Fastenal Company

They're the worst. Greetings, and welcome to the Festival 2025 Q3 Earnings Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation, and you may be placed into question queue at any time by pressing star 1 on your telephone keypad. We ask that you please ask one question and one follow-up and return to the queue. If anyone would require operator assistance, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Dre Schreiber, Director of Investor Relations. Please go ahead, Dre.

Welcome to the Fast Renewals Company 2025 Third Quarter Earnings Conference Call. This call will be hosted by Dan Flournus, our Chief Executive Officer, Jeff Watts, our President and Chief Sales Officer, and Cheryl Lasowski, our Interim Chief Financial Officer, Chief Accounting Officer, and Treasurer. The call will last for up to one hour, and 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. 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, investors.fastenal.com. A replay of the webcast will be available on the website until December 1st, 2025 at midnight central time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Jeffrey Watts.

Thank you. Good morning, everyone, and thank you for joining us today. To start, Q3 was a strong quarter, and more importantly, it was a consistent one. And we delivered double-digit growth, we expanded margins, and continued to gain share in a flat market. Now, that's not easy to do, and it speaks to the strength of our strategy and the execution of our teams. But before jumping into it, I'd like to extend a big thank you to our entire Blue team for their hard work this quarter. You know, when I travel to branches and onsites and DCs, I'm always struck by the pride and energy in our people and I'm happy to say that the Fastenal's culture of service, the legacy Bob Kirtland left us is alive and well. So to every employee, thank you for your focus and commitment, the work you do every day in front of our customers and behind the scenes, it's what's really driving this performance. Also to all of our employees up in Canada, I just wanted to wish them a happy Thanksgiving and I hope you're getting to spend some quality time with your friends and family. Now let's get started and turn to slide number three. In the third quarter, we delivered net sales of $2.13 billion, which is an 11.7% increase over Q3 of last year. This is our second consecutive quarter above the $2 billion mark, which demonstrates the effectiveness of our plan and Fastenal's growing partnership with our customers. It's also worth mentioning that the growth this quarter came with the same number of selling days, so it's a clean comparison, and overall, again, it's a strong result. Now let's discuss the cadence of the growth through the quarter. One thing we pride ourselves on at Fastenal is solid execution, quarter in and quarter out. And Q3 is a good example of this. Despite a couple of timing quirks, we pretty much met or beat our typical seasonal patterns each month. And in July, we saw daily sales growth of 12.8% with a sequential dip from June of about 2.7%. And that's actually better than our historical benchmark, which typically sees about a 3.5% drop from June. So July came in stronger than expected. Now, One nuance here is the timing of the July 4th holiday, and it landed on a Friday this year, which is important, as it pulled some activity into that first week of July. If it were to fall on a Wednesday or Thursday, kind of like it did last year, we wouldn't see that same activity, and our vending data confirmed this. We saw about an 8% increase in vending activity that week compared to when the holiday falls midweek. It didn't materially impact the quarter, but it did shift some inter-month cadence. When you add in what we saw in August to September, you know, our Q3 daily sales growth actually came in a bit stronger than our benchmark would have predicted. That was around 11.2, which is an encouraging sign. And looking at the year-to-date picture, you know, our daily sales from January through September, they're up 15.9% compared to historical benchmark of about 9.5. Now, that's a big delta, but even when we consider the weather-related issues stated in January and the price cost through September, we're still showing double-digit sequential growth well ahead of our historic pattern. I think the big takeaway is our underlying growth remains strong and steady. We have a phrase we use internally, plan the work and work the plan. And the team did exactly that in Q3, and it shows in the results. And when we're looking at where the growth came from, the broader market wasn't much help. The industrial economy remains sluggish, essentially flat. I think the PMI averaged about 48.6 in the quarter, which indicates contraction. But I think I'd characterize our growth It's mostly self-help and market share gains rather than any particular macro lift. Pricing did contribute roughly 2.5 percentage points to growth, somewhere in that 240, 270 basis points, a bit later than we anticipated earlier in the year. But I think Cheryl's going to dive into this in a little bit more detail later in the presentation. I would just add, though, that our team has done an excellent job communicating with customers on pricing. The one thing I hear consistently from customers is, The appreciation of Fastenal's transparency and partnership in managing these cost changes. And we're not just passing on increases. We're working side by side with their customers to find solutions or alternatives and efficiencies. That kind of responsiveness, it builds trust, and it's a big reason we're continuing to gain share. Aside from price, the rest of our growth, roughly eight to nine points, came from volume and share gains. We saw meaningful wins with key accounts, a steady stream of new contract signings and deeper penetration in existing accounts. Our national accounts and onsite signings over the past year are now ramping up in revenue and it showed this quarter. In fact, our national account sales are up double digits in Q3, slightly higher than the company, reflecting those new contracts really coming into fruition. And we turn to slide four, you know, in terms of our customer category results from our strategy. And we continue to see success with large accounts. Our aim has been to deepen relationship with big customers and And in Q3, it showed the number of active customer sites spending over $10,000 per month with us, those sites grew over 8.1%. And those spending over $50,000 per month, what we call onsite-like locations, the number of those sites grew 15.4%. Those are significant gains in penetration. In fact, some longstanding customers are now utilizing us in more plants for more product categories than ever before. And I was just down in Texas for some regional VP meetings, and I had a region tell me a story. A major manufacturer in this area has been a Fastenal customer for 20 years, just expanded Fastenal's program from two sites with them to five sites, essentially making us their primary supplier nationally. That didn't just happen by accident. It was our team proving themselves and offering new solutions and new product lines. It's a great example of earning more with existing customers by enhancing our services. I also wanted to highlight the growth we're seeing in what we call non-traditional markets and and that speaks to expanding our total market. In the quarter, for example, our business with healthcare, education, government customers grew nicely, and our sales to warehousing and logistics companies, they were up significantly. These segments are outside of heavy manufacturing and they help diversify our base. We've also signed several new onsite contracts with universities and school districts this year. It's an area we targeted after the pandemic. Those are now kicking in and contributing to growth and the resilience in our mix. As Dan noted, earlier in the year. Institutions and warehouses, they may not boom like manufacturing, but they don't bust as hard either, I'm paraphrasing. So bringing them into the fold makes us a stronger company long term. The bottom line is our strategy is delivering. We set out to align the organization behind those three pillars, increasing sales effectiveness, enhancing our services, and market expansion. And in Q3, we can see tangible results. Faster growth in our core product, fasteners, more spend from big customers, and entering the new pockets of business. Moving on to slide five. When I look at slide five, a few takeaways for me on this slide. The first is we continue to speak about alignment in our strategy, but most of that has been around just our sales departments. I think pointing out that this is a company-wide strategy, it's very important, and our fastener expansion initiative is a good example of this. This was a company-wide effort, not just a product push, but a coordinated strategy across sales supply chains and operations. We improved availability in our DCs. We aligned our teams around some key SKUs. And most importantly, we made it easier for our customers to get what they needed. And the result, the fastener sales grew over 15% in September, outpacing overall company growth. It resulted in a meaningful lift, not just sales, but the gross margin as well. This is what company alignment looks like and its driving results. Second thing from this slide, for me, Q3 was a quarter of profitable growth. We achieved double-digit top-line growth in a soft market and converted to even faster bottom-line growth. Net income up 12.6%, EPS up 12.3. Our margins expanded and costs were well-managed, resulting in a 20.7% operating margin. That's really the scenario we aim for. The only cost of this success was really higher performance pay, and our team definitely earned that. Definitely not gonna get in the way of that. This combination of growth, profitability, and returns is exactly what we set out to deliver. It speaks to the strength of our strategy, and more importantly, to the execution of the blue team. It also gives us confidence as we head into the end of the year, knowing that we're growing the right way, profitably and sustainably, while creating value for our customers, our employees, and our shareholders. Now, moving on to slide six, which highlights our digital engines. This is an area where we've been investing for years, and in Q3, we saw continued momentum. We averaged about 110 FMI signings per day, slightly below last year's pace, but still an extremely strong level of activity. It's over 7,000 weighted FastBin and FastBend devices signed in the quarter, bringing our total installed base to just under 134,000 devices globally, up 8.7% year-over-year. The sales through FMI technology represented 45.3% of our total sales in the quarter. This was 43% a year ago, and when you look at the daily sales through FMI, they grew just shy of 18% year-over-year, well above company average, and a clear sign that this program is not just expanding, it's accelerating. On the e-business side, we saw 8% growth in daily sales. This includes both e-procurement, e-commerce activity. Although this number is not where we want it, we believe the relaunch of Fastenal.com will help improve this growth as we move into 2026. When you combine FMI and e-business, our digital footprint accounted for 61.3% of total sales in the quarter, and it reflects our long-term strategy to drive growth through technology, automation and customer integration. And further, you know, it really furthers our motto of growth through customer service. So before I hand it off to Cheryl, maybe a quick summary. You know, we're winning with large customers. We're deepening customer relationships with technology and onsite, and we're aligning around the right priorities. We did it by investing in the right things. You know, our customers, technology, and the development of our people. I'm very proud of the teams and how they've embraced and executed the strategy over the last year. And I believe we're really starting to fire on all cylinders. We're aligned, we're adaptive, and we're customer driven. With that, I'll pass over to Cheryl.