Fastenal Company

Greetings, and welcome to the Fastenal Fourth Quarter and Annual 2025 Earnings Results Conference Calling Webcast. At this time, all participants are in listen-only mode.

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 March 1, 2026 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. Jeff Watts.

Good morning, everyone. Thank you for joining Fastenal's fourth quarter 2025 earnings call. Before I get started, I do want to take a moment to thank the Fastenal Blue team and our employees across the world for their performance and dedication both this quarter and throughout the year. Your commitment and attention to customer needs have played a major role in making 2025 such an exceptionally successful year for Fastenal. So for that, thank you very much. Now let's jump into our results. Now Fastenal delivered a strong fourth quarter, capping an impressive 2025 recovery. We achieved double-digit growth in Q4 with daily sales up just over 11%, and we continue to gain market share despite a sluggish industrial economy. This marks our second consecutive quarter of double-digit growth, but our success is not just about favorable comparisons. It's driven by continued progress on our strategic objectives, and they start with increasing our sales effectiveness. We're winning with key accounts and new contracts. Our focused sales strategy is yielding share gains We're signing more national and global contracts, and we're deepening relationships with existing large customers. In 2025, our total contract customer count grew by 241, or just over 7%, reflecting solid new customer signings and expansions. These partnerships with big customers are a core driver of our growth. When we think about enhancing our services, we've continued to expand our suite of value-added services, particularly our digital and site solutions. In 2025, we significantly grew our installed base of FMI devices and strengthened our digital footprint, which combines our e-commerce and industrial vending and bin programs. But by focusing and investing in these platforms, we're improving the customer experience and increasing retention. In fact, nearly half of our Q4 sales were transacted through FMI technology or other digital channels, really underlying how crucial these services have become to our customers and You know, this is a key competitive advantage for Fastenal, and it makes us stickier with our customers and more operationally efficient. It also provides our customers with ongoing insight regarding product consumption. You know, insight we're uniquely able to provide in a wide range of locations. And lastly, expanding our market reach. You know, during Q4 and really over the course of the year, we continue to win new sites and new markets, and we strengthen our presentation. sectors. We've also continued to grow the range of services and products we delivered through our solution suite. Thanks to these strategic efforts, Fastenal's Q4 financial performance, it was strong. We grew net sales to $2.3 billion in the quarter, like I said, an increase of 11% from Q4 of last year. The top-line growth combined with disciplined cost management led to strong bottom-line results. Q4 net income increased 12.2% year-over-year to $294.1 million with earnings per share of 26 cents. For the full year of 2025, we achieved record annual sales of 8.2 billion, up close to 9% versus 24, and net income of 1.26 billion, up 9.4%. We also generated robust cash flow and improved our operating margins slightly in 2025, even as we invested in growth and technology. Even more important, we accomplished this while maintaining a balanced approach to pricing and cost, In Q4, we saw pricing contribute roughly 310 to 340 basis points of our sales growth. The pricing actions that helped offset inflationary pressures, but still kept us essentially neutral on price costs for the year. But Max will be touching a little bit more on this later in the deck. We also leveraged our operating expenses. For example, SG&A has a percentage of cost discipline, along with volume growth, allowed us to improve our operating margin year over year, despite a dip in gross margin due primarily to timing factors. The bottom line is that we're controlling what we can control, pricing, costs, capital allocation, to deliver more profitable growth. Now turning to slide four. Now this momentum was up roughly 8% to just over 11,700 sites in the quarter. Now, these figures demonstrate that we're growing with our largest and most strategic customers, exactly what we're focusing our efforts on. At the same time, though, we did see decline in the count of the smaller customer sites, the under 5K, which was not unexpected, but I do think it's important to point out that we did see growth in our 2 to 5K customer sites, but 94% of the under 5K decline was in the under $500 per month customer sites, and almost 55% came from the under $100 customer sites for the year. And our strategy deliberately emphasizes key account growth, and driving deeper engagement at large accounts with significant spend potential rather than chasing low-volume transactional business. This strategy is paying off in higher growth, more resilient performance against a weak backdrop, and really more efficient focus on our sale talent. In manufacturing and markets, for instance, our heavy and other manufacturing customers, they grew at double-digit rates in Q4, far outpacing general industrial production. We're winning with big manufacturers because of our service model, including the FMI technology and onsite service, and our extensive product range. It really creates value for them. Likewise, in construction and other segments, our focused approach, it's led to share gains where competitors are just more constrained. Now, we're going to continue to develop these customer partnerships and expand the Fastenal footprint of customer sites as it's a proven formula for sustainable growth. Now, on to slide five. This slide highlights how our investments in technology are contributing to our performance. Now, FAFSA has long been a leader in industrial vending, and we continue to expand those capabilities while also showing great progress on our business, further strengthening our bonds with customers, and also enhancing our efficiency. In Q4, we installed thousands more FMY technology devices at customer locations. We signed over 5,900 weighted FMY devices in the quarter, and that signing process year average signing rate. And for the full year of 25, we signed approximately 25,900 devices. And as a result, our installed base of active FMI devices grew 7.6% year over year to about 136,600 units. We have a great team leading this initiative and our capabilities keep getting stronger. The impact on our sales is significant, though. In Q4, 46.1% of our sales were dispensed or managed through FMI technology, and that's up from 43.9% in Q4 of last year. Nearly half of our Q4 revenue flowed through Fastenal Ventures. really how deeply embedded Fastenal has become in our customers' daily operations. It creates a sticky relationship, and this is a key part of our long-term growth model. The more we integrate with customers through on-site and digital solutions, the more indispensable we become. Our digital footprint, it extends beyond physical devices as well. We offer a robust suite of e-business solutions from EDI integrations with large enterprise customers to our e-commerce web platform. In Q4, our e-business E-business now accounts for about 30% of our sales, 29.6% actually in Q4 to be exact. But when you combine e-business and FMI, which together form what we call our digital footprint, these digitally enabled channels represent 62.1% of total Q4 sales. Over the past decade, we've steadily grown this number, and now roughly two-thirds of our business come through this high-tech, efficient channel. And the remaining one-third is really through via... through traditional branch and direct sales, which are still very important, but the trend is clearly toward a more digital and connected service model. And overall for the year, a fast-growing gain market share. We grew much faster than the industrial sector, and we strengthened our foundation for years ahead. And we closed out the year aligned as an organization with strong momentum, thanks to our focus on customers and the hard work of our people. And I'm really incredibly proud of our team's dedication and the trust we've built with our customers. I'm pleased to introduce our new chief financial officer, Max Tinnecliffe. As many of you know, Max joined FASO in November, and this is his first earning call as a CFO. Max, he brings a tremendous amount of experience and fresh perspective to our finance and leadership team. And with that said, you know, Max, welcome aboard, and the floor is yours.