going to continue to invest in. And when I called out 20% growth in sales travel, I don't know that I regret that, to be honest, because I think that, that is related to the improvements we're having in our contract business, the improvements we're having in our signings, right? And we're not going to react to a 2% growth quarter, which we believe is very temporary by beginning to slash costs. I think that was the message. I think as it relates to the other items that we talked about, the Expo and sort of the opportunities we have with a certain customer group that really is just to make a point that we have opportunities that's going to have a spend a little bit more than we might normally do in a single quarter. And we just felt that we should call that out for you because it does matter as you build your models. But I don't think that -- our approach has always been that we're going to invest in the business, and we continue to do so.

Appreciate that. It makes a lot of sense. For the follow-up, a question that we continue to get from investors is around the impact of potential tariffs based on the outcome of the November election. So, just would be interested in your guys' perspective and what that could mean for the business? Thank you.

Our covenant with our customer is a reliable supply chain, a high-quality supply chain, a cost-effective supply chain. The biggest thing we focus on is diversity of supplier. And historically, we didn't necessarily look at that from a geographic standpoint. We looked at it from a number standpoint. For this commodity, for this fastener for this, whatever it might be, you have multiple sources of supply. So if you have a disruption, you can pivot. The other thing we tried to do is we wanted to be a customer of an meaningful size to our supplier base, such that, if there's a pecking order of supply constraint, we're first in line on that pecking order, because we have -- we've been a reliable customer and we pay with cash. And those two things are powerful things in any environment, but especially a constrained supply environment. One thing we have been doing, and this has been going on for the last four or five years is we have made a conscious effort to continue to diversify our supply base, not just by the number of suppliers, but by the geographies from which we obtain product. That's part of our covenant with our customer. We balance that with cost effectiveness. And because, if you -- it's sitting on the customer and saying, what's the trade-off of what we're willing to spend for supply chain to have that diversity of supply, because there is a trade-off there. Obviously, tariffs can have two impacts. One, it changes the math exercise of the trade-off. It also increases the expense of supply chain. To the extent it increases the cost of the customer supply chain, that will manifest itself in our revenue growing little bit faster because we're pricing that as it's coming through. But our covenant with our customer is to always have an incredibly reliable source of supply, impeccable quality in that supply and a cost-effective supply chain and we balance those every day.

Probably the only thing I would add to that is, our execution wasn't as crisp as we might have liked during the first period where there was tariffs. Remember, there's also some ancillary inflation on top of the tariff that was occurring at that time. And we struggled a little bit to sort of capture it all in the moment. I would say that since that, and frankly, because of that period, we made significant investments in the technology that we utilize to understand the environment and communicate internally and externally with sort of the structure of our business and how we kind of manage our pricing and costing processes. And I think that you've seen the effectiveness of those changes through this last few years where there's been very significant inflation and our ability to keep up with it fairly effectively and on time. And so again, I don't know what the future holds on that, but to the extent that there's anything that moves up the cost of product, we think we're better served to execute effectively than we were five years ago during the last period of time.

Thank you. Really appreciate the perspective.

Thank you. Next question today is coming from Stephen Volkmann from Jefferies. Your line is now live.

Thank you. Holden, you mentioned in your gross margin comments that you mentioned transportation resources and a little bit of price degradation, I guess. I'm just curious, have you changed your view of the cadence of gross margin as we move into the next three quarters?

No, I haven't. I think my original comment was that you wouldn't see quite as much mix impact and there maybe some offsets. And so, as we expected to see gross margin down in 2024, it may not be down as much as it has been in historical periods. I think first quarter was representative of that down 20 basis points. And I think that, that narrative still very much holds true. Now, some of the investments that I alluded to, some of those fall in SG&A, some of those falling COGS. And so, I think that there will be perhaps a little bit of a delta in Q2 specifically. I think we sort of addressed that, but by and large, I think that the variables that we anticipated resulting in a, perhaps, more subdued drag on margin in 2024. I still see them very much in place. So, no change to how I feel about gross margin cadence.

Great. Thank you for that. And then switching back to the customer expo, is that the kind of event where you actually sign up various things like actual revenue comes out of it or is it more of a sort of a customer relationship type building exercise?

It's both, but there's a lot of -- one thing that we're able to do with an event like that is that sometimes the attention of decision makers is a challenge in the process and the communication in that group. The nice thing about the customers show is that we get the right audience in attending and that includes on both Fastenal and the customer side. That's not one way or the other. It's also an incredible awareness element from the standpoint of -- sometimes seeing and touching vending machine, seeing an RFID setup, understanding how we go to market, talking to some suppliers, talking to other customers. And we also hold quite a few seminars where we're talking through different pieces. And what we try to convey is the nature of the supply chain you have that comes through Fastenal, why we believe it's special for you. Not why Fastenal’s special, why we believe this channel of supply chain, which happens to be Fastenal is special. And there's deals that get closed as a result of that, but there's a lot of expansion that gets opened up. And for a number of years ago, I was directly involved with our national accounts team. In that several year period, I had more meetings with customers than I probably had had in the previous 15 years. And the one thing that always amazed me is, we would have a customer that's doing $20 million a year with us. And I'd come out of that conversation with the direct knowledge of they could triple or quadruple their business with us if they decided to. And what we need to do is, give them a reason to decide to and because we believe we're the best supply chain partner for -- in that marketplace. And part of it is telling the story and it does a great job. But Dan to directly answer your question, it's a little bit of both

Make no mistake, Stephen, if we have to talk to you about what the impact of the cost is going to be in the second quarter, we do expect a return on it. It may not all happen at the show, but it's expected to happen shortly thereafter.

Great. Appreciate that. Thanks, guys.

Thanks. Your next question is coming from Jacob Levinson from Melius Research. Your line is now live.

Hi. Good morning, everyone.

Good morning.

Holden, you mentioned a couple of very broad end markets that have been challenging, I think, for a little while now, fabricated metals and machinery. Obviously, those are pretty broad. And certainly, we've got some cycles that seem to be rolling over like ag and truck, but just trying to get a sense of where the negative outliers are today for your trucks.

Yes. If those categories are too broad for you, take that up with the federal government. I'm just going by SIC codes. I don't know what the outliers are. At this point, and honestly, I think it kind of is reflective in the end market chart that we have in the press release. At this stage, pretty much every end market is converging on itself. We're well over a year here of sluggish demand in a market that I think has affected most markets. And so when I talk to the regional leadership and they provide their feedback, there's different times when certain markets are called out because they're either stronger or weaker or what have you. At this point, I'm not getting a lot of end market callouts, which suggests to me that people are kind of feeling a general softness across the board. So, I don't have a lot of market-by-market color to add. I'm not sure there is much.

Okay. Yes. That's great color. Maybe expanding a little bit on Steve's question on pricing, I mean, certainly, steel is more important for you folks who we've seen inflation being a little bit sticky. We've got copper prices going up, oil prices going up. Just trying to get a sense of, and maybe it's too early, frankly, to even asking us, but just trying to get a sense of what the appetite is in your supply base to take prices up again this year.

I don't know that I've heard about a lot of appetite. Now a couple of things, I think, that you should recognize. One is I think a lot of people look at the US steel indexes, I would tell you that we're more associated with foreign steel indexes and those have not been particularly volatile, frankly. I think the US ones are behaving in a different fashion than the Taiwanese or Chinese ones. And so we're not necessarily seeing the steel inflation that people keep asking me about. Two, bear in mind that by the time fastener is made and shipped and sold to the mark up through the channel, et cetera, the actual value of the raw material in the final product is probably one-third or slightly less of the total value. So I mean, I know we're selling a slug of steel, but there's a lot of value add wrapped on top of the initial raw material. And so honestly, as long as I've been here, and Dan might be able to speak to prior periods. But as long as I've been here, steel hasn't really been a catalyst to raising or lowering prices. Transportation has been more meaningful. So I don't think that I'm hearing anything. And Dan and I have spoken to different people, different group, and might have a different perspective. I don't think I'm hearing anything that says, we're seeing rampant inflation in raw materials that we need to start thinking about raising prices.

If I look at the fastener subset, and Holden touched on this in his earnings release because you have to look at where steel is used and it's steel, the copper prices has been very meaningful in our business. One element that as FMIs become a bigger part of the business, you start -- you get new indicators in the business. And I talked about what we're seeing in the vending and what we're seeing on Onsite. Another one is related to our bin stock app. And so that's now about 13%, 14% of our sales, and there's a high concentration of fasteners in there, not exclusive, but a high concentration. There's a lot of OEMs. And so there's -- in our other product lines, there's OEM aspects in there as well. But I don't have apples-and-apples comparison to last March, because we were still transitioning off our legacy bin stock app platform, the MC70 devices. But in April of 2023, we were doing just over 16,000 transactions, orders per day using a mobility device in an Android device scanning bins. The dollars per order was 320,000 orders for the month, so 16,000 a day. Dollars per order were $232. In March of 2024, 11 months later, we did 362,000 orders during the month, so 17,240 some a day, $2.16, so it's down $16 or 7% from a year ago. I would venture to say two-thirds of that is pricing and the other a third is just underlying consumption. And that's an estimate, because we don't have great visibility into it. When we started the quarter, it was kind of in the low 220s and now it's around 216s. I don't know how much Good Friday played into that, maybe a point of it. But there is different pricing going on. So part of the negative in fasteners, as Holden touched on in the press release, is pricing, but it's also a weak demand environment.

I appreciate the color. Thank you. I’ll pass it on.

Thanks.

Thank you. Your next question is coming from Patrick Baumann from JPMorgan. Your line is now live.

Hi. Good morning. Thanks for taking my questions.

Good morning.

I wanted to ask about something you mentioned in the press release. It says towards the back of your release it says like less store closures should result in an increase in growth of end market locations going forward. I see how that would make a lot of sense. I guess, I just wonder if you could address the degree to which store closures in the past have contributed to the Onsite location growth that you've seen. And then relatedly, what drives confidence that you can organically sustain that level of growth without the help of business coming over from the stores going forward? And maybe this is just a misunderstanding on my part of what's driven the Onsite growth in the past. And so if you could kind of clarify that that would be super helpful.

If there was a camera in the room, sometimes you might chuckle at the reactions you get from Dan [ph] and Holden looking a [indiscernible] during a question because I kind of gave Holden look, that's in there. And I say it that way, because back in about 2014 -- 2013, we really came to a conclusion we had too many locations for the market. And we felt a better way to grow into the future was through the Onsite strategy. And we tempered the desire to close the locations too fast. And these weren't large locations. We tempered it from the standpoint of the biggest limiting factor for Fastenal historically, hasn't been opportunity, i.e., size of the market. It hasn't been financial ability to pull it off. It's been talent acquisition and talent development. That's why we have a very thoughtful process of how we recruit, and we have our own corporate university to develop talent, because that's what we bring to the market, talent, and that talent is armed by a great supply chain system behind them to help them be really, really effective. And so we tempered the closures really to -- because we felt that talent could slide over into the other -- into branches that are growing, but also into this new Onsite growth element because we had the talent to move. And if we had closed a bunch of locations, we'd have lost that talent. What we also tried to do is, we try to be very thoughtful about what it meant from the perspective of moving that. If we have a community with two or three Fastenal locations, in a perfect world, we would like to keep that business in the other branches. Now, if the business goes to an Onsite that's because there was a larger opportunity in the first place and it moved into an Onsite. I don't know that closing branches led to Onsite or growth of Onsites. I'm not sure with a customer there. And sometimes we close branches because it was a remote market. And the only reason we were there was because of two customers. And we went Onsite with those two customers, and we closed that branch. That did happen. But usually what happened is those two customers were doing 30,000 a month with us each and now they're doing 130,000 a month with us each and that was the appeal of the strategy. But there were trade-offs in that. For the annual meeting this year, I do plan on sharing some insight on some of the trade-offs we've made as an organization, as we've closed locations, because this is a piece that doesn't always get talked about. But if I go back and when I have district manager conversations, I get a whole bunch of stats from our statistics folks [indiscernible]. And I get it district by district. But if I look at it at a company level, in 2007, cash customers, so that's somebody that comes into a branch, it is a purely retail customer. In 2007, our total sales with that customer, it was 4% of our revenue. It was $76 million. Five years later, that $76 million had grown to $78 million. And the reason it didn't grow very much, we weren't opening very many locations because we pulled our location growth way down in 2007 and that customer was kind of stagnant. Interestingly enough, that $78 million, five years later had grown to $111 million that was 2017. Two years after that in 2019, the year before COVID started, that had dropped to $106 million, so it dropped 5% in that two-year period. During COVID, that business was pummeled because we closed all our front locations and the marketplace decided to order -- to buy more through e-commerce than to buy retail. And I think we all know that in our own personal life that $106 million went to $75 million, it's now 1% of our sales. We made the strategic decision to keep the doors closed. And when I say closed, they're open, but we made the decision to deemphasize going after that and redeploy those resources on other things. Just like restaurants in today's world have made the decision, they're not open on Monday, Tuesday, Wednesday anymore because they can't afford, they can't find the staffing and they can't afford it. So that $75 million that we did in 2021 was $45 million in 2023. That was a trade-off. That didn't go to another brands because if you're coming in and shopping at Fastenal like it's a hardware store, and we don't have a location, three the locations in town and the two that are left are 10 minutes instead of five minutes away, you lose some of that business. Customers under $500. This is where they have an account number with us. That was $336 million back in 2007. 10 years later, that was $395 million. Last year, that was $153 million. Now some of that is our customers that we lost. Some of that is customers that now are doing $1,000 with us or $2,000 with us or $3,000 with us because we moved them out of that bucket. But those are trade-offs of business makes. We think it's the right trade-off because it set us up to be really special because if you think of all the growth drivers we've introduced in the last 15 years when we deemphasized back in 2007 opening locations, vending doesn't grow a retail customer. Vending doesn't even grow a $400 a month customer, but it might turn out $500 into a $5,000. It might turn a $10,000 into $20,000 because between FMI and Onsite you're unlocking more business with that customer. And I would probably on more of a tangent there than you anticipated with that question. But I think that's a critical piece to understand of the strategy of Fastenal for the last 10 to 15 years and how it's played out.

It absolutely is. And I would just look at the language to suggest our traditional branch count is likely to be stable to slightly up over time. As we add international, maybe there's the odd location domestically that we want to add every now and again, too. The primary growth in those end markets locations will be because of the addition of additional Onsites. You'll just see the rate of growth ramp up because those Onsites keep coming on and you're not having the reduction in branches. That's what that was intended to get by.

That makes sense. I appreciate the extra color there. I just have a very quick follow-up on the Onsite signings. How did things progress through the quarter? And I'm asking only because last quarter, you said maybe some slipped out of the fourth quarter for whatever reason and could have been pushed into this year. So wondering if there was any evidence of that.

It was pretty consistent all quarter. I think March was the biggest, but I'd have to look back at it. Sometimes, when you have 40 numbers in your head, you lose track of fived.

Okay. Thank you very much.

Yeah. You bet.

And your next question is coming from Ryan Merkel from William Blair. Your line is now live.

Hi, guys. Thanks for letting me in. I just have one question. Dan, you said that change is hard, and you feel good about where you're going. Can you just unpack what about the change is difficult? Or what about the change is creating friction?

The – I mentioned earlier that we split the US into two business units 15 years ago. If we were to share numbers by business unit, you would find out that there's two different stories going on in the business right now. in the Eastern US, and there's no -- it's not a coincidence why Casey Miller stepped into running into the US and why eight years ago, I think it was eight years ago, in the fall of 2095, maybe nine years ago, or 8.5 years, I asked Casey to step out of leading our, what we referred to as, the SEC, our Southeast Central region, which is basically Kentucky and Tennessee. And I asked him to run the entire Eastern US Casey's done a wonderful job. It doesn't mean we agree on everything and we don't, but has once in a while, that's good and healthy. But we asked Casey, Jeff, why don't you ask Casey to run the US business and put the best people in the best roles for us to find success of the organization. Our Western business unit was negative this quarter. Our Eastern business unit was positive this quarter. Our Onsite signings aren't equally split between the Eastern US and the Western US. And that's been true for a number of years. And change is hard from the standpoint. It can get entrenched into a successful business. I remember a number of years ago, and I'll pick on a particular market, and that was Des Moines, Iowa. Great market for us, great people. We have become more obsessed with how profitable we are and our returns in that market than we were about the joy of growth. And we stirred up that pot, and we made a change five years ago and said, "No, we're about growth and expanding the people we partner with as much as we are about making a great return for our shareholders because ultimately, the best answer for our shareholders and our employees is grow the business, grow the opportunity, grow the returns. And I'm pleased to say that we've done that. In fact, I'm tipping my hand on a couple of things I'm going to talk about in the annual meeting. One is some of the trade-offs we've made and some is looking at some discrete markets we're in and what those trade-offs have meant to a mature business who decided, you know what, I'm going to get dressed today a little differently than I have for the last 20 years, I'm going to go out and engage in the marketplace in a fundamentally different way and the people we've been promoting into leadership roles, whether it be branch managers, district managers or Regional Vice Presidents as well as people like Casey Miller. We want people that have more joy in growing the business than in just harvesting the business. And Holden needs to keep us balanced because he just touched his heart when I said that. We want to do both, but it's a growth issue. And sometimes you have to change how you go to market.

Got it. Got it. Thank you.

Thank you. As a reminder our next question is coming from Nigel Coe from Wolfe Research. Your line is now live.

And Nigel, this will be our -- it's five minutes to the hour, so this will be our last question. And Nigel, go ahead.

Hey, guys. This is actually Will Frank [ph] on for Nigel. Thanks for fitting me in. I guess, first on price/cost, pricing flat in the quarter. I guess do you think that you can say price/cost positive if pricing remains flat. And then maybe just if you could let us know how pricing was in the quarter ex fasteners. That would be really helpful.

Pricing ex fasteners remains positive. And pricing at this point is, frankly, within that kind of 0% to 2% range. And so you can kind of conclude that whatever we're negative on fasteners is being largely offset, maybe a little more than offset with non-fasteners. And at this point, to be honest, the pricing environment is fairly unremarkable, which is why we're not giving it as much time and energy in our dialogue. So that's probably how I would characterize that. And I'm sorry, what was the first part I might have missed? Must have got it.

Must have got it.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you again for joining us on the call today. We'll be having our annual meeting here in a couple of weeks. It's on a Thursday. I believe it's the 25th, but it's a Thursday, and I don't have calendar in front of me. And I'd like to share a trip I did last week, got the opportunity to go out and visit our folks at Holo-Krome out in Connecticut. And Holo-Krome is as an organization we acquired back in 2009, it was in the process of being shut down and that production moving offshore, and we did want to see the loss of a domestic manufacturer of their quality and their status in the United States, so we've acquired it. I was pleased to have the opportunity to go out there and celebrate tenure. There were five individuals, and this is a business with 100-and-some employees. But there were five individuals out there who celebrated 40-plus years with Fastenal. We went up to celebrate that. All told, there were 20-plus people in that organization with more than 25 years of experience, a combination of, obviously, Holo-Krome and Holo-Krome being a partner to joining the Fastenal organization back in 2009, great trip, great people. We keep finding people like that, we'll be successful in this market for years to come. Thanks, everybody. Have a great day.

Thank you.

Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.