Daniel L. Florness
President, Chief Executive Officer, and Director at Fastenal
Thank you, and good morning, everybody, and welcome to the second quarter 2024 earnings call.
Before I start on the quarter, I just wanted to share a couple of things. First off, I wanted to share a story about an Onsite of ours in Sweeney, Texas, and I was speaking with Steve Diekman, our Regional Vice President based out of Houston, and for those of you that -- I suspect most people on the call are aware that Houston periodically gets hurricanes, and they had a hurricane.
And typically what happens when there's a hurricane, and this might be Steve Diekman in Houston, it might be Bob Hopper down in Florida, oftentimes they'll get a call from me or from Casey, and just see how -- and this is before, just see how everything's going, and we often remind them of we got their back, and what that means is when you're in the chaos of the moment, you're forced to make decisions on the fly, and there's a lot of things going on, and somebody with 20/20 hindsight a week later might pick apart decision you make at 3 in the morning to solve a problem. My comment to Steve and Bob is always, we've got your back, make great decisions to take care of our customers and to protect your employees, period.
So -- and the second thing, and this happened a few years ago, read an article about a retirement community in Florida during the hurricane, they were without power and without resources for a few days, and when you read something like that, you're kind of like, how the hell does that happen in today's world?
And so one thing I often will throw in there and say, hey, make sure your branches are paying attention to facilities around their area. It might be a hospital, it might be a retirement home, whatever it is, call them up and see if they're okay, do they need something. I don't care if they're a customer of ours or not, be there to help, because that's what we are, we're a supply chain when people need stuff.
So we have an Onsite in Sweeney, Texas with Phillips 66, it's a refining facility. Refining facilities can be demanding customers. If you think about what they do, it's a facility where really bad things can happen if they're not on their A game. And so they need something, they don't need it tomorrow, they don't need it next week, they need it.
And so Wade, our employee -- one of our employees at the Onsite, he comes into work on Sunday evening, he doesn't normally come into work on Sunday evening. He came to be there all night long, because if they need something, he's there to supply that need. So the hurricane hit on Monday about 2 o'clock in the morning, I think it lasted about six hours in that area.
A good chunk of Houston is without power right now, but our customers in that area get served by Fastenal. If you go to our branches, you'd find out a lot of our branches right now have no power. Their point-of-sale system and their lights are being run by generators, which means when there's 106-degree heat index, it gets a little warm in there. So in the afternoon, they hop in their pickups, and they go call on their top 15 customers, they'll call their other customers, is there anything we need?
Most other businesses are hunkered down, maybe not being there in the same way. We're out there for a pragmatic reason. Only way you're going to get AC at 1 in the afternoon in 106-degree heat index is be in your truck. But go see your customer, let them know we're there to serve them. Great thing about Fastenal. And thank you to Wade for doing the night shift on Monday morning.
The second thing I wanted to touch on is I want to congratulate our technology team. Last fall, we did a lot -- did a -- we're starting some projects around AI, or as I prefer to refer to it internally, FI. It's not artificial intelligence, it's Fastenal intelligence, because the source data is our data, and it's a really robust system that we decided to go out and build. And our goal was to roll it out in the second quarter for our folks to start using it. It rolled out on June 28th.
It's out there, our folks are using it, and I had the ability to test it some in early June. What amazed me, it's scary good, what this technology can do. And the way it's set up is we have a general information, and it's our chatbot loop [Phonetic] that we created about five years ago. And the old system had 130,000, 140,000 Q&A pairs, and based on a probability match, you got what you got.
Now you actually get a well-thought-out answer, and it tells you the source of your information, and you can look internally at Fastenal-only data, so it's Fastenal intelligence. And if you want to go deeper, you can go externally if you want, but you know the source, and how it is, the source of the information is the quality of the information.
And sometimes you get what you get when you're on the wild web. But it's great information on general supply chain questions. We've embedded Bob Kierlin's book, The Power of Fastenal People, so there's great leadership insight. It's like you're asking Bob a question. It's published right now in 30-plus languages.
And the next piece we're working on that's going to deploy here in third quarter is an AI-assisted sourcing tool. And conceptually, what we're after is an employee to be able to look, hop on this tool, and identify what is this item the customer is asking for? What else is it? So I can help rationalize clear product substitutions, depending on if you need it right now, maybe this isn't available for three days. But we have three things that could substitute for it, what do you need?
And then understanding the supply chain. This is readily available, this is difficult to get, and so you can have that discussion with your customer, and then understand the market for that. What's the price of the market? What should you expect to pay for it? Because maybe it's something we haven't sold before. But it really is a tool that's being built, going to roll it out in the third quarter, we're excited about it, and we'll see how that goes from there. But Fastenal intelligence, not artificial intelligence.
Third, take a look at the flipbook, talk a little bit about the quarter. Tough quarter. Net sales grew about 2%. Underlying market remains challenging. EPS was down -- was $0.51, down about 2%. The item I shared with the Board yesterday, the team within Fastenal looks in a mirror and says, what are we being paid to do? Are we being paid to defend margin when we're growing 2%? Or are we being paid to figure out how to not grow 2%?
The bias goes towards the latter, but we put emphasis on the former as well. And so I think we found the appropriate balance. Does that mean we did everything perfectly? No. There's always room for improvement. But I think we're appropriately balancing where we're going and how to not grow 2% with defending the margin at 2%.
As you see in the table on the next slide, I'll get to that in a few minutes, but we continue in that sub-50 ISM, the Purchasing Managers' Index. And that's 19 of the last 20 months. We saw a blip in March that proved to be a head fake. It's an uncommonly long duration that weighs on U.S. industrial production, and consequently, affects our daily sales rates because 75% of our revenue is industrial.
Our efforts to accelerate our customer acquisition remain encouraging. A year, year and a half ago, had some pretty frank discussions on this call about some missteps that we saw occurring in 2021 and 2022, where our focus on a common goal became blurred. I think there was a few -- a little bit too much of what I'm doing and not what we're doing. And when everyone individually is successful, but we're not successful, something's wrong with alignment. So I aligned all the sales organizations under Jeff Watts at the time.
Jeff's a proven strong leader of the organization. I have to say Jeff's done a wonderful job in the last 12 to 18 months of pulling this thing together. But it wasn't just Jeff. It's Jeff and his team. It's Casey Miller stepping up in the U.S. It's Miguel and Tony stepping up international. It's Bill Drazkowski stepping up and everybody else that supports them, including me, stepping up their game to support the sales team as we align on a common goal. And I think you're seeing that in the second straight quarter of strong Onsite and FMI signings, and low-double-digit growth in national contract counts.
As I mentioned earlier, we believe we have the right balance for managing our costs and we continue to maintain this balance. But I have reemphasized with our leadership team and as well as Holden and everybody else, this isn't a two-person endeavor, this is a 23,000-person endeavor. We need to be really tight with spending in the current environment. The one thing that helps us in the latter half of '03 -- '23, excuse me, and the first half of '24 is we have some wiggle room because of declining incentive comp. That wiggle room keeps getting thinner and thinner. And so we need to be more dialed in.
Again, in all frankness, we felt in the first quarter as we were exiting that the second quarter was going to play a little differently. We realized, as we went through April, that was not to be the case. Then early May, we tightened it down a bit and we've tightened down some more here in July. As you would expect from a distribution business, we continue to generate a very healthy operating cash flow and we have an incredibly flexible and strong balance sheet.
The page four is probably a weird chart. I asked Holden, hey, can we just put the table in? Because I have this nice table of ISM data going back. He's got it going back 50, 60 years or whatever the heck it is. But I have it going back a decade. I said, can we show it in? Because I think it's really good for our investor and our employees to appreciate the environment that we're in. And so we had all these numbers in there. And then Holden came to me a couple of days ago and said, you know we actually can't publish that because that's a subscribed service. I said, well, can you just put in blanks and put a red square wherever the sub-50 is so you can at least say magnitude? He's like, yeah, we can do that.
So what you see here is a lot of nothing except for the fact you can see the duration of sub-50 ISM over the last decade plus, 12 years. And you can see that since November of 2022, except for March of this year, we've been sub-50. So we had 16 consecutive months and now 19 out of 20 months. And if you look at that little table in the bottom left, there's eight periods that Holden highlighted with extended sub-50 PMI readings.
The third one, July of '81 to June of '83, was the longest period. I remember that I was just --I was in college, just getting out of high school. You don't realize when you're in college how bad the economy is other than -- because you can -- I can find a part-time job. And fortunately, school was a little cheaper back in the early '80s than it is today. But I remember it being pretty tough for my parents and the family farm.
The second one is August 2000 to January 2002, about 18 months there. And that was the dot-com meltdown. And from a duration standpoint, the third one is right now. And that was the 16 months that -- so it's 19 months, 18 months, and then 16 months duration before we had a blip. But you can see all these periods would have impacted Fastenal negatively, every one of these eight that we cite. And some were severe, some were long in duration. Early '80s was both.
I'll let the listeners conclude on what you think that should mean to an industrial distributor. Internally, we say, okay, nobody jump out the window. Let's focus on what we're doing to add business. Let's focus on what we're doing to grow the business. And for that customer that's business down, support the hell out of them.
Page five, 107 signings in the second quarter. And active sites finished at 1,934. So we're approaching that 2,000 active Onsites, 12% above where we were a year ago. And we grew low-single-digits. A lot of our older Onsites are negative right now. If you have the bulk of a customer's business and their business is down 10%, 20%, 30%, 40%, our revenue will follow suit. If it's OEM fasteners, it follows suit in magnitude. If it's MRO, it follows suit directionally.
FMI Technology. When I stepped into this role in 2015, I remember saying to the group, in 2014, we signed 49 devices a day, and we frankly pulled way too many out. There's two things we need to do. We have to stop pulling out 20% plus of our installed base. And we have to grow that 49 a day to 100 a day, and we need the infrastructure to do it. And we slowly built it and slowly built it. 7,188 devices in the first -- in the second quarter, that's 112 per day. Our installed base is now 119,000 weighted devices, an 11% increase from last year. So we're taking market share, we're planting flags, and we're making the business more resilient and efficient.
An interesting thing happens, a lot of customers love the technology because they believe in their facility, it steps up their internal game. Because when they see the OEM fasteners in this Kanban bin that has RFID chips, and it's not messy, it's not chaotic, it's well-managed, maybe you should do that throughout the production line. Maybe you should do that in a bunch of other places. And it challenges everybody in the facility to step up their game, and that includes Fastenal. So we -- about 42% of our sales are now going through an FMI Technology.
And earlier I mentioned the impact of the economy. I'll share a few statistics that we get. One thing with FMI, you get a lot of statistics on what's going through all these things. So in our FASTStock, and that's where we're going out with an Android device that we're scanning bins. And we're managing it with a combination of technology and labor. In January of 2024, we did 16,387 orders per day through scanning technology. And our average order was $224.
I already shared that from February to March, it dropped from $200 -- it was $225 in February. It dropped to $216 in March. About 60% of that was volume, while 40% of that was priced. Since then, it's been $216, $214, $217. So our dollars per order is down about $7 from $224. I didn't calculate the percentage here, so I apologize for that. But our orders per day have grown to 17,640 because we're deploying, we're deploying, we're deploying. So we have 1,253 more orders per day, a 7.5% increase.
Interestingly enough, when I look at our customer acquisition, we have a number we've always tracked, and it's our core accounts. It's -- it was maybe more meaningful a statistic when we were branch-based and opening branches. But last year, our core accounts with some of the chaos and things we were doing and some execution missteps and some intentional steps, our cores per day from January to June were down about 4%.
This year, they're up about 7%. Part of that is us working through some indigestion. Part of that is Jeff and our sales team getting traction. And part of it is just overall execution by everybody supporting them. But bottom line is, it's $217 every time we scan a bin and not $224, but we're scanning 7.5% more bins.
If I look at vending, and I look at vending, I'm not looking at FASTBin because it's not mature enough to really look at the data because it moves around too much because we're deploying so fast. But we have a lot of vending machines out there. In January -- now this is not an order number, this is a monthly number. In January, we did $1,578 per weighted device per day.
And recall when we started vending years ago, and I'm old enough and I've been around here long enough to remember those days, we talked about $2,000 when we talked about it with the analyst community. We talked about where can we get that to? We started in the less than $1,000 category. We got it up into that $1,000 to $1,100 and we were stuck there for the longest time. And I have to say our teams and our FMI teams that support them led by Jeff Hicks have done a wonderful job of challenging and optimizing those machines over time that now we're doing close to $1,600. But we didn't do close to $1,600 in June, we did $1,454 per device. So about $124 less, about almost 8% less revenue per device.
That's the economy. Because the -- we've added more devices. As I mentioned, our FMI Technology is up about 11% -- over 11% from a year ago. But the customer needs fewer things. One advantage to FASTBin in the marketplace is by having our type of supply chain, not only are we a great supplier and supply chain partner to our customers, we can help them dial their expenses down faster when their business slows down and it just doesn't pile up because everything's on autopilot. And I believe that makes us a better partner.
EBusiness rose about 25%. The eProcurement side is really the driver of that. Our eCommerce side is okay. It's not great. But some of the things we're doing with AI is intended to improve that over time on the unplanned spend side. Finally, on Digital Footprint, 59.4%. That's taking all of our eCommerce, all of our FMI, eliminating the double counting and saying what percent of our business is going through one of those two. It was 59.4% in the second quarter. Actually, in June, it hit 60%. We had expected that maybe we'd get about 66% this year. We now think it's about 63%. And that's not because we're not acquiring customers, it's because customers are spending less and it shows up in our numbers.
With that, I'll shut up and turn it over to Holden.
