Q2 2022 Fastenal Co Earnings Call

Speaker 1: Don.

Speaker 2: This call the hosted dance learnness, our President and Chief ecutive Officer and holding our Chief Financial Officer. This call will last rect to one hour. We'll start with a general overview of ourquarly results operations, with the remainder of the time being openens for questions and answers. thistoday's conference call is the proprietary fastal presentation and is being recorded by F. no recording reproduction, transmission or distribution of today's call. Submit is bel fal consent. This call is the audio signal cast on the Internet via a fma Investor Relations home page. Investor: stel fcom.

Speaker 2: A replay of the wecast will be available on the wesite September for 2022 at idnight Central time. As a reminder, today's conference call may include statements regarding the company's future plans and prospectsin. These statements are based on our current expectations that 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 thecomp's aseest earnings release and period filings with thesecurities and Exchange Commission and we encourage you to review those factors fully. I would like to turn the call over to the.

Speaker 1: Low and lcome to the fact ion second quarter 20 20 two Sul to ference call MO questionion cessession will all formal pre ation as RE. This ference being court placeas TR whole over to F ion company. We welllcome the fact company thousand 20 quar call teen hour gener over court Sul peration. The ions call pri fact cation and courar courcording directionion ion ribution fact not the the Relations age fact the ailable. The twoandthousand two Central min state the comp ut the expectcations duty in cour that company actual resul from the that actual Sul to su our teen in company ated y secure exchange missation we thank and of Thank 20 for to ning call know. We two STR ree the do a lot of things and to five sixcess with dollars and one thing I found on the call is hold the find Jo with sharing with the invest ment. Ty the trends in the business that the pportun PT in talk two but also talk the Lo the on this the pect for most people in this call re today and the looking that in per's what com might come ars where the cony going il we off that our iability fut ERS about eight llars in most of comes what were re aring from our customer. The the come what were see some of the trens in in the business sowe get indicat ter and Ed to those as we but we don't have back law. In aditional sent. We we are just time supply chateen partner two hour customars and things the cour the a cour their busice first our travel has exexpanded if I at our travel in the in the eight twoythousand 20 two and nor for a second 20 20 and twent two thousand and 20 our travel is is twel percent low where was in two 20 19. In the second quarter our travel eightteen cent higher was two twentynineteen dollarss. And as know for recently or travel things not gotten pect that means were prom ill down from two 20 nineteentwo but the expsenten because the inflation in in travel. But what that meanans the most the state 19 not all and what that meanans re finding. Our new nor and pleased state travel is resuing and that of the we engag with our customerner. Our our fact call is is one of year. We we work every a bill our own and we pro with been inter cour of that is the action and our ability to and from each other every day and Frank more efficient when have percent convers ation. But we have we have a aped if we F ands today two thousand and 19 the different. An the many locations we Ed what the like the many locations where we have reduced LLS. We 't have open orty more because we Ve really more to more and more supply teen part and more product going out the the four marke. We have a constructionion presence or we have a meaningfulfu walk. The business and the lookcal teen see that means market might be but many markets we we changed that four that and allow two find in year when more fiffic to year and the efficent L mode bus also know lks that our an viously L distribution cent faction. Vision CK never the ortun re but sent the of two thousand twent we a large in the office work King in the different faction that we did three years a go but but finding success year we able a agage our CUs customer. Some of the talk about refction of that but apil we LD our first in first customer since two thousand and 19 and the grade EV we grade engaged. The cusmersthat were there we did have the limit some FE from the cap the travel and the struictions but we found really suc that we APR highiring remainans challenging our rends applications see have proved in. Fact I used two thousand 19 as the en Mar andin 20 20 ST co starting applications coming in were down close the 40 percentand 20 20 one our applications using two thousand and 19 en Mark re down about 36%. The first five month of this year down eighteteen percent what we two thousand and 19 and ased the day in the last three month appliccations coming in month our our 10% below where they were in two thousand and 19 concent that in and signed that people our more and ready to get fact work and the the bill care the fut year and element that the business have the fact ive managage. Mar place struction may supply change more exen pre and see that in look at our balance cast law first six month of this year between commonination of inplaceation and the fact the take long product the physically ly move we have a de per supply inventory supply inventory expen seeing that in our balance again teen our C inventoryri building twent re pleased with the fact that we have the balance stand that we can make that ment our custom that we supply cha partyear we will thir need. We did that four call we did that call in were doing that in whatever age finally there ning for the courarter we our sales eighteteen percent our proof just under two 20 1% de manders generally health. The the were signs ING and for call we signed hundred two on in second quarter did hundred six in the first first quaryear. The last time we signed hundred plus the arter of was back two thousand and 19 believe the first quar. The first time we ever signed hundred PL in two second ut qullars and think a number of one on the market place. See value our on model in year more. The the higher and more fiffic. The manage supply teen believe our on de even a that opt for our to the market place and I think that sign signings V the fact that we had customer RIL. He the first quarter number think the element thesecond quarter year and we remain committed two strong signings for second. All two thousand 20 two and we see that meanans to take marke fasyear and the had what ever the economy might in the Mon years to my tech all continuue to have indust leading signing level all be maybe level. We like our in internal. Al is always get that number to a hundred day and courter. We were eighty six improvement what the first first quarter but the be peration year our very high that signed through our pectations. We did ven where year to D just our expectations for year. Previously we indicated 20 three The two 20 five thousand signings. We think that more in the 20 the 20 three thousand that the machteen UN BAs the commerers continued the grow. N grow 50 cent the second AR of two thousand 20 two and our large custommer. The I was 50 3% were as our we sales fiftwenty by those two commmers about seventteen point 1% sales in the second quaryear finally didig that prior calls ability the manag supply chateen more ficient in a inate pply our customers that move that incre and was 40 seven point ninepercent sales in the second quarter 40 eight cent the Mon that Thank ING five five our total and DA sales increase eighteteen percent in the thesecond quarter of 20 strong LL reduced TH by 60 basis pointts and courrency. Just a TH was conist from the first of the second quarquaryear cour TR to the first AR. However we did experien the often ING in art Ren in the second oftening not particularly deep and the vel TIV that we experience ex ING. The second quar were ST we about the rest of the year might acter IZ through pris. The percentage anches that our goinging seventy 2% in May in June is not good. seventy 6% gin apil pretty was the oftening that we experien particularly brought we experien marg areaas that directly T consumers construion our court capital good related marketts remain strong with healthy back laws as ex before we experien and in real we ability to trend. The second thousand 20 two pricing contributed six hundred 60 to six hundred ninety basis point to TH in second quarter of two thousand 20 two We reflected car over broad pricing actions last wel the timeing open contractual do's and ical C based actions based on supp prier actions. Most call elevated resu we expect pric vel to be stable third arter of thousand 20 two we expected the contrribution to growth the moderate as we begin to grow over the start more gressing gressive pricing actions the thirdquarter of last year. The supply cha icture unchange from the first quarter challenges availability persix. We our customers are managing that more effectivelyy we market tension seems to reflected in our strong ition in the second quarter of two 20 20 DIS rections percent but the K round reced resulting in more redict able business five six perating marg in the second quarter thousand and ytwo two 20 onepoint 6% from 20 one point 1%. In the second quarter of two thousand 20 our incremental Mar twoy four point 2% couple rends play in the period. First we saw moderation in the TH. The thir exexpensions that thir exen ES cented proper AR in health care cost our subject ly re six as expected. This produced improved perating exexpen. Lever also contributed to the second Qu trend which is the further gradual my gr.

Actions as contract windows opened up. But again, that's part of how we manage the price cost dynamic is understanding where our costs are coming from and when we'll have opportunities to make adjustments. And you know, I give an enormous amount of credit to the folks who manage our pricing and costing strategies and frankly, the folks in thef have exeute them because I think they've done a really good B of that.

I look forward. Right now it feels like it's going to be more of the same. You know, to the extent that we see suppliers putting you know- cost increases into us first, we will push back on them. We have a good sense of what. What's going on with raw materials as wellyou know, and depending on you know how that goes, we might have to push some- you know- skw specific price increases through. You know. But unless there's some meaningful much change in the overall cost environment from where we spent most of the past quarter, I don't anticipate any aggressive actions to have to be taken again. It we'll see how the environment plays out. I'm just going by what we see todaybut I also expect that we'll continue to manage to a utal pricecost and IM I' not change in that in that area. But one change you will see is as we run into Q3 we're going to run against tepeper costps And so I do expect that the percentage growth related to price increases will moderate from where we were in Q2. But again, that doesn't reflect a change in the overall price level. That would be my expectation.

Got's tellle. Then, just as a follow up- you know you guys have been at the branch conversion here for for a bit now- any observation for how that's impacted? You know kind of the, the traditional, you know retail or a branch facing model. I know that the the objective there was to kind of push more of those customers to e.-commerce know, maybe be willing to lose some of them. But you know how, how would you you know sort of rate how that's gone and you know any in any observations or attrition rates or stuff like that you could share?

I think part of what we did, obviously the cot period.

Pushed everybody to abruptly change what they're doing and I think the strength you see in our e-commerce sales it's growing north of 50%.

Is testament to the marketplace.

I don't know if the marketplace is reacting what we're doing or we're acting to what the marketplace isdoing's. I think it's more of the lter.

And but buying habits have changed. You see it in your personal life. What you do today is different what it would have been five years ago.

And so as we've moved.

As more and more of our growth comes from the fact we're engaging deeper with customers and they're seeing the abilities for us to help them in more ways than maybe they would have five and 10 years ago. It changed the footprint we needed and sometimes when you change your footprint, if all of a sudden you have five locations in a market and you go to 3, you you will lose some business because you're not close proximity, but most of that is is morphthing to a different channel and that was that was going to happen, regardless of our changeing foot.print, and you think we're doing anicejob keeping a lot of that business, as again you look at our increase in web sales, because a lot of that business but go to love sales that's growing in 50%.

Yeah I mean I always I would, I would build on that- pointed to the same thing. I mean our are. Despite the changes that have been made, our growth has been very good and that includes on e-commerce side and with our ultical custom and with our local customers. That's what I thing I was going to say. It's really early to really understand in a concrete fashion where the numbers are all falling, because obviously this is something that's come up in the last couple of years as a period of timeto execute, get comfortable in the certain environment SEER, but I do believe that, at least very early on, I think the growth that we're getting out of our branches relative to the marketplace is a little bit better in this cycle than what we saw last cycle and I think that that attributes a lot of the changes that we're making. But this is a is, this is A- a wealth of data that we're going to have to continue to collect and evaluate, but everything coming out of the field anecdotally and really early indications on the data, I think are all all encouraging.

Got a prehhead, Thank gu.

Thank your next question is coming from David mamthey from beair jy.our line is now live.

Hey Dan holding good morning, day good morning.

So back in 2009- and I know every cycle is different- But through that year your gross margin dropped about 300 basis points and at the time you talked about FO and lower rebates and competitive pricing. Can you just discuss what's different today about the business, other than the faster mix, which I think was about 50% back then, and anything else that's changed? That would limit that kind of of an impact on your piano.

You have a good memory, daveidand. Yesterday we had our Board meeting and I was reflecting on just that element was the Board, because we're talking about what could it happen, what could happen in different scenarios, what we're seeing and, if you recall, in 2009, So in 2008- there was a fair amount of inflation.

And nothing like we're seen today. But there was inflation going on and when demands fell back.

That fliit from inflation and deflation.

And all of a sudden, what is six months worth the product.

If your demand drops off enough, that might turn into seven or eight or nine months, or the product.

And you saw the squeeze that occurred. You also saw a mix shift in your business Ping on. Who's being impacted by it?

And then the deleveraging obviously, of the trucking network is if we're driving a truck from whenonto Minnesota, to Minneapolis to a deliative branches and that truck has.

10% is running full or it's running at 80%: the cost of the truck and the cost the driver and the cost of the fuel going in. That is.

Speaker 1: Supporting strong or availability fulfillment rates. The DIS rupions inflation, supply change created additional vel of inventory Val. Despite that, our 161 days on hand in the second quarter of 2022 is more than 10 days below the days on hand in the second quarter of twotwentthousand and nine orto. The P? Ct reflect increasing and sustainable offficencies and how we manage invenries. That capital spending- the 43 millionin the second quarter of 2000 and twent 38% you to date that capital spending was 76.0000244 million% - do most significant increase spending F equipment and how automation and up rates. We continue to anticipate twentthousand y two that capital spending a range hundred eight mion, two million. However, the combination lower F M signing and continue supply supply change challenges transanspation, equipmentjustment ggest they down by our capital spending Bud. We return cash shareholders in the arter the form of the hundred venty million vidend forty nine million share by that well, our opportun proach share by back our ARD did approve and eight million share increas authorization aving the 10 point two million shares authorized for purchase liidity stand point the second quarter of twentthousand and 20: 2, 14% of TAL capital from welve: 0% the year ago period and the 11% versus the fourth quarter of 2020. that operat over you, not King wer squestionion. If you be place in the question to, Please P AR phone ke confirmation. Take your in question Q. you may P two question from the Q for participants using speak. Maybe ces.s pick up before priceicing Star 1: one moment Please LL for questionions. Our first question: coming from cost from more that one morning the tail. We on price gu gu kind ofto help out of ination ary environment- seems like there was the last coming to to- and then think perspectively: maybe you steal starts flow through the business. How should we think about that, particularly on the fast or P terms of not only maybe the sensitivity on what you guys could see, pring is's margin Act. You that flow through and you guys price. Maybe customers kind AR in their enil a that, I would say, is been doing inflation now for the better part of the year and we been manageaging that through a number of means. But one of those ans? Es been price actions on our own and as we reported each quarter, we really been able to a line the pacing of our price increases with the pacing of our cost inases and don't expect that to change material cost today. Our fairly stable at a high level was where they've been and so in the second quarter we didn't take any additional broad actions. therewere certainly actions around. There were certainly actions where we had suppliers you know put you know increases in us, things of that. But w those is being more Act. ical certainly took actions as contract, those opened up. But again again, that part of how we manage the price ST dynamic is under standing. St are coming from and when will have opportunities to make a justment and I the a credit to the lks manage our, our priceing in cost strategies. The foks in the field that have eute because I think they done really, really good job of. I look forward right now feels like going to be more of the same. You know to the extend that we see supplyliers putting you know cost increases into first push back on. We have a sentse. What what's going on was material was know and the ending on you know how that goes. We might have to C specific ice increases throughto you know in less there's some meaningful change in the overall cost environment from where we spend most of the, the P quarter. I don't anticipate ress of actions have to be TA again the how the environment out just going what we see. But I also ex that will continue to to manage to a utral priceco. So not not change in that that area one change you will see is as we run the three werere going to run against co And so I do expect that the sentage growth related to price increases will moderate for where we were in 2, 20 but again, I does n? T reflect the change in the overall price level. That would be my expectation, just as a fall up guys at the branch version here. For for now any observation for how that acted, know kind of the traditional you TA il branch ING del I know object there was push more those customers, commerce maybe be willing the of them, but know how how would you ate how that's gone and any in any observations or trition rates or stuff like that. You, I think, know part of what we did. I obviously the co period P every body to a roughly change what they're doing and and and I think that the see in our commerce sales goinging the 50% is testiment to the market place. I 't know the market place Act, we're' what the marketplace I think it's more of and but byying have a personal. What do today is what would have been five years a and so as we moved as more more of our growth comes from the were were engaging per with customers and there seeing ability, help them and more ways than maybe they would five and 10 years ago. Change the OT. prly needed some change OT. You have five locations in the market. You go you. You will Lo se some business because close co vity but most of that is more thing to a different Chan and that was that was going to happen. Regard of change, we think were keep lot of that business be. Look at our increase ales because a that iness SES's going 50%. I was. I would build on that point to the same thing. I mean our pite, the changes that have been made, our TH been very good and cloud commerce with cusm, our local costm. I say's really early to really under stand a concre fast where the bers are all falling because obviously come up in the last couple years the OD that cute get comefortto the certain environment cent. I do believe that LE very early on I think the TH were getting out of our branches related to the, the market place a little better in this cycle, what we saw last cycle and I think that that the lot of changes that were re making. But this is, this is a wealthof data that were going to have continue to collected valu But every think coming out of the field a totally and really early iccation on the datea I think are all all cour product to think that. Next, coming from Avid the that hold morning the morning. So back in 2000 and I know cycle different, but through that year your gross margin dropped about three hundred basis pointrates. The time were talked about fight, rebates and competitive pricing. You just discuss different today about the business, other than the fast, which I think was about fiftyeight percent, any anything that change that that would limit that kind of impact under your P day. Know, last yester we, ARD aving, was reflecting on that, that element with the Board. You know what, what could, could to happen in scenar, what were seeing and you to call 2000 nine 2000, there was a fair ounlot of inflation and nothing there was in place going and and when demand fell back, that that from in in the inflation and you know all what is sixmonths part of the product youif demand dro, not that my seven or eight ninemonths for the product.

What the market is that day and you deleverage that network. Same thing with their distribution.

If what's the?

wedifferent today, the element of deleverag in the trucking network. That's the same. Nothing's changed there.

The our mix is different. You're right: 50 passen for afifty percent of our mix.

The a fair amount of that is product that most of the facastorters in this country are not produc this country, and so, whether it's us or supply chain partners in North America, most of that's coming from Asia.

And if there is deflation going on, that there's a squeeze that go downthere, that curs in your turn of inventory. Once you get through that turn of inventory, that issue goes away again. The question is: how much supply do you have?

The those dynamics are in play, the the nonfaster piece. A chunk of that we source domestically at chunk of that we import. I' suspect chunk of what we we buy domestically is imported by somebody else.

There would be some of those dynamics going onto deflationary environment is not a friend to gross profit in the short term.

It wasn't in 2009, it wasn't in you in the early ninety's, it wasn't in the late ninety's and it WOn't be if something with that would happen in today's world.

Thanks Dan appreciate the color.

Thank our next question is coming from Nigel co from Wolf researcher. Line is Al a.

Thanks good morning everyone. I think I'm done another visit some of the questions beforehand. Maybe I think what Josh was trying to drive that was the FAS pricing with steel prices coming down. The obviously steel prices are sub $1 thousand right now and understand you've got contractual pricing arrangements with some customers on that. So just maybe just if you could just address that and you know how that works and and maybe just go from there. Thank.

I mean first thing I would challenge the assumption a little bit about steel pricing being down depends with index. You're looking at. I mean we sawource most of our steel product over in Asia and so it's relevant to us is sort of what's going on intaiwan. What's going on in China at least for the last stistics that were fed to us. Those prices are still relatively elevated. So can consider first the region but the.

Look I think that, if I think deflation works the exact same way as inflation right, when the cost of the raw material goes up, we approach our customers with an increase to defend, to sort of defend on our margin- and when it goes down, our customers approach us with the decrease, and there's a whole bunch of them that so have those contractual windows that allows them to do that.

As a result, is it possible that you could have negative pricing in your business? Sure, I think we saw that in 2015 and' Sixteen.

Now consider the pieces right. I don't believe that we've historically seen negative pricing in our nonfastener mix.

And on the fastener side consider that no more than a third of the value of a fastener is the actual raw material itself. The rest of it is the value-added the manufacturing. The transportation costs et cetera right and so when you start slicing and dyson.

At the end of the day, in 2015 2016, we probably saw deflation in price of a percent or two across the business right, So please consider the order of magnitude of impact that we're talking about. But I think that the dynamics work the same way, but in reverse, if pricing environment should change. But again, I want to emphasize, that's not the environment that we're seeing today.

Feel free to speculate anyone on this. Was that going to happen? But that's not the environment we're seeing today.

Right now. I mean talking about the flation with the CP annumers just come out. It seems a bit academic, but but not it's' it's a brother discussion. Just Don T just stay. Stay on inflation. I think you you called out: half of the inventory increase is inflation, half is unit. So it looks like we've got a 12% inflation. You know, in inventory here pricing is six point six point nine does that mean you need to push more price in the back half of the year to maintain price cost utrality on on products.

Well you know the.

I think part of the challenge is how you measure the relative pricing. Remember that when we're talking about pricing running through our revenues.

We're looking at reoccurring sales which is about 40% subset of our total business. Right. Now what that means about 60% of our business is the sale of a product that we didn't sell in the previous period right. Now that's trtruth is if we would sold the same part last year that we sold this year. We probably would have sold it for less than we did this year right and so I believe that there's a the reoccurring component of inventory is much higher than the reoccurring a component of sales by the nature of our business. And I think that's the difference that you're seeing between the two again when I looking at where we are if if I take out all that nonreoccurring and just at reoccurring.

The dynamic is, we're a little bit behind on fasteners and you know we're sort of in line on everything else, and so no, I don't believe that we're behind Nigel. I think that we're largely on pace with the level of inflation that we're seeing, and the gap you're talking about is reflecting sort of the different reoccurring sales levels that you see in sales versus inventory. There's a, there's a premise to the question that I think being missed from the standpoint of the basis for the question.

And that is when, when we have a $100 of products sitting on the shelf, that's just say that's're ending inventory and we're selling product.

Next month, the month after that, we're not exclusively selling product out of our inventory.

We're selling product that we're buying that month and selling that month we're selling products a disproportionate piece of our inventory.

But's beting on the shelf.

Is product that has that that we've decided over time.

Because of the length of the supply chain.

And the nature of the supply chain. We're going to stack that ourselves.

So if we have a supplier, a domestic supplier, re locked step with, we have a great supply chain relationship with. They know the demand, we know their capabilities.

We don't have six months of their product on our shelves.

We have three weeks, we have six weeks, we have eight weeks of their product ourselves, pending on what the need is to physically move it in efficient fashion.

Because your supply chain is different.

If that product is coming from halfway around the planet and in the last year and a half, that trip from source to use is less than predictable.

That's where our inventory is deepened. So when? When colon talks about what percentage of our inventoryincrease related to inflation and relates to deepening of the quantity.

That' disproportionate to inventory that we're sourcing outside the United States, outside of North America.

And so that 12% doesn't naturally translate to well. That means your inflation in your sale price in the next six months have to be up 12%, because that's not apples and apples. I hope that makes sen, but I just does make sen, Thank. You should to ccome up, Thank.

Thank your next question is coming from ryrian Merkel, from William Blair. Your line is that ive.

Hey guys, good morning. one right good morning.

So I wanted to follow up on Dave's question and just clarify. So, relative to 2009, it sounds like the mix is a little bit different, obviously of your business, but I think you're saying you're going to be just a cyclical and decrementals could still be in the mid- twenty's if we have weak sales and deflation. That a fair statement.

Well the point hold it made in a much more artful fashion than I'd tried to make when I initially answered. It was the.

The mix was more acute in 2009 because half our sales were fasteners.

And fasters have different pricing dynamics than nonfasteners.

And so the fact that at the third of our business they would, it wouldn't remove it on that third.

But it would diminish it because it's a third of our business rather than half our business. Does that makes sense?

It does.

The other thing that I would remember, or that I would point out, is in two thousand and nine.

Speaker 1: And to moderate as the flow of physical products into our hubs continuees, supporting strong product availability and fulfillment rates. The? T disruptions, inflation supply chain created additional level of inventory value. Despite that, our 161 days hand in the second quarter of 2022 is more than 10 days below the days on hand in the second quarter of two twentythousand nine prior to the pandemic, which reflects increasing and sustainable efficiency and how we manage inventories. That capital spending- 43 mion in the second quarter of two thousand and 20, 37 point 20- eightpercent year. To date that capital spending was 76 mill. 20, 4- 0% do most significantly increase ending for F? M my equipment and how, automation and up rates. We continue to anticipate 20, two capital spending in a ange of 18 million- two hundred million. However, the the combination lower F M I signings and continue supply chain supply chachange ues to moderate as the flow of physical products into our hubs continuees, supporting strong product availability and fulfillment rates. The? T disruptions, inflation supply chain created additional level of inventory value. Despite that, our 161 days on hand in the second quarter of 2022 is more than 10 days below the days hand in the second quarter of two 20, 19 prior to the pandemic, which reflects increasing and sustainable efficiency and how we manage inventories. That capital spending- the 43 mill in the second quarter of two thousand and twent- 37 pointtwenty 8% you. To date that capital spending was 76 mill- 20, 4- 0% do most significantly increase spending for F my equipment and how, automation and up rates. We continue to anticipate 20 andtwent two capital spending a rangeof 18 million to two hundred million. However, the combination of lower F M I signings and continue supply chain supply chachangein challenges for transansport I equipment ment justest is they down by to our capital spending Bud. We return cash shareholders the arter and the form of 100 vent eight million vidend forty nine million share by back. Well, our opportun the proach to share by back change our ARD did approve and eight million share incre authorization aving point: two million shares authorized for purches. Liquidity stand point: the second quarter of 2022: 14% of capital from welve: 0%. The year period aeleven: 0% versus the fourth quarter of two thousand and 20 that operat over two that, not TAL question wer sion. If you to be Ed the question, please press AR phone ke firmation in question Q. you may start two like question from the Q for participants using ak. Maybe P four prressicing Star. 1: one moment Please LL for question. Our first question coming from cost from more one more morningthe detail we saw on price gu kind ofto help out of inflation. ary vironment, MS like there was the last coming to to and then know, think perspepectctively maybe you steal start, S flow the business. How should we think about that, particularly on the F or terms of not only know, maybe the sensitivity on on what you guys could see on pring's, any margin impact you that flow through and you guys price maybe customers kind of AR in enil a I would say is we been in inflation now for the better part of a year and we been manageaging that through a number of mean. But one of those ans ES been price actions on our own and as we reported each quarter, we really been able to line the pacing of our priceic increases with the pacing of our cost inas.es Don don't expect that to change our material cost today, our fairly stable at a high level with where they've been. And so in the second quarter we didn't take any additional broad actions there. Certainly actions around. There were certainly actions where we had supplyers know put you know increases in us, things like that. But I w those is being more actical- certainly took actions as contract, those opened up. But again, again that part of how we manage the price ST ynamic is under standing where our cost coming from and when will have opportunities to make a justments and I the a credit to the lks manage our, our priceing cost strategies. The L in the field that have execute because I think they done really, really job of. I look forward right now feels is going to be more of the same. You know the extend that we see supplyliers putting you know cost increases into first push back on the. We have a sent. What what's going on was was material was well know and the ending on you know how that ES we might have to person know specific price increases throughtwo know. But in less there's some meaningful change in the overall cost environment from where we spend most of the, the P quarter. I don't anticipate any ress of actions to have to be TA again the how the environment just going what, what we see. But I also ex that will continue to to manage to a utral price ST not not change in that that area one change you will see is as we run the three werere going to run against and so I do expect that the sentage growth related to price increases will moderate for where we were Q y two but again doesn't 't reflect change in the overall price level. That would be my expectationgot, just as a fall up guys at the brch version here for for now, any observation for how that acted. Know of the traditional you TA il branch basing model. I know object there was push more those customers comm erce, maybe ING someof them, but know how how would you ate, how that's gone? And any in any observations or TR rates or stuff like that. You, I think, know part of what we did. I obviously the co period P every body to to a roughtly change what they're doing and and I think that the see in our commerce sales goinging the 50% is test IM to the market place. I 't know the market place Act're' Act what the marketplace. I think it's more of the and but byying have a change personal what you do today is what have been five years a and and so as we moved as more more of our growth comes from the fact were engaging per with customers and there seeing the ability help more ways than maybe they would a five and 10 years ago. Change the OT tly needed change. You have five cations and the market you. You will lose some business because close co ity but most of that is more thing to a different Chan and that was that was going to happen. Regard of our think were keep that business be. Look at increase sales. Lot of that. iness the, the ales that's going. fiftyeight percent I was. I would build on that point to the same thing. I mean our pite, the change ES that have been made. Our growth is been very good, includes comm side and with cusm our local costmers thing say's really early to really under stand a concre fast where the bers are all fall, because obviously this' come up in the last couple years, the period that cute get comefortto the certain viron cent. I do believe that LE very early on. I think the TH that were getting out of our branes relative to the market place is a little better in this cycle. What we saw last cycle and and I think that that V lot of the changes that were re making. But this is a, this is a wealth data that wereregoingto have to continue collected Val ate, but every think coming out of the field totally and really early indiccation on the datea, I think are all all cour gotct to think. Next question: coming from AV the from hold morning, the morning. So back in two thousand nine and I know cycle different, but through that year your gross margin dropped about three hundred basis point rates and the were talked about fight rebates and competitive pricing. ue just discuss different today about the business other than the fast, which I think was about 50% back. Any anything that change that that would limit that impact under P know year day. Know last yester day our ARD leaving was reflecting on that, that element with the Board that you know what what, what could en in scenar, what seeing and you to call two thousand 9, two thousand 8, there was a fair oun of inflation and not, but there was in place on and and when demand fell back, that that from inflplace in the deflation and know all the, what sixmonths of the product if demand dro, that my seven or 8, nine months for the CT.

Demand was down 60% in a BLINK.

It's really hard to adjust your cost structure when demand is down 60% of the BLINK.

I would. Maybe maybe things change and maybe we have two point zero zero nine million. I have no idea because I have no visibility, but that seems we were a lot of questions are coming from. But our decremental- and one reason Don T own 9, it is so exceptional- is because that's actually the only year in our history that revenue was down. But our decremental is 40% because you CAn't adjust your cost structure that quickly.

I don't believe, unless you believe. There's a replay of 2009 common.

I don't believe the 2009 is the right proxy for, let's say, a 2019 style slowdown.

I would just give some consideration to the benchmark you're using them before everybody on up. Flo walks over and this is there but everybody walks on the call walks over to the closest window and decide that the LEAP.

When I talk to our regional leaders, I talk to our national count sales leaders.

And I get the tone of what they're seeing from their customers.

I don't think there's a customer they talked to that doesn't have as strong a backlog as they've ever had in their business. Now, backlogs are funny. Backlogs can evaporate in an environment, but there's a lot of. If you think about what you see. We were down our transportation folks were down at the railyards in Chicago recently really trying to. We're always trying to figure out ways the streamline our supply chain.

And the amount of container, s- a product that retailers have sitting there that they're paying for. Storage is massive, and so there's a lot of those kinds of things we're hearing about, But when I talk to it, our manufacturing customer base.

In our construction customer base, probably the only to the construction post folks, the proverbial inenarea and the coal mine now use a term from one of our Directors yesterday is: projects don't get cancellled, but they get delayed when things gets offter.

But there's a lot of pent-up demand because a lot of manufacturers have stuff that's sitting there ready to be finished, but they're waiting for component.

one of the components they're not waiting for.

It's their oliem fasters.

one of the components're not waiting for is the stuff that passed on their is supply them. So when that?

Widget can be assembled, or can assembly can be finished. We're there to serve that need, and so we're in a different spot than a lot of suppliers going into that.

But but holding's point is dead on. I still remember from, I believe, from October to January , our business dropped off about 18%.

And then we dropped off five percentage points a month, our actual business level. So we were down, we weren't down 60 hold, and we were down about 33, but and then and then it started to shallow in the spring, But as point is that on that, that' that's complete different scenario than what we're talking about from the standpoint of the demand needed, the backlog in the marketplace downstream from us.

Got it. That's helpful. And then my second question, and the premisof this question is to worry about inflation to deflation.

And probably better for holding. So I think holding that price inflation that you report reflects about 40% of sales- think that's what you've said. So the question is, what is the risk? That inflation in the other 60% - that's hard to measure- has been more helpful to sales and growross margins and we appreciate.

Well again I believe that if we had bought a widget in both periods.

It would be inflated this year compared to where it was last year. I think that goes out saying: But I mean, that's why, if you look at fasener, inflation throughout the 60% where there's no offsetting sale year-over-year to a similar customer.

But faster. Inflation exceeds 25%. It has over the past couple of quarters because what's happened with the price of steel, cost of transporting internationally, et cetera? If I look at nonfasteners, it's been close to the 10% right. So I mean that's the level of inflation that we've been seeing in the marketplace.

hopfully. That gives some color. I'm not sure what else else you're referring to.

Yeah no, it's helpful. I just it's hard to measure roughly 60% of sales. On inflation, I was just worry that potential inflation is helping more than we can appreciate, since we CAn't really say, as I said, for every, every widget that we sell this quarter for which there's no comparable sale, the prior quter and' pretty certain we probably got more for it this quarter. Then we would have know a year ago had we sold it.

Despite that, our 161 days on hand in the second quarter of 2020- you is more than 10 days below the days the second quarter of 2, 29 prior to the pand ic- reflect increasing and sustainable ficency. How we manage inventories. That capital spending- the 43 mion in the second quarter of 2020, 38% you to date that capital spending was 76.0000244 million% - do most significant increas spending for F? My quipment and how automation and up grates we continue to anticipate 2, twentythousand twenty, two that capital spending range of 100, eight million, two hundred million. However, the combination slow F? M my signing and continue supply supply change allenges for transportation equipment, ments ggest a by our that capital spending UD we return C share holders in the arter and the four of 100 sevent million vidend and 49 million share by backthat. Well, our operortun proach reby back is change Board did approve and eight million share increas authorization leaving the 10 point two million shares author for purches liquidity stand point: the second quarter of two thousand and twent 2, 14% to capital from 12% the year ago period aeleven point 4% vers the fourth quarter of 2020. that operator over two you King question question and you to be place the question to please P Star phone that conformation ate in the question CQ. You may P Star 2, two question from the for participants ING speak. May cess to pick four pricing Star 1, one moment Please what we pull for question. Our first question coming from ST ST from from more ING I one more morningthe tail and we on price gu guys of help throughout of inflation ary, environment MS, like there was the last cominging to to, and then think perspectively maybe steal starts to fclolow the business. How should we think about that, particularly on the fast P terms of not only know maybe what you the sensitivity on, on what you guys could see price but' anymargin impact. You know that flows through and you guys price or maybe customers of AR in their pencil a little. That I would say is been Al in in placeation now for the better part of the and we been managageing for a number of means. But one of those means ES been price actions on our own and as we reported each quarter, we really been able to a line the pacing of our price increases, the pacing of our ST increases and I don't expect that to change material cost today our fairly stayable at a high level where they've been, and so in the second quarter we didn't take any additional broad actions there. Certainly actions around were, certainly actions where we had suppliers you know, put you know increases into us and things of like that. But I w those being more actical, certainly took actions as contract whendo those openened up. But again, that part of how we managage the price ST dyic is is under standing where our cost are coming from will have opportunities to make justment. I I, the M, a credit to the lks manage our, our priceing in cost strateies, the lks, the field that have exeute, because I think they done a really, really good job of. I look forward right now feel like going to be more of the same. You know to the extend that we see suppliers putting you know cost increases into first will push back on the have a sent. What's going on is was material know and the ending on you know how that goes. We might have to person you know C specific price increases throughtwo know But in less. There some meaningful change in the overall cost environment from where we spend most of the past quarter don't anticipate any .gress actions have to be taken again how the environment place out just going by what we see today. I also expect that will continue to manage to a utr price ST not not change in that that area one change you will see is we run three're going to run against co And so I do expect that the sented growth related to priceing increases will moderate for where we were Q y two But again, In't ref the change in the overall price vel. That would be my expectation. thatgot just as a follow up gu thebranch conversion. For for now any observation for how that pacted. You kind the tradition know re tail branch facing model. I know that the object there was ush more of the customers to e-commerce. Know maybe be willing the some of them you know how would ate, how that's G and know any in any observationations or trition rates, stuff like that you know. I think know part of what we did. Obviously the co period push everybody to a roughtly change what they're doing and and I the see in our e commer sales goinging. Nor the 50 percentthank is testiment to the market place. I don't know the marketplace Act we're' Act to what the marketplace? I think it's more of the let and but byy have a change personal what you do today, different what what would have been 10 years aknow and and so as we moved as more and more our growth comes from the fact were aging per with customers and there seeing the abill help in more ways. Maybe they would a five and 10 years ago change the tly needed that, change your OT. You have five cations in the market and you three you you will lose some business because re close vity but most of that is more thing to a different channe and that was that was going to happen. Regard of teen think were doing keep lot of that business be. Look at our increase and sales, because a lot that business, the sales that's going fiftyeight percent I was, I would ill on that know to the same thing. I mean our, dispite the changes that have been made, TH is been very good and cludes e commer side with to our local cost. M's say really early to really under stand a concre F where the numbers are all falling. Obviously this is up in the lastcoupleyears the period cute get Fort the certain vironment cent. I do believe that least very early on I think. Think the TH that were getting out of our branches relative to the market place is a little better in this cycle. What what we saw last cycle and I that that lot, the chang that werere making. But this is a, this is a wealth datathat were going to have to continue to collected valu ate, but every think out of the field, TOT and really early ication, the atea I think are all cour gotct to think Thank. Next question coming from David, that hold morning the morning. So back in two thousand and I know cycle different. But through that year your gross margin dropped about three hundred basis pointates and the time talked F Bates and competitive pricing. You just discuss different today about the business other than the fast, which I think was about 50% back, any anything El that' change that would limit that kind of impact under day. Know yesterday ARD aving was reflecting on that, that element, the Board, that you know what, what could, what could happen in scenar, what were seeing, and you to call two thousand 9, So in two thousand eight there was a fair ount of inflation and nothing today. But there was place on and and when demand fell back, that that in the inflation and you know all the what is sixmonths of the product if demand drops, not that my seven or eight or nine month where the product.

All right.

You know no, now I I think that there's a.

If we didn't se it last year. Last year I also think we probably gain some share, gain some products up like I don't think we should lose sight of that fact. But yet, without a doubt, most of the stuff we're buying this year, probably we're getting more for it than we would have a year ago.

sothe piece you're not factory into this is. There's numerous examples of where the customer was willing to shift.

What they're rebuying.

And so, for example, we have our own exclusive brands. There are examples where Hey, which did a, is goingone up 10%.

Which it be is goingone up 10% to. However, that 10% increase is left is only a point point a half above what you were spending on which it ate in the past.

And so.

So think these measurements are funny at not measuring things like that to shift, because our exclusive brands, as a percentage of business, are preferred suppliers as a percentage of business.

Has grown faster.

Than our overall business, and so not all of that inflation shines through in the terms of pure growth, because when the substitution comes into play, what you're selling is more expensive than it would have been a year ago, but it's only nominally more expensive than what the alternative was, because it's kind of going to the grocerystore and you're buying a different brand than you were buying a year ago. Both brands might be up 5% or 10%, but you might be spending the same as you were spending a year ago.

Because you're buying a different brand.

Got it and I would again. Ultimately, price cost gets reflected in some way, shape orperformingin your gross margin and again our gross margins been fairly stable. So I don't believe that there's a bunch of inflation out there that we're not seeing and we're not accounting for, because if that were the case it would be reflected in our gross margin. I think the actions that we've taken are capturing the order of magnitude of increase that we've seen.

Good point ok, thanks.

Hi right, Thank you.

Thank your next question is coming from hummsome, is already from jeoprey. Your line in now line.

Hi good morning, my my first question. A good morning. But my first question was just around the on-site business you know you mentioned. Clearly it's a good solution for some of the supply chain issues you're seeing has. Do you, do you view there to be structurally higher demand for Onsites in kind of a post covered world, post pandemic, relative to your kind of expectations prepandemic? And kind of has the timeline in terms of you know implementing in you on-site or the ramp changed at all with with some of the labor availability issues I know you mentioned? You had pretty good hiring you too.

Yeah you know.

Structure is a funny word. It I believe there is a structural change in demand.

covidt- I mean COVID-19 in the hiring environment is part of it. I think awareness part of it too. If you go back 15 years ago, there wasn't a structural ort demand for vending.

In industrial world, in industrial distribution, it didn't exist. It was a one-off novelty that had been around for 20 years but it really didn't have a presence.

The even internally when we first start talking about it most lot of reaction was we want to put what in establishing.

And it's a better means to distribute that type of products. And we've expanded that foot putint now into into our fast-bin offering, our fast stock offerings, and what's changed is our awareness of the solution but, as of equal importance to customers' awareness of the solution.

The one thing that is nice about IT- an event like our customers show- is customers get to come to that event and they see firsthand examples.

They talk to other customers that are doing it.

And all of a sudden, the awareness chang.

Of what the Onsite is about- fast no model because there's other on-site models out there, implant models out there, but they learn about what it is in the fast no supply chain, armed with all of our FI technology, of why it's a great solution. I believe structurally there's a better environment for it and that's why we're signing 100 versus.

80 or 85 or 90, if I go back, even prepandemic.

That's enhanced by the fact that maybe dumpl look at that as geesz. It's really difficult to hire, especially for an expertise that isn't inherent in my business. We make widgets, we don't source product, and so it's an expertise and a hiring element. Don't lose by the fact that it's workth for us to add those people to.

As So sometimes, the limiting factor to how fast the ramp upll is our ability staff it with a talented team and our customers's ability to to make change in their business and willingness to make change.

But the premise of your question is structure their better environment today than it would have been in the past. Yes, part of that COVID-19, part of that', hiring environment, but I think the most important element is awareness, and that gives it sustainability past the next six to 12 months. That gives it sustainability for years into the.

Because it's something.

Bit a bit of color. I might add to that, probably over the last three to five months, which kind of coincides with where I think ourselves and our customer base began to sort of adapt to the current setting. But over the last three to five months a lot of the feedback that's come back from the regional Vice presidents in their commentary to me that they give me each month, each quarter.

There's been many of them that have said that the lessons that would learned from the period we just came out of was that our customers are not supply chain managers and they're looking for someone to bring that expertise into them. And so the dance point about structural, I think. I think that this laid there how difficult managing your supply chain can be. On top of that, supply chains have just gotten more expensive in the current environment and I think that our customers are looking for more assistance in that, and I think they're conveying that to the to the field sales force, based on the commentary that I'm getting back. So an ecdotal support for them.

Got it very helpful. My follow-up question' I'll turn it over is- is just an. I think maybe it was asked if a few quarters ago. But anything you're hearing from your customers on on reing manufacturing capacity back to the? U's domestically, is it more anecdotal or are you sort of seeing any data points suggesting that that beginning or happened or happening? Thank you Yeah, I mean. What I'll tell you is: I haven't received any.

Concrete commentary from people saying: Oh, all these plants are coming back.

So I've never received any anecdotes to support the idea that on showing is or isn't happening. But I'll tell you that if, in my view, I think that that's sort of a long cycle thing, that we're going to look 10 years from now and say it happened or it didn't happen, I don't know how you identify that in a given quarter or frankly, even a given year, that that trend is in place. But I've not received any specific feedback from the field suggesting that that's driving our business.

Guard Thank you.

Thank your next question is coming from Tommy mole, from Stephen herline is our life.

Morning and thanks for taking my questions.

one morning.

I was hoping you could elaborate a little bit on the softening demand trends that you called out, and I'm thinking about it in a couple of ways. First just.

If you can walk us through the quarter and holding you reference to the exit rate.

And what that might imply for the remainder of the year and then the second way I'm thinking about it is you made a comment I believe it was holding around the weakness or softening. We can say largely centering around.

Consumer slash construction end markets, So any end market commentary would be helpful as well.

yestaken. The last first, getting down to specific end markets can be a challenge. The message that I'm conveying is again based on the feedback in the RVPs, where they talk about seeing some softening. It winds up being things like automotive, recreational vehicles- right things like that- that tend to have a more direct connection to the consumer.

When we start talking about things around commodities like oil and gas or things around capital goods like agriculture, the feedback is still pretty positive there: no real sense that there's been any slowing in demand and no sense that the backlogs are anything other than strong.

And so that's kind of the split. So it's difficult for me to give a lot of color from in terms of an SiC code sort of perspective but but just in terms of the ancdoes timim from the field that seems to be the direction that that they're pushing us where you touch the consumer directly. It's a challenge where you don't it still strong and that's why I said you know the softening we saw during the period. It's not broad and it's not deep. But it was a bit of a change and to the first to the first question or maybe part. A of the first question. The.

You know, we didn't finish June as strong as we started it. That's different from what we experienced in March. We finished March stronger than we. Then we started it to. Out of the last two out of the three months of the corner, including June , we did not achieve the the sequential norm that you would normally expect to see, right. I mean, those are sort of the elements that we're talking about now when I talk about if, if the exit rate were to be sustained, we feel pretty good about it. You know, you can run the math yourself, right. I mean, I'm simply taking where we finished in June and I'm run the quials out the rest of the year and it tells me that we would grow, if nothing else changed, based on where we exit June , and we can feel pretty good about that rate of growth. But that's how I tend to think about it.

Rates the twent ctions inflation supply chachange ated additional level of inventory value, pite. That our 161 days on hand in the second quarter of 2020, you is more the 10 days below the days the second quarter of 2, 20 y nine prior to the pand CT, reflect increasing stainable ficency. How we manage inventories. That capital spending, the 43 mion in the second quarter of 2020, 37 pointy 8% you to D. that capital spending was 76 mill, two twentyy 4%. Do most significant increas spending for F? qument and how automation and up grates we continue to anticipate two twentyythousand and 20: two that capital spending in range of a hundred 80 mion to two hundred million. However, the combination low F M signing and continue supply supply change allenges for transportation equipmentments ggjust they our that capital spending Bud. We return C share holders in the arter four of 100 sevent eightmillion vidend and forty nine million share by backthat. Well, our operort approach share back change Board did approve eight million share increas authorization leaving the 10 point two million shares author for purches liquidity stand point: the second quarter of 2020: 2, 14% of TAL capital from 12% the year ago period aeleven point 4% versus the fourth arter of 2020. that operator over you answer question you to be place the question to please P Star phone ke firformation case. In the question Q you may P ST 2, two question from the participants ING speak may to pick four prress Star 1, one moment Please. We pull for question our first coming from co ush from from more one more morningthe tail. We on price guys to help out inflation- ary vironment seems like there was the last coming to to- and then think perspectively, maybe steel starts to flow through the business. How should we think about that, particularly on the fast terms of not only know maybe what you the sensivity on, on what you guys could see on price's anymargin impact. You know that flowse through and you guys price or maybe customers of AR their penc a little, I would say- been doing in inflation now for the better part of a and we been managing through a number of means. But one of those means been price actions on our own and as we reported each quarter, we really been able to a line the pacing of our price increases with the pacing of our cost increases and I don't expect that to change. Material cost today fairly stayable at a high level where they've been. So in the second quarter didn't take any additional broad actions. There were certainly actions around were certain Act where we had suppliers you know, put you know increases into and things of likethat. But I w those being more taact ical, certainly took actions as contract do those ened. But again, that part of how we manage the price ST dynamic under standing where our cost are coming from, when will have opportunities to make justments and i- I M a credit to the lks- manage our, our price in cost ateies. The lks, the field that have eute, because I think they done a really really good job of. I look forward right now feels like going to be more of the same. You know to the extend that we see supplyers putting you know ST increases into first will push back on the have a sent. What's going going on was was material was know and the bending on you know how that goes. We might have the person you know C specific price increases throughtwo, you know, but in less there some meaningful change in the overall cost environment from where we spend most of the P quarter. Don't anticipate any ress. Actions have to be taken again the how the environment place out just going what we see that. But I also expect that will continue to manage a utr price St. So not not change in that that area. one change you will see is as we run three re going to run against co And so I do expect that the sent growth related to price increases will moderate where we were two y two but again I doesn't T reflect change in the overall price level. That would be my expectation, just as a followall up gu at the anch version here. For for now any observation for how that acted. You kind the traditional, you reta branch facing model. I know that the object was ush of the customers commerce know, be willing the- some of them you know how how would ate how that's gone and you know any in any observations or trr rates, stuff like that. You know, I think know part of what we did viously the co period push everybody to a roughtly change what they're doing and and I that the see in our commerers ales goinging, nor the 50 percentthat is testimam to the market place. I don't know the marketplace Act, we act to what the marketplace. I think it's more of the let and but y have a change, a personal. What you do today is what, what have been fiveten years a and and so as we moved, as more and more of our growth comes from the fact were aging with customers and their seeing the abill to help more ways. Maybe they would a five and 10 years ago change ot.pr ly needed change. You have five cations in the market and the you you will lose some business because re close X tivity. But most of that is is more thing to a different Chan and that was that was going to happen. Regard of our teenchange. Think were keep of that business be. Look at our you increase in ales because a lotof iness sales. That's going fiftyeight percent. I would build on that know to the same thing and mean our. dispite the changes that have been made, our gth been very good and cloudes done commer side with thir, our local cost M, that's say it's really early to really under stand a concre F we. The numbers are all falling. Obviously this is' come in thelastcoupleyears the period ute get come to in the certain viron cent. I do believe that least very early on. I think the TH that were getting out of our branches, ative to the, the ket place is a little better in this cycle. What what we saw last cycle and I that that the lot, the chang that were making. But this is a, this is a what wealth of data that were going to have to continue to collect valu ate, but every thing out of the field, TOT and really early indication. The data I think are all cour got CT to think that question coming from AV the hold morning morning. So back in two thousand and I know cycle different. But through that year your gross margin dropped about three hundred basis point. The time were talked about fight rebates and competitive pricing. Just discuss different today about the business other than the fast which I think was about 50% back. Any else that' change that that would limit that kind impact under your you know day. You know, last yester ARD ING and was reflecting on that, that element with ARD, you know what what, what could happen in different scenar, what were seeing and if you to call two thousand 9, So in two thousand 8, there was the IR ount inflation and nothing today. But there was in placeation going and and when demand fell back, that that inplace in the inflation and know all the what is sixmonths of the product. If demand drops, that my seven or eight or nine month of the product.

That's helpful, Thank you.

As a follow up, I wanted the shift to.

To hiring.

Then it sounds like the conditions remain challenging. But I believe you said the the trends on applications have improved. I just wonder if that might be driven by.

Softening and hiring.

Elsewhere and you may not have a ton of visibility on that but I'd be curious if you had any thoughts and.

And to the extent we do enter a period. A recession period can you just refresh us on the philosophy on how you manage hiring and.

And uh leverage, if it or and or deleverage on employee related expenses.

In that kind of an environment.

What's really changed in our hi-ring, and it's more about our hiring in the field than it would be in our hiring and distribution or hiring, and in some of the support areas, or in transportation.

Our model for hiring is: we have relationships that we've nurtured over the years with four -year state colleges, two -year technno colleges that are in the proximity of our network.

And so if I'm in if I'm in Northern Wisconsin for example we're recruiting from University of Wisconsin o'claire University of Wisconsin stellleth which is in Mon monominey Wisconsin. We're going to U w River foalls. We're going to the I believe. It's West Central techno college and we have relationships there well if you think of what happened in in 2020.

All these kids went home and moved in with mom and dad and we doing college tech school remotely if, unless it was a trade that they were learning that required hands on, but they were doing it remotely and the 2020 to 2020 one schoolol year was well, we're remote some of the the time and were in some of the time, and it was a chaotic environment and some people just's out heck. But I'm going to say remote because I can.

The current school year that ended started last fall in 21, in 2, 2020 -two.

It was a pretty much everybody was in Class, and so I think what really changed in 2022 for us?

That moved the numbers is, all of a sudden, this young person who's going to college somewhere. I going to atttech college somewhere. They're now six months into. Hey I'm, I'm at college. They kick me out and sent me home to my parents.

I new a job and so we're finding those people in. They're applying for a jobs, we're posting. I think that's what's really moved the needle, because we haven't seen the need to move as well in our distribution center that which we would.

We haven't seen it MO as well in our transportation. I wish it would.

But the same thing with manufacturing, but I think that's what's driving it more than people not hire, hiring somewhere else has changed. I think the availability of talent has improved.

As a or the willingness of talent to work has improved more still than the opportunities have dropped off, because there's still a lot of her. It's a rare business that you go to today that has enough people and typically when I go out eat I call the restaurant first. I went up to open.

Because in this environment there's a lot of times business is shut down on different days of a week because it just doesn't if they only have 300 hours of work or a thousand hours of work this week, they're going to put it in the point that it's most useful for the employee and for the employer and their market.

And I think that's what's driving it more than anything.

Thank you, that's helpful.

I appreciate an old fect.

Thank your next question is to me from Chris knyder from ubbs. Airline is now ive.

Thank you. My's question is on on sites and specifically the lag between findings and activations. The first half of the year you guys signed 208 but activated 138. can you maybe talk about the typical lag? Has up been impacted by tight labor market so far in 2022 and any expectations for activations into the back half?

Yes it's not unusual for activations to occur, some of between between three months and six months. It's probably sort of the gap in which that that traditionally occur there're abutely is a period of time where those signings have to the bleed in. Do we believe that labor has played some role in the slowness? Yes, we do. Hopefully that's beginning to resolve itself to some degree. I will know we had a lot of implementations in the second quarter. Even So, we had a lot of signings. So we grew the backlog again and- and we do in fact, to have a record backlog of implementations to do, and so know we feel pretty good at about the degree to which the number of signings that we have, the backlog that we have in place, the degree to which that's either a bit of a hedge against any sort of downturn that plays out or an accelerant if one doesn't play over the back half of this year and into next year. We feel really good about that.

Appreciate that. So iguess, just kind of following up on you know potential tailwind, whether it's into a slowing macro or not, ice macroholity either way. Maybe you guys have have spoken in the past about a $1 million target for on site revenue. Is there any color you could provide on? You know the ramp, you know howlong it could take the dext to something like that. You know maybe any color what, what a on face typically ING to come out. I just kind of how we to think about that, try to quantify that talenge. Well, the one million. Talking about it, there's been a lot of times to use the example of a $3 thousand month customer. We think we can add 80 to $1 thousand of an incremental business and drill that to you know 110.20304 billion. Another relationship, and that 80 thousand increment is at least a million dollars later on top. You know to the point when you get it, when you're turning it on.

I think we're getting better at turning on on sites every day So that that enhances our ability to drive that quicker, but but it's still going to be dependent on the circumstanceces, and so I think that the layering event of numbers that we've historically shared- I I think that still is good a proxy- is anything about what expect- and I see we're at 10, 10 o'clock centsial time- probably shouldn't taking that left. That last question are running out of time. But Chris, if you have a follow up, appe for to give me or holding a call and for everybody else. Thank you again for participating in the call today and ok, have a successful Q3 in the rest of the year. Thank, that would.

Thank you. That does conclude today's teleconference and webcast. Me disconnect your line at this time and have a wonderful day. We thank you for your participation today.

And to moderate as the flow of physical products into our hub continuees, supporting strong product availability and fulfillment rates. The T disruptions inflation, supply chain created in additional level of inventory value. Despite that, our 161 days on hand in the second quarter of 2022 is more than 10 days below the days on hand in the second quarter of 2, 20 and 19 prior to the pandemic. Reflects increasing and sustainable ficiency and how we manage inventories. That capital spending, with 43 mion in the second quarter of two thousand and twenttwo -thirty, seven point 20, 8% year to date that capital spending was seventy six million- 20, 4- 0% do most significantly increas spending for F M my equment and how automation and up rates. We continue to anticate 20 y two net capital spending: a range of 100, eighty million, two hundred million. However, the combination lower F M I signings and continue supply chain supply chain challenges for transportation T equipment suggest there is a down by to our capital spending budget. We return to cash or shareholders in the arter in the form of 100 venty to moderate as the flow of physical products into our hub continuees, supporting strong product availability and fulfillment rates. The T disruptions inflation, supply chain created in additional level of inventory value. Despite that, our 161 days on hand in the second quarter of 2022 is more than 10 days below the days on hand in the second quarter of 2, 20 and 19 prior to the pandemic. Reflects increasing and sustainable ficiency and how we manage inventories. That capital spending, with 43 mion in the second quarter of two thousand and twenttwo thirty, seven point 20 8% year to date that capital spending was seventy six million- 20, 4- 0% do most significantly increas spending for F M, my equment and how automation and up rates. We continue to anticate 20 y two net capital spending: a range of 100, eighty million- two hundred million. However, the combination lower F M I signings and continue supply chain supply chain challenges for transportation T equipment suggest there is a down by to our capital spending budget. We return to cash or shareholders in the arter in the form of 100 venty million. End 49 million share by backthat well, our operortun approach to share by back change Board did approve and eight million share increas authorization, leaving point two million shares authorized for purches from liquidity stand point. The second quarter of 2022, 14% of capital from welve: 0%. The year go period aeleven: 0% versus the fourth quarter of two thousand and 20 that operat over Q question wer cessquestion. You like to be the question? Please P Star phone ke formation. In the question Q you may start 2: two question from the Q for participant using ak ment may to ptake four pricing Star 1, one moment, Please. We pull for question our first coming from co ST from more ING I one more morningthe tail. We on priceing gu kind of help out inflation ary environment MS, like thethere was the last coming to to and then think perspective, maybe steel starts to flow the business, how should we think about that, particularly on the fast and terms of not only know maybe what the sensivity on, on what you guys could see on priceing, but's any margin impact. You know that flow through and you guys price maybe customers know kind AR encil a little. You, I would say, is been doing inflation now for the better part of a year and we Ve been manageaging that through a number of means. But one of those means price actions on our own and, as we reported each quarter, we really been able to a line the pacing of our price increases with the acing of our cost increases and don't expect that to change our material cost today, our fairly stable, at a high level with where theyve been. So in the second quarter didn't take any additional broad actions. There were certainly actions around, certainly actionswhere we had supplyliers know, put you know increases into things like that, but I w those is being more Act. ical certainly took actions as contract. Do those openened up. But again again, that of how we manage the price cost ynamic is under standing, where our ST coming from and when will have opportunities to make justments. I I, the M, a credit to the lks- manage our, our price. St ateg, the foks, the F that have exe, ute because I think, done a really, really good job of. I look forward right now feels like going to be more of the same. You know to the extend that we see supplyers putting you know ST increes into first will push back on the. We have a sent. What whats going on was was material was know and and the bending on you know how goes. We might have to person know specific price increases through, two you know, but less there some meaningful change in the overall cost and vironment from where we spend most of the P quarter. I don't anticipate any ress actions have to be TA again the how the environment place just going by what we see. I also expect that will continue to manage to a utral pricecost. So not change in that that area. one change you will see is as we run the three re going to run against and so I do expect that the sentage growth related to price increases will moderate for where we were Q2, zero but again I does T reflect change in the overall price level. That would be my expectation. Got just a followall up gu at thebranch version year for for any observation for how that acted, kind of the traditional, you know TA branch basing model. I know that the object to there push more the customers comm, erce know be be willing the some of them know how. How would you ate how that's G and know any in any observations or R rates, stuff like that. You I think know part what we did viously the co period push every body to a roughtly change what they re doing and and I think that the see in our commerce sales goinging North. The 50% is estim to the market place. I I don't know the market place're we what the market I's more of the let and but byying. Have a change see personal what you do today is what it would have been five years a and and. So as we moved as moreand more of our TH comes from the were engaging with customers and their seeing, the ability, the ways maybe they would a 5, 10 years ago. Change the OT tly needed change your OT. You have five cations and the market three you you will lose some business because close ventity but most of that is is more thing to a different channe and that was that was going to happen. Regard of our think. Keep of that business be. Look at increase sales because a lot business sales that's going 50, eight per I was I would build on that know point to the same thing. I mean, despite the change that have been made, our TH been very good cloudes commer side with ical. Our local cotomers say it's really early to really under stand athe concre F where the numbers are all falling. Obviously this is come in the lastcoupleyears, the period ute get comefortto in the certain viron cent. I do believe that least very early on. I think the TH that were getting out of our branes relative to the, the ket place is a little better in cycle than what, what we saw last cycle and I that that the, the lot, the chang that were making. But this is A. this is a wealth of datea that wereregoingto have to continue to collected valu ate, every thing coming out of the field totally and really early indication. The datea I think are all all courud, gotproduct think question coming from the, from life hold morning, the morning. So back two thousand. I know cycle different, but through that year your gross margin dropped about three hundred basis point rates the time you were talked about F? Bates and competitive pricing. You just discuss different today about the business other than the fast, which I think was about 50%, anything that change that that would limit that kind impact under there year. You day, you know yester day ARD aving and was reflecting on that, that element with the Board. You what, what could en in different scenar, what were seeing? And if you to call two thousand 9, So thousand was the IR of inflation and nothing today. But there was inplaceation on that and and when demand fell back, that that inflplace in the flation and know all the what is six months of the product if demand dro that my seven 8, nine months for the product.

And continues to moderate as the flow of physical products into our hubs continues, supporting strong product availability and fulfillment ratesthe twin disruptions and inflation and supply chain have created an additional level of inventory value. Despite that, our 161 days on hand in the second quarter of 2022 is more than 10 days below the days on hand in the second quarter of twotwentthousand and 19 prior to the pandemic, which reflects increasing and sustainable efficiency in how we manage our inventories. Net capital spending was 4, 43 mion in the second quarter of 2022 of 37 pointand y 8%. Year-to-date net capital spending was seventtwenty six million of y four point 4%. doue most significantly to increase spending for FMI equipment and hub automation and upgrrates. We continue to anticipate twent thousand and 22 net capital spending, a range of 18 million to two million. However, the combination of slower FI signings and continue supply chain supply chain challenges for transportation of it equipment suggests there is a downward bias to our net cap spending budget. We return to cash or shareholders in the arter in the form of 100 venty eight million dividends and 49 million sharebuyback. While our opportunistic approach to share buyback is unchanged, our Board did approve an eight million share increase or authorization, leaving us a 10 point two million shares authorized for repurchase. From a liquidity standpoint, we finished the second quarter of 2022 would debt at 14% of total capital, up from 12% in the yearago period at Eleven point 4% versus the fourth quarter of 2022. with that operator will turn it over to Q a.