Daniel L. Florness
Chief Executive Officer at Fastenal
Thank you, and good morning, everybody, and welcome to the Q4 Fastenal earnings call. And I'll -- if you would -- I'm going to start in the footbook on Page 3. And you know, our business grew 3.7% in the fourth quarter, in extra day. So daily was 2.1%. Frankly, a frustrating finish to a challenging year. Our business gets and loses leverage relatively quickly when our growth expands or our growth contracts. And you saw evidence of that in the quarter where we lost -- we lost some leverage and EPS came in at $0.46, down about 2%. December I think it's worthwhile to talk a little about December and then frankly, we've already moved on to 2025, but to look at December from the standpoint of it, there's two months going on there. The first roughly 15 days, so that when I think I would say the Friday before Christmas. We were trending towards sales growth, daily growth. We felt would be in excess of 3%, depending on which voice you listen to when we were -- when we were comparing trends, you could have argued for 4%, but a 3-plus percent number. And in the last that Christmas week and then that New Year's Day week, that collapsed. And if I'm doing the math, it tells me if the first 15 days of the month, we're growing at 3% to 4% and you weight that against the last five days and having having all that evaporate. That means in the last five days, we were probably negative somewhere between 9% and 12%. And however, we don't believe -- we believe the first part of the month is more indicative of where we are and where we're going to be in January and February than what we saw in the last area. If you look at the data of what's happening, we have a lot of anecdotal data, but I sat down on January 2nd with our vending team and I said, you know, we have something unique here that we really should understand better. And that is we have vending machines in just over 20,000 facilities on the planet. And the calendar is the calendar. And let's look at a baseline. And I asked them, we get a lot of the information that comes in and we look at it in weekly snapshots, so Sunday to Saturday type snapshot. And I said, look at the two weeks prior to the week that Christmas touches and look at what our trends were and what our pace of business was in that time-frame. And then look at each week thereafter, so the week the Christmas touches, the week that New Year's touches, the first clean week of January and the second clean week of January. So you can really look at has -- did something different happen there.
The other thing that I asked them to do is we're fortunate with a range of customers. Obviously, industrial is our biggest component. But in the vending area, we have a meaningful customer-base that represents non-manufacturing entities and a handful of those are e-commerce companies. So -- and their trends would be completely different because they're really busy around the holidays. So take-out our top-10 vending customers. We did that and I said that's analyze the rest. And excuse me, the top-10 non-manufacturing vending customers. So if I look at -- and then I said determined a bright line of where you think the facility shut-down. And the team came to the conclusion that if we're doing 100 transactions on average a day and that number goes to 25 or less, we're going to consider that facility is essentially shut-down. And because the only people there are -- maybe there's some maintenance folks that are in there because it's a good time to do maintenance, maybe there's a few production lines that are running because they're behind or maybe there's an area you don't shut-down like heat treatment because it's too expensive to start it back up. So in 2022, about 25% of the facilities we sell into that have vending, about 25% saw the activity drop more than 75%. So they were running less than 25% of normal. In 2023, that was 30%. In 2024, that's 35%. So a meaningful uptick really since the economy weakened in '22, the industrial economy, we saw a meaningful uptick in each of the two years and that was accentuated this year. More telling was the week of New Year's. So the week after Christmas, 5% were shut-down, 6% were shut-down. This year at 17% were shut-down. So there were a tremendous number of companies that probably shut-down the day after Christmas. And I don't know if they're open the Monday or Tuesday before, but the day-after Christmas and they stayed shut-down through January 2nd. They just said we're idling operation. And that's that plays very true to what we saw in our numbers.
The only other item that was noteworthy is we looked also at just -- their activity is just down because if there's normally five work days in a week and you're down to four, you'd expect to be at about 80%. We did see the week after Christmas and two weeks after Christmas, a very strong increase in the number of customers that were down at least 25%. And when I look at -- so last week, that number was up -- the activity had normalized as far as how many are shut-down, it's about 4%. But we saw an impact of the weather in the Southeast and we don't have this week's data yet. Our anticipation is that normalized. And Holden will touch on a little bit of that when he looks at truck routes and things like that we canceled during last week. So a lot of wading into the weeds there. I hope that made sense. My guess is a few of you will have follow-up questions for Holden on his -- up after the call.
The next piece, and I'll touch -- I'll dive a little deeper when we get on Page 2, but in preparation for Investor Day, we thought we had shared some information we're going to be talking about and we're planning on an Investor Day in March. And we thought we'd share a new view. So when I joined the organization back in 1996, it was all about account numbers and dollars per active. So active accounts, how many customers -- how many accounts bought from you and dollars per customer and growing both of those over-time. And we used to always say in a typical branch, you had 100 active customer -- 100 active accounts, 10 of those represented about 65% of sales. If you would have looked at it not as an account base, but as a customer. And what I mean by that is we might have three account numbers in a building because we're selling to the maintenance area, we're selling to the production area and we're selling maybe a second production line. So you have three account numbers to track the activity. That's one customer, but we looked at it as three accounts or three at the time. I'll touch on that in a second on Page 2.
Finally, on Page 3, we raised our quarterly dividend by roughly 10%. If you annualize the dividend we just declared, it's about $1.72. We feel very confident on our ability to continue the strong cash-flow generation, very indicative of our business model for many, many years. So you see a new chart here, probably an unfamiliar look to the business, but some I felt the best way to address this, and I'm not seeing my sheet of paper here, unfortunately, is to is to address a letter I did for our employees. And in that letter, sorry I had to go back to my desk to grab it, I describe to our employees what they're looking at in this information. Some quick definitions. Each customer site is a roll-up of revenue going into a unique site from a branch or on-site. It includes everything we provide, whether it's dropped at a dock or a customer's desk, supplied via an FMI device, shipped to the facility using a third-party or picked-up at a Fastenal location. Each customer site also rolls together all the individual accounts our local team uses to summarize and build for the products and services we provide. The information in the slide is based on analysis of roughly 270,000 unique customer sites that we supply products into during 2024. Again, it's a simple looking graphic, but it tells a powerful story about our business.
The top two buckets summarize customers that are doing more than $10,000 a month and then the subset of that to do more than 50. So the 10-K plus includes about 5% of the customer sites we serve, but represents about 77% of our total sales. Since 2017, revenue through these customer sites has grown at a compound annual growth rate of 14%. When I look at these customers, they really value what we bring to the marketplace and we have been incredibly successful. In 2024, there are about 13,000 customer sites in this group, again, about 5% of 270,000, which translates into about 54 sites in the average district, 240 districts across our business. The average customer site spends about -- spent about 38,000 per month and the number of 10-K customer sites has increased about 9% a year since 2017. Thanks to the strength of our on-site program, there is a subset of this group that has grown even faster. The customer sites were spend is at least $50,000 per month. Since 2017, revenue through this subset of customer sites has grown at a compound annual growth rate of 18%. The scale of this business changes the customer site economics. It allows us to operate more cost-effectively, hence the onsite program. This in-turn expands the resources we can provide, improves the opportunity for the customer and for. In 2024, there were 2,547 customer sites in this bucket, about 1% of the total sites we serve, which translates to about 11 customer sites in average -- in an average district. Since 2017, the number of 50K plus customers has grown 16% per year. So we've heavily -- heavily talked about on-site acquisition. And as you see, of this 2,500, about 2,000 of them are physically in an onsite. And we'll talk in March about how we intend to deemphasize onsite numbers and change it to talking about 50K plus customers. We believe that positions the best story of telling the business to make it clear of what we're striving to accomplish and how successful we are at that endeavor. On the lower half of the slide, there are two buckets of customer sites where we appeared less successful. Here are some thoughts on these. Customer sites spending between 5,000 and 10,000 per month represent about 4% of the customer sites we serve. In 2024, there are about 10,000 customer sites in this bucket, roughly 42 in an average district, and we've added about 4% more sites per year to this bucket since 2017. This would be mediocre except for one fact. We've been incredibly successful with many of the customer sites formally in this group. In fact, many have become 10-K plus customer sites over the last seven years. This success has been driven by your efforts to introduce our supply-chain, the transformational capabilities using FMI, onsite, production parts, MRO products and many industrial services. In fact, a sidebar here, industrial services broke $100 million in revenue for the first time in 2024. It's been great for those customers, for our employees, for our shareholders and for our suppliers. In this slide, our performance isn't mediocre. However, it's not great either. That 4% CAGR should probably be upper-single digits, if not 10%. The final buck of customer sites less than 5,000 per month has borne the brunt of changes in our business in the world over the past several years. A decade of strategically closing locations, COVID-19 and its impact on how customers purchase product, thank e-commerce, the removal of products from our previously stocked in our distribution centers, this we reversed in 2024. A strategic decision regarding sales time allocation and maybe some slippage in execution by the Fasten organization. I believe the critical aspect of this group is you close a lot of locations, that customer that sees us as convenient, but not special, that business falls off. The way you make that special is you push harder on your e-commerce capabilities and what it means for unplanned spend because what that do does, it benefits every customer bucket you see on this page because we're more than planned spend for everything they need. Flipping to Page 5. Onsite, we signed 56 in the quarter. So we finished the year with 2031 increase of about 12% of what we saw a year-ago. Customers in onsite world grew mid-single digits. We did see similar to what we saw in 2000 older contingents of onsites go negative during the year. And it's not uncommon on a call with a district manager to learn about two or three or four customers where their business is down 40%, 50%, 60%, 70% where it was a year-ago. That's a sign of what the industrial economy is taking away. Our execution and our ability to take market-share is a sign of how we do self-help and fight-back. All told, we signed 358 on-sites in 2024. We signed 326 last year, so an increase, not at our goal, but a meaningful increase and signings that are consistent with previous peaks in 2019, the year before COVID in 2022, the first year we came out. FMI technology, huge aspect of the business here and strong success. We broke 100 MAU signings per day for the first time. We feel very good about how we exit the year and what that means for 2025. And in the in the 4th-quarter, FMI technology touched about 44% of our revenue versus 42 and 39 in the last two years. And we established a goal of 28,000 to 30,000 MEUs for 2025 versus the 28,000 we just signed and holding touches on that a bit in our capex expectations.
E-commerce, a good story, not a great story. It grew about 28%. E-procurement where we have established customer relations continues to grow almost 40%, 37.6%. However, the e-commerce piece that contains web, we still struggle there and we're putting double-down efforts into that. We realigned some teams to make that a more relevant part of our business. All told, you take e-business and FMI technology, about 62% of our sales, just over 62%. I touched our digital footprint. Our goal was to get that to 63% in 2024, so just shy of that number. We -- our goal for next year is 66 to 68. And before I turn it over to Holden, I just want to touch on a couple of things. First-off, some comments that Holden made to our regional leaders and our VPs this morning. He talked about in 2024, a cost structure that was effectively managed. And one challenge I gave to the group, I believe our incremental margin will be stronger in 2025. And the challenge to them is, as our momentum takes us through the year and time will tell what the economy allows that momentum to shine through as. But as our momentum takes us into 2025, there's a lot of expenses that we've been squeezing really tightly on in the last couple of years. We have to maintain that because it puts us in a position to allow for the reload of bonuses. We have a large group of folks within that haven't seen bonuses for close to two years, year and a half at least. And we need -- we need to allow the inherent capabilities of Fastenal to reload that. And the best way to do that is to get the revenue growth, capture the gross profit and manage our expenses incredibly well.
The other thing I touched on with the group this morning was, as all of you saw, in December, Holden announced his decision to leave effective April. You know, I think back to when Holden joined the organization, I think back to that conversation he had with me in December when he told me I think it was probably a hard conversation for him, at least I hope it was. And when Holden joined our organization back a number of years ago, what we were looking for in a CFO was somebody to bring in a fresh perspective, a very analytical look who could pick apart the business maybe in ways that the previous CFO didn't do and give it a new set of eyes. And from that, I want to thank -- thank Holden for what he brought to our organization from the standpoint of a -- somebody that didn't grow up in the organization, but knew a lot about the industry and also had a keen mind towards analysis. The other thing that it will hold in, I think was saying to Jeff and Jeff stepped into the President role here last fall is that it allows Jeff the opportunity, Jeff Watts, the opportunity to figure out who our -- who our CFO should be for our next 10 years. And what skill-set are we looking for to serve the business today at close to $8 billion versus the business eight years ago at around four. And so I wish Holden well and I applaud the humility to recognize that maybe Jeff needs a different CFO in the future. And finally, before that comment sounds like is out-the-door. I thought I'd share a conversation ahead with my kids in August. We do a family vacation every year and our kids are in their late teens or 20s now and they ask me, hey, Dad, what does it -- what does it mean being CEO versus president? And I said, you ask 10 people, you're going to get 13 different answers. Here's what it means to me. I think of the CEO side of the business as a -- as you're focused on the strategy where you're going and you're focused very keenly on what that means for people development and how -- and how the organization should position itself for what it's going to be become. Whereas the President is much more about executing what you're doing every day, every month, every quarter, every year. And -- but I said, I said Jeff is stepping into that president piece, but he's also stepping in he's training for that CEO piece but he still has his first title and that is Chief Sales Officer. And as long as long as he has that title and even when he gives it up, his number-one priority is how we're executing to grow the business and the part of our strategy that's about growing the business. That's his focus. When we get to 10%, we can change that focus. Anyway, I'll turn it over to Holden.
