Fastenal Q2 2023 Earnings Results & Report

Fastenal EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.2650
• Beat/Miss: Missed by -$0.0050
• One Year Ago EPS: $0.25
• EPS Beat Rate: 4 of last 8 quarters

Fastenal Revenue Results

• Actual Revenue: $1.88 billion
• Expected Revenue: $1.89 billion
• Beat/Miss: Missed by -$5.25 million
• YoY Revenue Growth: +5.90%

Fastenal (NASDAQ:FAST) is a distributor of industrial and construction supplies headquartered in Winona, Minnesota. Founded in 1967, the company primarily serves businesses that require products for manufacturing, construction, maintenance, repair and operations.

Its product range includes threaded fasteners, bolts, nuts, screws, industrial and safety supplies, tools, electrical and plumbing products, material-handling equipment, and other related items. Fastenal also provides inventory-management solutions, including automated vending machines, customer-specific inventory programs and onsite services designed to improve product availability and purchasing efficiency.

Fastenal serves customers through a network of locations and sales channels across the United States, Canada, Mexico, Europe and parts of Asia. The company’s shares trade on the Nasdaq under the symbol FAST.

Fastenal Q2 2023 Earnings Call Transcript

Key Takeaways

• Q2 EPS rose 4.6% to $0.52 and daily sales grew 5.9%, but gross profit increased only 3.6% while operating expenses jumped 4.1%, resulting in no operating leverage.
• Operating cash conversion hit 101% of net income in Q2, inventories were drawn down to 138.5 days on hand, and debt fell to 9.4% of total capital.
• On-site facility signings amounted to 86 for the quarter, missing the internal target of 100 and suggesting weaker pipeline development.
• FMI technology rollouts averaged 106 installs per day (above the 100/day goal), accounting for 39.8% of sales and supporting market share gains.
• E-commerce sales jumped 45% in Q2, reaching a ~$500 million annual run rate and reflecting rapid growth in digital channels.

Presentation

[Operator]

Good morning, and welcome to Fastenal 2023 Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press Star 0 on your telephone key. As a reminder, this conference is being recorded. At this time, I would now like to hand the call over to Taylor Ranta, of Fastenal company. Thank you. You may begin.

[Taylor Ranta, Manager of Investor Relations at Fastenal]

Welcome to the Fastenal Company 2023 Q2 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. We'll start with a general overview of our quarterly results and operations, with the remainder of the time being open for questions and answers.

[Taylor Ranta, Manager of Investor Relations at Fastenal]

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 September 1st, 2023, at midnight Central Time. As a reminder, today's conference call will include statements regarding the company's future plans and prospects.

[Taylor Ranta, Manager of Investor Relations at Fastenal]

These statements are based on our current expectations. 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. We encourage you to review those factors carefully. I would now like to turn the call over to Mr. Dan Florness.

[Dan Florness, President and CEO at Fastenal]

Good morning, everybody, and thank you for our Q2 earnings call. Before I start on the Fastenal matters, I'd like to share a message. When I joined Fastenal back in 1996, one of the things that was unique in my joining is that I stepped into the role of Chief Financial Officer. Bob Kierlin offered me the opportunity, and so I joined in an unconventional way in that I didn't start at in a branch or in a distribution center and work my way up through the organization. Sometimes when you join an organization that promotes from within, you're not sure what kind of reception you'll get when you join. One of the first people I met was Colleen Quaid. It was Bob Kierlin's sister.

[Dan Florness, President and CEO at Fastenal]

She had retired, and in her retirement, she worked for Fastenal a few years in sales support. One of the nicest ladies I ever met, we lost Colleen earlier this year. I to her children and grandchildren, you have my condolences and as well to Bob on the loss of your sister. What a wonderful lady, and we were all blessed to know her. We started back in 67, so our five founders aren't in their 20s anymore. Van McConnon, Henry McConnon, he goes by Van. He was our first employee. In fact, I think that's how he earned his stake in Fastenal, and he did well with that stake, and I'm proud of him.

[Dan Florness, President and CEO at Fastenal]

He lost his wife, Wilma, earlier in the year. The same message, Van could not have been more of a welcoming person to me when I joined the organization. He has my condolences on the loss of his wife this spring. With that, move on to the Fastenal quarter. Q2 2023 is a challenging quarter. Last fall, or last December, when we had our leadership meetings and our planning discussions for 2023, the ISM had weakened. We knew that 2023 was gonna have some slugging aspects to it. We cautioned our team, Q2 and Q3 are gonna be tough quarters to get through.

[Dan Florness, President and CEO at Fastenal]

Prepare yourself, prepare your teams from the standpoint of we're gonna have to manage our expenses really well. We'll have to keep all of our heads screwed on the right way because it's been an interesting number of years between tariffs and COVID, and congested supply chains, and inflation, and all this stuff. There's noise, noise, noise. We're gonna experience something we haven't experienced for a number of years, and that's a slowing economy, prepare for what that means and get the muscle memory back. It was a challenging quarter. Our earnings came in at $0.02, rising about 4.5%. Softer manufacturing activity led our sales, daily sales growth to decelerate. We grew 5.9% in the Q2.

[Dan Florness, President and CEO at Fastenal]

We did not leverage. That's an important element of our business. Our sales grew 5.9%. As we're cycling through some mix changes, and Holden will touch on a little more detail, our gross profit dollars grew about 3.6%, and our operating expenses grew 4.1%. I'm not real good with math, but I know that's not a good combination if you wanna leverage your earnings. The, and the, and one of the elements is, we didn't anticipate it softening quite as much as it did, and that 4.1% needed to be a little bit lower. We didn't adjust our variable costs quite quickly enough.

[Dan Florness, President and CEO at Fastenal]

As we've seen in prior time frames, when the economy is weakening and it affects our ability to grow, the high amount of working capital on our balance sheet really can influence our ability to generate cash. Given my old roles, my old role as CFO, Q2 is a painful quarter for us, typically, because we have 2 tax payments, and when you're a profitable organization and you operate a lot of business in the United States, you pay a lot of GAAP tax. Q2 hits us really hard. Normally, for every dollar in earnings, we generate $0.60-$0.70 in operating cash flow. I don't recall us ever having a Q2 where we generated more operating cash flow than earnings. Perhaps Holden will cite an example where we did, maybe it was 2009.

[Dan Florness, President and CEO at Fastenal]

That's a strong cash flow as we've ever seen for this time of year. It also and a chunk of it is from not just what's happening in the economy and the working capital needed to fund receivables and to fund inventory for growth. In the last several years, as supply chains were really getting congested, the message that I made very clear to our supply chain folks and our teams, we have a covenant with our customer, and that is we're their supply chain partner. We will not let our customer down in their supply chain.

[Dan Florness, President and CEO at Fastenal]

If that means we need an extra 15, an extra 30, an extra 45 days of inventory, don't get ahead of yourself, but we need to have inventory to support the business, period. When the ports on the West Coast of North America were getting congested, the economy was turning back on, everything was getting congested, we beefed up our inventory. We started harvesting that. We were doing it in the Q1, we're doing it this quarter. I think the team's done a wonderful job.

[Dan Florness, President and CEO at Fastenal]

It means we have capacity now to look at our balance sheet and say, "Where does it make sense to make strategic investments in inventory?" I'm not saying there's stuff on the table right now, but that discussion can be had, whereas a year ago and two years ago, we couldn't really even think about it because we were focusing all of our energy on something else. In the Q2, we made some leadership changes. First off, Jeff Watts, who's led our who joined Fastenal back in 1996, so he's been here for 27 years, and started in our Canadian organization when we were when we had just a handful of locations in Ontario. He's led our international sales efforts since 2015, and he will oversee all of our sales efforts across the planet.

[Dan Florness, President and CEO at Fastenal]

He, obviously, we know each other really well. The team in the U.S. international knows him really well because he's led that team for quite a few years. The U.S. team is no stranger to a 27-year employee. We know each other well, but I believe we'll have greater coordination on our efforts. Jeff has a very entrepreneurial approach to how he leads a business, and I welcome him and look forward to the success he's gonna see. Terry Owen, who's been our in an EVP operations role, we formalized his role in that he's our Chief Operating Officer. You know, this bullet was added kind of late in the process.

[Dan Florness, President and CEO at Fastenal]

I found out yesterday as a team on that I should mention this since we'd announced it this quarter. There's an error in our release. I thought I'd let you know. It's probably not material in the thing, in the true aspects of life, but it says Terry's been here 28 years, and I know he joined in June of 1999. If I do the math, I think it's 24. Sorry, we didn't catch that error in our process. In conclusion, you know, cyclical factors aside, the last several years, we've taken a lot of steps to improve both our labor and our inventory productivity. I believe this forms an excellent foundation for our ability to generate long-term share gains in the marketplace.

[Dan Florness, President and CEO at Fastenal]

Switching to the next page. Onsites, I'll state the obvious, 86 onsites is a disappointing number. Our aspiration internally has been to drive that to a 100 per quarter, 400 per year. That's been our stated aspect, you know, mentioned internally. You know, prior to COVID, we hit 362, and that was a wrap-up from 80 in 2015, to 176, to 270, to 336, to 362 per year. When COVID came along, it really impaired our ability to sign onsites because the last thing you want when you're worried about people being around you, is inviting a bunch of folks with blue shirts to come in and operate inside your four walls. We saw that drop dramatically.

[Dan Florness, President and CEO at Fastenal]

We recovered to about. We did 356 signings last year. We broke 100, 2 out of 4 quarters. It perhaps some of the leadership changes we made in the last 60 days created some distraction. Perhaps we're not as focused as we should be. That number needs to be 400 a year or more. Right now we've adjusted our number. We think we'll probably come in similar to last year, somewhere in the 350s. With that said, the fact that our onsites are up, we have 15% more onsites than a year ago, that's a great number. We're just not building the pipeline the way we need to. FMI technology, that's a different story. Our goal in onsites is 100 a quarter.

[Dan Florness, President and CEO at Fastenal]

Let's get there, then figure out how we take it to 110, 120, but let's get to 100 first. Same with FMI technology, it's not 100 a quarter, it's 100 a day. I'm pleased to say, in the quarter, excuse me, the Q2, we did 106 per day, and that's market share gains. That's us going out and planting new flags in new locations to improve the supply chain for our customer, illuminate the supply chain for our customer, and us being a great supply chain partner. That's a huge positive. I believe it tells me the marketplace is conceding this space to us. Maybe I'm wrong on that, but I believe it is, because we are so far out ahead of the marketplace.

[Dan Florness, President and CEO at Fastenal]

Year to date, I told the board yesterday, we're with the 106 this quarter, we had our board meeting yesterday. With the 106 this quarter, we're at 100 year to date. I misspoke, we're actually at 99. I'm really pleased at what the group's doing there. The 39.8% of our sales went through our FMI platform in the Q2. Newsflash, it was 40% in June, we hit the number. We hit 40%. Now we need to get to 45 and 50. Continue to see really nice progress there. E-commerce continues to grow handsomely for us and grew about 45% in the quarter.

[Dan Florness, President and CEO at Fastenal]

For us, this has been a different journey than other things because a lot of e-commerce is unplanned spend. If you think about our FMI technology, that's all about planned spend. That's stuff you're using daily, weekly, every month in your business, and it makes sense to stage it accordingly. E-commerce, a lot of that is stuff that you're hopping on to order, so it's unplanned. Historically, not a strong suit for us. I'm pleased to say it's growing to be a bigger piece of our business. It's up, as I mentioned, 45%. The EDI portion of it is up 37%, and that's typically larger customers. The web portion of it can be large or small, and that's up almost 70%.

[Dan Florness, President and CEO at Fastenal]

To give you a magnitude of how that's changed, and again, we're not great at this piece of business, but we can be. With that said, in 2015, when I stepped into this role, the web portion of it was less than 2% of sales, and we were a $3.8 billion-$3.9 billion company back then, so about $75 million going through web sales back in 2015. In 2023, in the Q2, it was 6.5% of sales. You know, we're at, right now, we're on a 12-month run rate of about $7.5 billion. That's, that's a business that's approaching $500 million, and we're not that good at it, but we can be.

[Dan Florness, President and CEO at Fastenal]

It's 6 and a half times bigger than it was a handful of years ago, and obviously, it's been accelerated by the events of the last few years. COVID is a perfect example. What really accelerated is people. Some people are working remotely, some people are ordering a lot more stuff electronically. We're seeing that in our numbers, and we're getting better at it every day. When you push the FMI technology and the e-commerce together, and you think about our digital footprint, that was 55.3% of sales in the Q2 of 2023. It was 47.9% a year ago. We thought we could get to 65% this year. We've tweaked it to 60%. I don't know if I completely agree with our language there about FASTStock conversions.

[Dan Florness, President and CEO at Fastenal]

I think it's really part of it is a case of we're doing more and more every day, some of the activity, because a lot of the FASTStock, for example, is going into fastener installs, it's going into OEM production areas, it's going into MRO production. We're doing more transactions every day. However, the transactions are a little bit smaller because industrial production is slowing down in our business. We might be doing more orders, there are just fewer of them. I'll cite you a few statistics. In January of 2022, our FASTStock, we did 234,000 scans of orders through our tool, which is 11,100 every day.

[Dan Florness, President and CEO at Fastenal]

Our employees are going out with an Android device and scanning 11,100 planograms every day and generating about a $250 order. Actually, it was closer to $260. In January of this year, that 11,100 had grown to 14,700. Between January and June, that 14,700 scans per day is now 16,300. That's a combination of market share gains and conversion of instead of going out with a yellow notepad, we're going out with an Android device and scanning bins. That's a huge win in our system from efficiency. It's a huge win from a standpoint of ability to take market share.

[Dan Florness, President and CEO at Fastenal]

Looking at the numbers, our average order size was $258 in calendar 2022. In January, that number had dropped to $246. It was down about 4.7%. I think there's enough transactions going on there that that's probably more a tone of the economy than anything else, because when you're doing $300,000 a month, it's not a mixed thing. Between January and June, the $246 order dropped to about $222, it's down $24, which is 9.6%. That's primarily activity that's declining in the industrial marketplace. There might be an element between January and June of a little bit of deflation because there's some fasteners in there, but it's mostly about activity.

[Dan Florness, President and CEO at Fastenal]

Just thought I'd share those, sorry to get in the weeds. I will share one last thing before I turn it over to Holden, and that is, again, this FastStock tool, this Android device that we have out there. Excuse me, in the summer and fall of 2019, we did a beta version out in the Southern California of that device and worked through some bugs, and started rolling it out to regions late in the year with a planned 2-year rollout. COVID hit, we accelerated that rollout, and we rolled it out across the company by June of 2020. We did a 2-year rollout in 6 months, and today, that's about 12% of our revenue.

[Dan Florness, President and CEO at Fastenal]

In October of this year, we plan to roll out what we call our order pad, which will be on the same device. It'll be a custom internal-facing device, and use it in beta for, you know, in the October time frame. If all goes well, our goal would be to roll it out in Q4. Essentially, it's a tool for our personnel when they're out visiting customer. Not only can I take a recurring order, I can easily take a customer asking for something, or I can do a search on it, and I can respond to the customer right in front of them. That's a capability we've never had, and we expect to have that by the end of this year for 2024.

[Dan Florness, President and CEO at Fastenal]

A second piece, that's an internal-facing app. We've also developed an external-facing app called FASTScan. It's with beta customers right now. Our goal is, in August, to have that out in the App Store and the Google Play for customers, if they choose to download that. That would be a bin stock app for customers, primarily smaller customers or customers that might be a few hours from a facility in Montana or in Western Canada, where they can do some bin stock scans themselves, transmit the order, so when we visit, we aren't surprised by a stock out. It makes for a better supply chain for that customer base. That will be again coming out in August.

[Dan Florness, President and CEO at Fastenal]

Depending on the success we find in with our order pad, our goal would be next summer to roll that out in the customer-facing app as well. Again, we're not great at the web portion of our business. It's a half a billion dollar business within Fastenal now, but we can be, and we're building tools to do that because we think that's a better reaction to some of the buying habits that's going on in the marketplace. With that, I'll turn it over to Holden.

[Holden Lewis, CFO at Fastenal]

Great. Thanks, Dan. One loose thread there, perhaps to pull a little bit. Last time we had cash conversion of this level was actually in the Q2 of 2020. For those that don't remember the Q2 of 2020, there was an event occurring at the time that we now know as the pandemic. You know, but I really think it reinforces the point. It took a once-a-century event to create a Q2 that, despite several tax payments, produced, you know, cash conversion in that 100% range.

[Holden Lewis, CFO at Fastenal]

The fact that our teams were able to do that in a quarter where, thankfully, there has not been anything remotely looking like a pandemic, again, I think really gets to the success of the teams in managing kind of the post-pandemic environment. Yeah, but it does take a condition of that sort. Jumping into the details on slide 5 of the deck. Daily sales increased 5.9% in the Q2 of 2023. Since March, we have seen overall business activity moderate, which culminated in June daily sales growth of up 4.7%. The most meaningful change in trend has occurred in our manufacturing customers. This segment grew 10.4% in the period, despite sustained sub 50 PMIs and flat to negative industrial production.

[Holden Lewis, CFO at Fastenal]

This reflects the impact of our investment in on-site and greater sales focus on key account plan spend, which tends to be significant within manufacturing. Even so, we did experience weaker sequentials in May and June that represents a macro-driven change from the long string of strong sequentials that we had from 2021 to February of this year. As it relates to pricing, it contributed 190-220 basis points to growth in the period, declining approximately 470 basis points from the Q2 of 2022, and approximately 100 basis points from the Q1 of 2023. This trend is not a surprise and will likely continue in the second half of 2023.

[Holden Lewis, CFO at Fastenal]

Other factors cited in recent quarters, specifically weakness among some large retailer customers, lack of growth in our rest-of-world geography, and contraction in our construction end market, remain factors in the current quarter, but the dynamics around these areas were largely unchanged from prior periods. While we continue to pursue key account plan spend in construction, this market has historically had a disproportionate amount of smaller transactional spend, where we are currently putting less emphasis. We believe this shift contributes to manufacturing outgrowth, better labor leverage, and better asset efficiency.

[Holden Lewis, CFO at Fastenal]

We have experienced manufacturing-driven weak sequentials in three of the last four months. Regional leadership continues to characterize customer sentiment as cautious, with greater scrutiny over operating and capital spending, and some mention of slower or deferred orders. As usual, we have limited forward visibility, but most indicators seem to be pointing to the immediate outlook remaining soft.

[Holden Lewis, CFO at Fastenal]

Now to slide 6. Operating margin in the Q2 of 2023 was 21%, down from 21.6% the prior year. The incremental operating margin was 11%. Gross margin was 45.5%, down 100 basis points in the prior year. This decline is almost entirely due to product and customer mix, as we experienced widening sales growth outperformance of non-fasteners over fasteners and of on-site growth over non-on-site growth. Freight was favorable to gross margin, reflecting record freight revenues that allowed for good leverage of our captive fleet, reduced use of external freight providers, lower fuel expenses, and reduced shipping costs. The benefits of freight were offset by higher organizational or GAAP expenses.

[Holden Lewis, CFO at Fastenal]

Reductions of purchasing and shipping activities of imported products, stemming from a smoother and more predictable supply chain relative to the year ago period, caused higher prior period costs to be relieved from the balance sheet to the P&L. The impact of price cost was immaterial to gross margin in the Q2 of 2023. On the operating expense side, we produced 40 basis points of leverage, which was not sufficient to fully offset the decline in gross margin.

[Holden Lewis, CFO at Fastenal]

This was due entirely to payroll expenses, off which we experienced 60 basis points of leverage, which was related to lower incentive compensation off last year's record level. This was offset by modest deleveraging of both occupancy costs and other expenses. There were three distinct elements playing out in our operating margin in the Q2 of 2023. First, I alluded to the GAAP expenses.

[Holden Lewis, CFO at Fastenal]

They, GAAP expenses had the convergence of a difficult comparison, aggressive inventory reductions, and shortening product order cycles. This alone was a 50 basis point negative impact and is unlikely to repeat by anywhere near the same magnitude in the second half of 2023. Second, certain expenses, such as 16% growth in IT spending and 13% growth in cost for FMI devices, represent planned improved investments in our business, the impact of which is magnified by the slower sales growth environment. Third, the blue team did not adjust spending quickly enough to the slower macro environment, with variable costs for meals, travel, supplies, all increasing double digits. Also, while lower incentive compensation produced leverage in the Q2, we continue to have growth in headcount and part-time hours that exceed sales growth.

[Holden Lewis, CFO at Fastenal]

I would expect us to tighten this spending appreciably in the Q3 of 2023. Putting everything together, we reported Q2 2023 EPS of $0.52, up 4.6% from $0.50 the Q2 of 2022. Turning to Slide 7. We generated $302 million in operating cash in the Q2 of 2023, or approximately 101% of net income in the period. Traditionally, normal Q2s have a conversion rate in the 60%-70% range, so this is a strong cash performance relating to a reduction in the use of cash for working capital versus the prior period.

[Holden Lewis, CFO at Fastenal]

This allowed us to reduce debt, with debt ending at 9.4% of total capital in the Q2 of 2023, down from 13.7% in the Q1 of 2022, and from 10.9% in the Q1 of 2023. I apologize, 13.7% in the Q2 of 2022. Year-over-year, accounts receivable was up 6.1%, largely tracking sales growth with the impact of mix due to faster growth from larger customers, which tend to have longer terms, being offset by improved receivables quality. Inventories fell 6%. This is a function of normalized supply chains, allowing us to unwind inventory layers we had built up in late 2021 and early 2022 to manage that period's product bottlenecks. That process will likely continue, though likely to a lesser degree, throughout 2023.

[Holden Lewis, CFO at Fastenal]

It is also notable that our days on hand fell to 138.5, a level not seen since 2002, which reflects improved velocity of inventory through our internal network, a reduction of retail stock in branches, and improvements in stocking processes. We have significant strategic flexibility in inventory at this point. We have retained our range for net capital spending in 2023 of $210 million-$230 million, reflecting higher spending on hub investments, fleet equipment, and IT equipment. The same time, we have deferred certain projects related to slowing demand that suggest our capital spending will be at the low end of the range. The Q2 of 2023 was obviously challenging.

[Holden Lewis, CFO at Fastenal]

We expect to have better cost comparisons and to more tightly control those costs that we can affect in the second half of 2023. Obviously, we have little control over end market demand. Whatever direction that takes over the next six months will influence our profitability. However, these shorter-term issues shouldn't cloud the structural improvements to our business. The Q2 saw record labor productivity, the creation of significant strategic flexibility in our inventory, and further improvement in our return on capital, as reflected on page nine of the investor presentation. We believe we are positioned to strongly outgrow the market, particularly as the industrial cycle stabilizes and improves. With that, operator, we'll turn it over to begin the Q&A.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your question. Our first question has come from the line of David Manthey with Baird. Please proceed with your questions.

[David Mantey, Senior Research Analyst at Baird]

Good morning, Dan, Holden. Hope you guys are having a great summer.

[Holden Lewis, CFO at Fastenal]

Thanks, David. Good morning.

[David Mantey, Senior Research Analyst at Baird]

Good morning. I have a clarification and then one question. The clarification, Holden, when you were on slide 5, and you were talking about price contribution, you said this will continue in the second half of 2023, and I'm wondering what you're referring to there first. Second, the question, I'm hoping you can update us on KPIs relative to your CFCs and the Focus 5 initiative.

[Holden Lewis, CFO at Fastenal]

Sure. The clarification is we continue to expect moderation in the overall contribution from price in the back half. Really, just a continuation of what we've been seeing over the past few quarters.

[David Mantey, Senior Research Analyst at Baird]

Okay.

[Holden Lewis, CFO at Fastenal]

Does that help?

[David Mantey, Senior Research Analyst at Baird]

Yes.

[Holden Lewis, CFO at Fastenal]

Okay.

[Holden Lewis, CFO at Fastenal]

The CFCs continue to experience very strong growth. I believe in the Q2, if you think about, you know, the books of business that our CFC, our hunter program has, the growth in those books in the current quarter, relative to what those books did the prior year, is actually up north of 50%. We continue to see good success, in particular with the CFC program. I don't have specific numbers on the Target 5 for you, David. You know, CFCs, to some extent, have their own Target 5, I think you can get a sense of how that, how that growth is occurring.

[Holden Lewis, CFO at Fastenal]

But you know, Yes, I don't have specific on Target 5, but the CFCs continue to grow well in excess of our business, and I think the CFCs are a manifestation of the same key account approach that the Target Fives are, you know, feed into as well.

[David Mantey, Senior Research Analyst at Baird]

Got it. That's helpful. Thank you.

[Operator]

Thank you. Our next question has come from the line of Michael Hoffman with Stifel. Please proceed with your questions.

[Michael Hoffman, Managing Director and Group Head Diversified Industrial at Stifel]

Thank you very much, Dan and Holden. The trend data that you share so generously, can you. I get that you have limited forward visibility, but do you think you're hitting a bottom?

[Dan Florness, President and CEO at Fastenal]

I guess I'll just reinforce, we have very little visibility to what the market's gonna hold. Here's what I'll say: I've always respected the PMI as an indicator of future activity levels. I tend to think it has a forward look of three to five months. I think we all know that the PMI in June hit 46, which is not a meaningful new low, but a new low nonetheless. I think the message that we gave to our people internally was that would seem to suggest that the back half of this year is gonna remain soft. I don't have an indicator internally that would give you any real insight into what's gonna happen in August, September, you know, October.

[Dan Florness, President and CEO at Fastenal]

You know, the PMI's always been a good indicator, and the PMI remains relatively low and suggesting the back half's gonna be weak. That's what we sort of take our cues off of.

[Michael Hoffman, Managing Director and Group Head Diversified Industrial at Stifel]

Okay. On the digital transformation, one of the things that I think I understand correctly is you tend to gain a greater % of wallet of the individual customer over the life cycle of that penetration.

[Dan Florness, President and CEO at Fastenal]

Yes.

[Michael Hoffman, Managing Director and Group Head Diversified Industrial at Stifel]

How would you characterize where you are in that journey and how that's influencing some of the share gain?

[Dan Florness, President and CEO at Fastenal]

You know, Well, I'll talk about the FMI component of the digital footprint. That's about 40% of our business. Internally, the number we've always talked about is we think we can get that to about 65%. A good chunk of that is converting existing customers to the new platforms, and it allows us to share insights with our customers in ways that historically you couldn't. It brings efficiency to the business, and the efficiency isn't just for efficiency's sake, which is nice. It's to free up time to engage in the marketplace. Ultimately, we see that time freed up as a means to grow the business faster because you can engage more.

[Dan Florness, President and CEO at Fastenal]

The other piece is, it's a separator in the marketplace. There's. We have a customer event each spring, where we bring in thousands of customers and we meet with, they meet with suppliers, engage with different tools of the business, and we are winning business because of the capabilities. I sat in a customer discussion last summer, our national account person was speaking to the purchasing team from a bunch of locations within a conglomerate, and they were explaining how our RFID program worked. That's essentially a Kanban system with an embedded RFID chip.

[Dan Florness, President and CEO at Fastenal]

When that bin is empty, instead of somebody having to walk around and check things and find stuff and see what needs to be replenished, that bin is placed on the top shelf. The top shelf has a simple RFID reader. It sees, bin 14 is empty. I'm hungry, I need to be fed. That's how the replenishment works. Her response when she learned about it, she looked to a person across the room and said: "You remember the issue?" She talked about four different manufacturing plants where they struggled. She said. She asked a few questions, clarifying questions, and she looked at the person and said, "This is unbelievable. This would solve all of our problems." That's a light bulb that pops off a lot when people realize what this is.

[Dan Florness, President and CEO at Fastenal]

I was visiting an employee down in Illinois 2 weeks ago, an employee celebrating 40 years. I drove down to spend the day with him and thank him for 40 years of service. He said, "Hey, you wanna go visit a customer with me?" I'm like, I'd love to. He showed me something in his wallet. He pulled out a little, it was the size of a credit card. I said, "What's that?" He said, "That's my RFID chip." He said, "The customer you're going to, I'm gonna show you how we're using it in ways above and beyond just a Kanban system." They're using it for pallet replenishment.

[Dan Florness, President and CEO at Fastenal]

They have a little envelope on the pallet rack, and they have a little card in there, and it's a little plastic card with an RFID chip. They grab that, and they throw it in the top bin on the Kanban system, and it tells our branch, we need another pallet of this product. Not only is that incredibly efficient for us, the customer loves it. The customer showed it to me. He says, "Our folks love this because they don't need to write stuff down and then call up Fastenal to bring another one over or wait for you guys when you come over tomorrow to check it and realize you need to bring another one over.

[Dan Florness, President and CEO at Fastenal]

We just tell you, but it's done in a matter of seconds." That's a, that's something a supply chain partner does, and we're great at plan spend. That is winning us business, because when other customers come and tour that facility, when they're in the RFQ process, they see stuff like that, and that's a separator, just like vending is a separator. Sorry, I went a little long there, but I think it's helpful to sometimes use some examples.

[Holden Lewis, CFO at Fastenal]

I might add as well that I think that those two actually interconnect in the sense that to the extent that it helps to reduce our overall cost of operations, and it does, that actually allows us more flexibility in bidding processes, and I think, you know, makes us more competitive in the marketplace and contributes to our ability to win and gain market share as well. It really plays, it plays really strongly in both our ability to leverage as well as our ability to grow.

[Dan Florness, President and CEO at Fastenal]

In February, I think it was February, I was down in Indiana visiting, speaking to a group of branch managers and visiting with Randall Miller, our most senior Regional Vice President. They asked me if I wanted to go up and visit a customer, and the customer they took me to was a large on-site. They had contacted us in the fall of, I believe it was 2020. I might be wrong on the year, but I believe it was 2020. They needed some help, and we set up an on-site in there. The incumbent had been staffing the on-site 24 hours a day.

[Dan Florness, President and CEO at Fastenal]

Our folks really studied the activity and said, "You know, if we put out a handful of, if we put our product in a handful of lockers in a way that we wouldn't typically do it, we could give you better service and staff it 10 hours a day instead of 24, and you'd get better service than you were getting before, and we'd have a better. It'd be easier for us to recruit, and we could ramp up faster the business." Because finding folks to work 24 hours a day is sometimes challenging. Finding folks to work 10 hours a day or a 10-hour window, especially when it's during the daylight, is less challenging. Again, it was a case of that separated us in that instance.

[Dan Florness, President and CEO at Fastenal]

I visited that customer, had a great visit with them, and they were showing me some of the stuff that we were doing that they just loved about our model.

[Michael Hoffman, Managing Director and Group Head Diversified Industrial at Stifel]

Thank you very much.

[Dan Florness, President and CEO at Fastenal]

Thanks.

[Operator]

Thank you. Our next question has come from the line of Chris Dankert with Loop Capital Markets. Please proceed with your questions.

[Chris Dankert, SVP of Equity Research at Loop Capital Markets]

Hey, morning, guys.

[Holden Lewis, CFO at Fastenal]

Morning.

[Chris Dankert, SVP of Equity Research at Loop Capital Markets]

Holden, you'd, you had a, you know, kind of mid-teens, you know, growth in IT spend and an FMI investment. As we're thinking about kind of SG&A spending and investment going forward, can you kind of give us a sense for how you expect it to trend in the back half of the year as you kind of keep investing for growth here?

[Holden Lewis, CFO at Fastenal]

Well, you know, the, I mentioned the IT and the FMI spend because those are investments in our business that we're making that are wise investments to make. I don't necessarily anticipate where we're making investments in those areas that we're going to pull meaningfully back in those areas. The, the areas we were talking about more had to do with, you know, expenses that we had for travel, both sales and non-sales, and, you know, related type expenses.

[Holden Lewis, CFO at Fastenal]

You know, when we think about how we're using our part-timers and the fact that hours among our part-timers are up, you know, 12% in June, in a marketplace where revenues are up less than 5%, you know, there's just a number of things that we talked about that are variable, that we weren't really treating those expense lines as though we're in an environment that's growing at 5%. The message is we need to get there. Now, what was the impact of that? You know, if I think about the, if I think about the travel, meals, supplies, et cetera, that was about a 10 basis point impact on our business, you know, in terms of overall profit impact.

[Holden Lewis, CFO at Fastenal]

If I think about, you know, the increase in base pay that comes from higher absolute headcount, that comes from higher part-time hours, you know, those sorts of things, you know, that would have been about a 450 basis point impact to margin. That was offset by the fact that incentive compensation was down because last year was such a strong year relative to this year. But those are areas that, as an organization, we need to tighten up a lot of our behavior and patterns to reflect more of the environment that we're in. Again, I expect that we'll make progress on that in the Q3.

[Dan Florness, President and CEO at Fastenal]

Yeah. Only to add on, and I'll put onto that as it relates to IT, is when I stepped into this role back in 2015, one of the first things that I said to the board and I said to our team is: Everybody's going to get lower pay the next 12 months. We're paid off of earnings growth. If you read our proxy, you'll see how our compensation programs work. We're all going to take a pay cut because we are going to increase the investment in IT.

[Dan Florness, President and CEO at Fastenal]

I tapped a senior leader who'd grown up through our branch network, was a district manager, was a regional vice president, had led our government sales, our vending business. His name is John Soderberg, and I tapped him, and I said: "John, I know you know nothing about IT, other than you show me, you know, apps you download on your Android device. You're a great leader of people. We have great folks in our IT group. I don't think they're connected well enough to the business, and I think we're underinvesting." We increased our spend on IT by 50 basis points in 2016, and we've held that number in there ever since. I told them: We will not sacrifice our investments in the short term.

[Dan Florness, President and CEO at Fastenal]

If it's longer term, we'll have to, we have to be pragmatic. Last year, we added 50 people into our Bangalore tech center. In January, we added another 100 people. We're not there yet, but I suspect at some point in time, we'll have more people in our India technology group than we do in our 4 US technology groups. That's, and that's partly about availability of recruiting, because we have great folks here. We just can't add them fast enough. But we will continue to make those investments. Because we made those investments, today we have a digital footprint that's 55.3% of sales, and the productivity gains over the last 3 years would not have happened without it. I think it's a wise investment, so we'll continue that.

[Chris Dankert, SVP of Equity Research at Loop Capital Markets]

Absolutely. Yeah. Thank you so much for the color there, guys.

[Holden Lewis, CFO at Fastenal]

Thanks.

[Operator]

Thank you. Our next question has come from the line of Ryan Merkel with William Blair. Please proceed with your questions.

[Ryan Merkel, Co-Group Head of Industrials at William Blair]

Hey, guys.

[Holden Lewis, CFO at Fastenal]

Hey, Ryan.

[Dan Florness, President and CEO at Fastenal]

Good morning.

[Ryan Merkel, Co-Group Head of Industrials at William Blair]

I had a couple questions on margins. First off, on gross margin, how should we think about the rest of the year? Is normal seasonality the right framework for Q3 and Q4?

[Holden Lewis, CFO at Fastenal]

You know, I think in the Q1, we sort of talked about normal seasonality would apply, but at a bit more of a muted rate. I think that's still appropriate. You know, I mean, Q2 was down about 20 basis points from Q1. I typically think of it being down 30. Q3 is fairly typically flat with Q2, and I think that's a reasonable ballpark. You know, Q4 is usually down about 30 basis points from Q3. Again, maybe it'd be a little bit more modest than that. I mean, I think about, you know, the mix question is still an open one, right?

[Holden Lewis, CFO at Fastenal]

The reality is, in a weak cycle, your fasteners weaken more, and that winds up sort of having a bigger impact on gross margin and mix than you would normally expect. You saw that this quarter, just as you've seen in the past. To some extent, Ryan, part of the question is, well, what's gonna continue to happen with the cycle and the gap between fasteners, non-fasteners? That's a cyclical question I can't answer. If I think about, you know, the transportation piece of it, I think that's gonna continue to have a sustained beneficial impact for a number of quarters. If I think about, you know, sort of the timing elements, the gap stuff that I talked about, I don't think that that impact is as great in Q3 and Q4 as what we saw in Q2.

[Holden Lewis, CFO at Fastenal]

I think we'll still be price mix neutral, just as we were this quarter, right? When I put all that in together, I think the seasonality is reasonable, but I would mute it against history for the next couple of quarters. That's my expectation. Like I said, the wild card, really, in my mind, is what happens to the cyclical element of seasonality related to fasteners.

[Ryan Merkel, Co-Group Head of Industrials at William Blair]

Yep, makes sense. Super helpful. Then on OpEx, Holden, you mentioned you're gonna tighten that up a bit, and then you're also gonna invest in IT, you know, for the long term, which I agree with. I guess, is there any metrics you can provide? Is there a goal for FTE growth in the second half? I guess ultimately what I'm getting at is, you know, can you adjust SG&A fast enough where you can hold operating margins flat year-over-year in the second half, or is that maybe optimistic?

[Holden Lewis, CFO at Fastenal]

You know, it'll depend how aggressive we are. You know, the part of the operating margin is going to be a reflection of the gross margin. Again, I will perhaps cop out a little bit in your question about SG&A and say, part of the answer to your question is gonna rest in what happens to the cyclical element of mix, right? Set that aside and just focus on the SG&A. You know, I think that We need to reduce the cost in our SG&A relative to Q2 by $2 million-$3 million, and we need to do that through tighter control of headcount, through tighter control of those expenses. I feel comfortable that we'll be able to do that.

[Holden Lewis, CFO at Fastenal]

I think the organization is already sort of responding to the messages and responding to the natural signal of their growth slowing down. you know, I do believe that we will have better leverage opportunities in the back half, again, with the wild card being what happens to the underlying demand environment, and what impact does that have on fastener-related mix.

[Ryan Merkel, Co-Group Head of Industrials at William Blair]

Got it. Thank you. I'll pass it on.

[Operator]

Thank you. Our next question has come from the line of Josh Pokrzywinski with Morgan Stanley. Please proceed with your questions.

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

Hi, good morning, guys.

[Holden Lewis, CFO at Fastenal]

Good morning.

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

Kudos to the operator for nailing the authentic pronunciation there. We don't get that so often.

[Holden Lewis, CFO at Fastenal]

I, you know, I was gonna ask. That was pretty close.

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

Yeah, that was old country right there. I like that. The just maybe a higher-level question for both of you. Obviously, we've seen, you know, a huge wave of inflation, supply chain tightness. Now, you know, going back the other direction, you know, at least with disinflation. I guess, what would you identify, Dan, as the biggest change you saw as a function of that, and the biggest things that are changing now as those reverse? Could be customer-facing, could be, you know, kind of margin profiles with the business. Deliberately a broad question, but just thinking of how-.

[Dan Florness, President and CEO at Fastenal]

Yeah

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

you rise.

[Dan Florness, President and CEO at Fastenal]

Well, I mean, the biggest change that we saw directly in our business from supply chain element was the fact that we had to add a heck of a lot of inventory, and it was expensive inventory in 2021 and 2022. You know, container costs were sky high. We were doing a lot of things. We were not gonna let people down. Fortunately, we have the balance sheet to do that, and we have a shareholder base that appreciates we're judicious with their capital, but they were supportive of the move. They were confident that when the need for that extra layer of inventory subsided, we'd figure out a way to harvest that out of the balance sheet and move forward.

[Dan Florness, President and CEO at Fastenal]

That's probably the biggest thing to how it manifested itself, obviously, on our balance sheet and on our cash flow statement. We talked about that earlier. If I think about more broadly, we are seeing changes, and it's one of the reasons I touched on a bit the two elements of our business, the planned spend, which I believe we've created over time an incredible ability to serve that market. And the unplanned, where we're good at it. We're not great at it. Partly because we haven't built the system to support it, whether it's technology or supply chain. We've been busy building that the last several years, and I talked about some of those pieces.

[Dan Florness, President and CEO at Fastenal]

We've seen success on what we've built, but it's still a relatively small piece of business, but we are seeing that trend. You know, if a, if a buyer is working remote two or three days a week or covering a bunch of locations, because with technology, you can do a lot of things you couldn't do in the past, and you can do it easily. They're buying in a different way. We need to make sure our systems work for that different way. I hope that's helpful.

[Holden Lewis, CFO at Fastenal]

I might, you know, specific on pricing, if you recall, during the period of tariffs, we didn't do a great job, you know, sort of offsetting all the tariffs and inflation that occurred during that period of time. The organization kind of buckled down and developed since then, what we call the pricing review tool, a PRT. I think what you've seen over the last few years in a period, first, of fairly significant inflation, and now, you know, a period of perhaps modest deflation, is I think you've seen that tool and our organization's ability to utilize it result in a much better outcome. We, you know, there's the occasional glitch here and there. We didn't quite get all the inflation on fasteners, so that's come back.

[Holden Lewis, CFO at Fastenal]

You know, in Q4, I think maybe we got a little bit behind on a certain area. For the most part, we've been able to be price cost neutral for the entirety of this period of inflation and deflation. I think it really is reflective of the organization's ability to, you know, to problems that we run into every day. The other thing that I would say is, from an inventory standpoint, you know, we talked about how inventories dropped a lot because of the unwinding or, you know, sort of harvesting some of the investments. We peaked from a days on hand standpoint between 185 and 190 days. We're currently sitting between 135 and 40.

[Holden Lewis, CFO at Fastenal]

That's not just because of buying inventory and then harvesting it related to the pandemic. That relates to a lot of things the organization did in terms of how it views branch inventory strategically, in terms of, you know, what's in our hub versus, you know, where should inventory be, improving the velocity. I think the fact that we're able to improve the overall performance of our assets, even in an environment where we're getting a tremendous amount of pressure because of the needs of the pandemic when it started and as it was fading, really reflects the organization's ability to do more than one thing at once.

[Holden Lewis, CFO at Fastenal]

you know, I think the organization can be proud of itself, how it's managed a lot of, a lot of the things that have come up over the course of the past four or five years.

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

Got it. I appreciate it. That's comprehensive. Maybe just a quick follow-up. You know, as you've seen things decelerate and maybe, you know, disinflate a little bit, does the competitive landscape change? I know you guys don't really see it, maybe some of the way other folks do in the space, given your business model, anything you'd comment on competition?

[Holden Lewis, CFO at Fastenal]

Yeah, I don't think the competitive landscape has changed if you look at it from a product perspective. you know, and I think one element that's there, too, is while the... There's more than one element of inflation, and there's more than one aspect of cost. There's inflation that we saw in product costs. There's inflation that we saw in transportation, container costs, things like that. Product costs dynamics are different than the container and transportation element. The third element, which is really relevant for our customers and for their supply chain, is the cost of labor. There is no deflation in labor, I'll guarantee you that. There continues to be inflation in labor. We do have more success in recruiting.

[Holden Lewis, CFO at Fastenal]

We, but we are not unique. All businesses are seeing inflation in that arena to this day. Part of the nice thing about the total cost of ownership approach we take with our customer is we're really able to understand all those cost components and have intelligent conversations with the customer that they're not emotion conversations, they're fact and tactic conversations, which allows both us and our customers together to make better choices on puts and takes. There are inflation elements still in the business. There are some deflation elements in the business. A container is coming across the ocean is cheaper today than it was a year and a half ago or a year ago.

[Holden Lewis, CFO at Fastenal]

I would say there's also availability elements in the marketplace as well. During 2020, 2021, there weren't a lot of distributors that had availability of product, and we benefited from that. As the supply chain is normalized, the marketplace sort of normalizes well, I think what you see is it's a little bit more competitive in terms of customers being willing to say, "Yeah, we're gonna test the market a little bit." Again, I don't think that's unique to us. I think it's fairly typical in the market, and I think it's reflective of the degree to which things have frankly normalized at this stage of the game.

[Holden Lewis, CFO at Fastenal]

It allows us to really talk a lot about exactly what Dan said, which is, you know, the supply chain solutions and how that differentiates us, you know, in the marketplace.

[Josh Pokrzywinski, Executive Director at Morgan Stanley]

Got it. Thank you both.

[Dan Florness, President and CEO at Fastenal]

Josh, in the interest of full disclosure, I probably would have gotten your last name incorrect.

[Operator]

Thank you. Our next question has come from the line of Tommy Moll with Stephens. Please proceed with your questions.

[Tommy Moll, Managing Director at Stephens]

Morning, thanks for taking my questions.

[Dan Florness, President and CEO at Fastenal]

Morning.

[Holden Lewis, CFO at Fastenal]

Morning.

[Tommy Moll, Managing Director at Stephens]

Can you give us an update on fastener product margins? I know that associated with those, there's potential for some renegotiation just on pricing, that is, given some of the volatility around steel and shipping. Any update you could give there would be helpful as well. Thank you.

[Dan Florness, President and CEO at Fastenal]

Yeah.

[Holden Lewis, CFO at Fastenal]

I mean, product margins, when you break fasteners into OEM versus MRO fasteners, product margins are fairly stable. When I think about price costs in the fastener arena, it's fairly neutral at this point, right? I mean, from a, you know, from a, from a costing and margin standpoint, I think things are fairly as expected. Now, I will say, I do believe that we have had circumstances where, again, there's contracts that require, you know, require some adjustment based on end markets, where I do believe that, you know, we've begun that process.

[Holden Lewis, CFO at Fastenal]

That is in, you know, that is really aligned with what we've talked about before. As we see our costing improve, and we have, on imported products, that we have certain agreements with certain very large customers that we'll adhere to. I think that you're seeing that happen. It's largely, I think, as we expected. I don't think they were having any adverse impact on our overall profitability level. you know, and that's probably how I'd characterize it. Does that help?

[Tommy Moll, Managing Director at Stephens]

Indeed. Thank you.

[Holden Lewis, CFO at Fastenal]

Yep.

[Tommy Moll, Managing Director at Stephens]

I also wanted to talk about supply chain, and in the prepared materials this morning, you talked to the reduced inventory as aided by a shorter product ordering cycle for Fastenal. I'm curious, though, with the better supply chain, do you see some of the same for customers? Is there any impact in your daily sales trends from that?

[Dan Florness, President and CEO at Fastenal]

You know, if you think about what we do for our customer, we're the buffer. If you know, we're supplying product to them, and again, I'm really talking about both sides of our business, whether it be planned spend or unplanned spend. If supply chains are taking 30 days longer, we build that inventory, so we get it to them when they need it. I don't know that there would be a destocking element downstream from us. I'm sure there's examples of it.

[Dan Florness, President and CEO at Fastenal]

If there is a destocking element, it's because a customer had built up finished goods because they had a strong backlog, and that backlog has been worked down, their finished goods has been worked down, and as they're in that process, that impacts us because they lower their production. It isn't so much because the supply chain changed, it's because downstream, their needs for finished goods changed. Where we typically see a supply chain impact the most is when we take on a new customer relationship. It's not uncommon for us stepping into a new customer relationship, where they'll have elements of inventory that we're gonna be managing now for them, where they have a 6, a 12, a 15-month supply, a 4-month supply. You know, the extreme examples are usually nichey, but they.

[Dan Florness, President and CEO at Fastenal]

As we illuminate what they have in their inventory, and/or how their predecessor supply chain partner was supplying, and I'm not throwing any predecessor under the bus, 'cause it could have been there's a bunch of different suppliers supplying this in, and there's not a coordinated effort. You have months of inventory on something that is ridiculous to have months of. A customer a few years ago, first off, it was a part that I thought was fairly unique. I discovered we had a regular supplier for it, but it was an item where the customer discovered they had 14 months of inventory, and they had no idea. They were appreciative of it.

[Dan Florness, President and CEO at Fastenal]

We worked out an arrangement with them to manage it down, and they paid us something for helping manage it down, but we didn't have product sales for a period of time, but we had a lot of other sales. It was an onsite doing, you know, $130,000 a month. It just wasn't doing $160,000. Then when we burned through it. That's what a supply chain partner does. That's, that's not about supply chain time, that's about just an inefficient supply chain.

[Tommy Moll, Managing Director at Stephens]

Thank you both. I'll turn it back.

[Operator]

Thank you. Oops, sorry, go on.

[Dan Florness, President and CEO at Fastenal]

I'm gonna I apologize to whoever was in queue. Holden will be available for calls. If you wanna give on, him a direct call, I'm gonna run to a meeting here in a few minutes, but we hold these calls to one hour, and we are at 10:00 A.M. Central Time. Once again, thank you everybody for attending our earnings call today, and best of luck in July and the balance of the year. Have a good day, everybody.

[Operator]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Participants

Executives

• Dan Florness, President and CEO
• Holden Lewis, CFO
• Taylor Ranta, Manager of Investor Relations

Analysts

• Chris Dankert, SVP of Equity Research at Loop Capital Markets
• David Mantey, Senior Research Analyst at Baird
• Josh Pokrzywinski, Executive Director at Morgan Stanley
• Michael Hoffman, Managing Director and Group Head Diversified Industrial at Stifel
• Ryan Merkel, Co-Group Head of Industrials at William Blair
• Tommy Moll, Managing Director at Stephens