Q4 2023 Fastenal Co Earnings Call

January 18, 2024

You may be placed in the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Taylor Ranch, a fastener company. Please go ahead Taylor.

Taylor Ranch: Welcome to the Fastener company 2023 annual and fourth quarter earnings Conference call and call will be hosted by Dan <unk>, Our President and Chief Executive Officer, and Holden Lewis, Our Chief Financial Officer, the call will last for up to one hour and we'll start with a general overview of our annual and quarterly results and operations with the remainder of the time being opened for questions and answers today's conference call.

Speaker Change: Bio-terrorist fast my presentation and is being recorded bypass all no recording reproduction transmission or distribution of today's call is permitted without pass off consent. This call is being audio simulcast on the internet via the <unk> Investor Relations homepage investor basketball Dot Com a replay of the webcast will be available on the website until March one 2024 at midnight Central time as a reminder.

Hello, and welcome to the festival 2023 annual and Q4 earnings results Conference call.

Speaker Change: 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.

If anyone should require operator assistance. Please press star zero on your telephone keypad.

Short answer session will follow the formal presentation.

He may be placed in the question queued anytime by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Taylor Ranch out of fashion. All company. Please go ahead Taylor.

Speaker Change: We encourage you to review those factors carefully I would now like to turn the call over to Mr. Dan Fairness.

Taylor Ranch: Welcome to the fast food company 2023 annual and fourth quarter earnings Conference call. The call will be hosted by Dan <unk>, Our President and Chief Executive Officer, and Holden Lewis, Our Chief Financial Officer, the call last for up to one hour and we'll start with a general overview of our annual and quarterly results and operations with the remainder of the time being opened for questions and answers today's conference call.

Dan Fairness: Thank you Taylor and good morning, everybody and welcome to the Q4 fast earnings call.

Dan Fairness: I'm going to go right to the flipbook and on page three.

Dan Fairness: We have.

Dan Fairness: Handful of slides here.

Dan Fairness: So 2023 athene to struggle as an organization.

Dan Fairness: One.

Speaker Change: Kiotech fast my presentation and is being recorded bypass all no recording reproduction transmission or distribution of today's call is permitted without that Falcons. At this call is being audio simulcast on the internet via the bathroom Investor Relations homepage investor about basketball Dot Com a replay of the webcast will be available on the website until March one 2024 at midnight Central time as a reminder.

Dan Fairness: Since November of 2022 sold for 14 consecutive months, we've seen a sub 50.

Dan Fairness: PMI.

Dan Fairness: When you operate in.

Dan Fairness: Very heavily in the industrial space, that's a big deal for you and.

Dan Fairness: There's many benefits to having holding part of our organization one is here.

Dan Fairness: His career before joining passed out he has access to he's forgotten things about.

Stuff, but I don't even know and so I asked them I said hey.

Dan Fairness: Often does appear to make this happen and he said well back to $19 70.

Dan Fairness: Six times that it's been sub 50 for an extended period of time, most recent being the.

Speaker Change: And we encourage you to review those factors carefully I would now like to turn the call over to Mr. Dan Florida.

Dan Fairness: <unk>.

Dan Fairness: The great recession, and the OE dollars nine timeframe, but it's a pretty tough period okay.

Daniel L. Florness: Thank you Taylor and good morning, everybody and welcome to the Q4 fast earnings call.

Dan Fairness: So it's been it's been pretty tough and you could look at that but the second item. The second struggle is.

Daniel L. Florness: I'm going to go right to the flipbook and on page three.

Dan Fairness: We've executed better.

Daniel L. Florness: We have a.

Daniel L. Florness: Handful of slides here.

Dan Fairness: And in 2022, and we put up a good put up good numbers inflation helps Tom.

Daniel L. Florness: So 2023 has seen two struggles in our organization.

Dan Fairness: The <unk>.

Daniel L. Florness: One.

Dan Fairness: Rebounding economy from Covid helps the fact that we're pretty good at supply chain and we were able to find stuff and keep people supplied helped because you can't get it anywhere else you come and get it from us.

Daniel L. Florness: Since November of 2022 sold for 14 consecutive months, we've seen a sub 50.

PMI that when you operate.

Dan Fairness: And but but there was some stuff under the under the Hood.

Daniel L. Florness: Very heavily in the industrial space, that's a big deal for you.

Dan Fairness: We weren't executing as well as we'd like to see and we made some leadership changes earlier in the year and I think we're poised really well as we go into 2024, but those are a couple of things that the challenge of the year.

Daniel L. Florness: There's many benefits to having holding part of organization one is as it.

Daniel L. Florness: Is his career before joining past he has access to he's forgotten things about.

Daniel L. Florness: Stuff that I don't even know and so I asked them I said hey.

Dan Fairness: Despite all of that in the fourth quarter, we grew our daily sales three 7%.

Daniel L. Florness: Often does appear to make this happen and he said well back to $19 70.

Dan Fairness: The team did a really nice job managing expenses, we had a few things that sometimes.

Daniel L. Florness: Six times that it's been sub 50 for an extended period of time, most recent being the.

Dan Fairness: Sometimes you have a few things that go your way, sometimes a few things that go against you.

Dan Fairness: On par things were generally favorable and we grew our EPS eight 5% to 46.

Daniel L. Florness: The great recession, and the OE dollars nine timeframe, but it's a pretty tough period okay.

Dan Fairness: If I think of our growth initiatives kind of uneven.

Daniel L. Florness: So it's been it's been pretty tough and you can look at that but the second item in the second struggle is.

Dan Fairness: We've continued to see nice development in our <unk> and our install base of onsite locations, maybe not as fast as we'd like F&I devices. We did a really nice job and we continued to increase our digital footprint that we've talked about in recent years.

Daniel L. Florness: We've executed better.

Daniel L. Florness: And in 2022, and we put up a good put up good numbers inflation helps Tom.

Daniel L. Florness: The <unk>.

Dan Fairness: Operating cash flow was a record.

Daniel L. Florness: Rebounding economy from Covid helps the fact that we're pretty good at supply chain and we were able to find stuff and keep people supplied helped because you can't get it anywhere else you come and get it from us.

Dan Fairness: At over one 4 billion.

Dan Fairness: Of operating cash that we generated.

Dan Fairness: And it was a 52% increase in what we did in 2022 now on the surface that a little bit misleading, because 2022 and I'll touch on that and.

Daniel L. Florness: And but but there was some stuff under the under the Hood.

Daniel L. Florness: We weren't executing as well as we'd like to see and we made some leadership changes earlier in the year and I think we're poised really well as we go into 2024, but those are a couple of things that the challenges of the year.

Dan Fairness: And a second consumed a lot of working capital.

Dan Fairness: Because we were ensuring a reliable supply chain for our customers.

Dan Fairness: That brings us to the final bullet on the page and we paid out a fifth dividend payout 38 cents per share here in December.

Daniel L. Florness: Despite all of that in the fourth quarter, we grew our daily sales three 7%.

Dan Fairness: It's the fourth time.

Daniel L. Florness: The team did a really nice job managing expenses, we had a few things that sometimes.

Dan Fairness: So we've done a supplemental dividend that since going public back in the late 19 eighties.

Daniel L. Florness: Sometimes you have a few things that go your way, sometimes if you think that goes against you on par things were generally favorable and we grew our EPS eight 5% to 46.

Dan Fairness: The first time was in December of 2008.

Dan Fairness: The World was in free fall, we had cash available we looked at that cash is being this is owned by our shareholders. We don't know what needs. They have for liquidity. We do know we wont need. This in 2009, if the economy is doing and what it does because our business is counter cyclical.

Daniel L. Florness: If I think of our growth initiatives kind of uneven.

Daniel L. Florness: We've continued to see nice development in our in our install base of onsite locations, maybe not as fast as we'd like <unk> devices. We did a really nice job and we continued to increase our digital footprint that we've talked about in recent years.

Dan Fairness: We knew we'd throw awful lot of cash.

Dan Fairness: And we and so we paid out a sizable dividend in December of 2008 <unk>.

Daniel L. Florness: Operating cash flow was a record.

Dan Fairness: December of 2012, there was a lot of uncertainty in United States. The federal government was having a fight amongst itself, but what tax rates should be on dividends. We didn't know if tax rates were going to go up in 2013 and figured we're sitting on a bunch of cash that's paid out to our shareholders.

Daniel L. Florness: At over $1 4 billion.

Daniel L. Florness: Of operating cash that we generated and it was a 52% increase in what we did in 2022 now on the surface that a little bit misleading, because 2022 and I'll touch on that.

Dan Fairness: We don't need it we generate a lot of cash in the future, we'll pay it out and let the folks in Washington D. C figure things out it's nice to know that in today's Washington D. C things are much more calmer.

Daniel L. Florness: And a second consumed a lot of working capital because we were ensuring a reliable supply chain for our customers.

Daniel L. Florness: That brings us to the final bullet on the page and we paid out a fifth dividend payout 38 cents per share here in December as the fourth time that we've.

Dan Fairness: I will start from sarcasm Midwestern.

Dan Fairness: December of 2020, we paid.

Dan Fairness: The world was in Covid.

Dan Fairness: We had more cash than we needed and we paid out a supplemental dividend. This one is different than the other three.

Daniel L. Florness: Done a supplemental dividend like that since going public back in the late 19 eighties.

Daniel L. Florness: The first time was in December 2008.

Dan Fairness: We invested a tremendous amount of cash into inventory in 2021, and 2022 and incredible amount.

Daniel L. Florness: The World was in free fall, we had cash available we looked at that cash is being this is owned by our shareholders. We don't know what needs. They have for liquidity. We do know we wont need. This in 2009, if the economy is doing and what it does because our business is counter cyclical.

Dan Fairness: Supply change became erratic you Couldnt count.

Dan Fairness: A reliable timeframe of getting containers through ports and getting product.

Dan Fairness: And we're not a salary company, we don't say to our customer sorry, I couldn't get it.

Daniel L. Florness: And we knew we'd throw awful lot of cash.

Dan Fairness: We're a supply chain company.

Daniel L. Florness: And we and so we paid out a sizable dividend in December of 2008 <unk>.

And if we feel that it's going to take an extra 40 or 45 days to get a container.

Daniel L. Florness: December of 2012, there was a lot of uncertainty in United States. The federal government was having a fight amongst itself, but what tax rates should be on dividends. We didn't know if tax rates were going to go up in 2013 and figured.

Dan Fairness: We will add 50 days of inventory six days of inventory. So we consumed a tremendous amount of cash Fortunately things have become more stable and we harvested that cash in 2023.

Not a bunch of cash that's paid out to our shareholders.

Dan Fairness: And we will generate ample cash as we move into 'twenty four and beyond we didn't need it we send it to our shareholders. We feel we have a really conservative balance sheet and we have plenty of gunpowder for anything that we need to do as we move into 2024.

Daniel L. Florness: We don't need it.

Daniel L. Florness: We generate a lot of cash in the future, we'll pay it out and let the folks in Washington D. C figure things out it's nice to know that in today's Washington D. C things are much more calmer.

Sorry for the sarcasm Midwestern.

Flipping to page 458 signings in the fourth quarter of 'twenty three.

Daniel L. Florness: December of 2020, we paid.

Daniel L. Florness: The world was in Covid.

Daniel L. Florness: We had more cash than we needed and we paid out a supplemental dividend. This one is different than the other three.

Dan Fairness: Not a particularly impressive number.

Dan Fairness: Perhaps.

Daniel L. Florness: We invested a tremendous amount of cash into inventory in 2021, and 2022 and incredible amount.

Dan Fairness: The.

Dan Fairness: The environment came a little bit tougher late in the year signing on sites that is not the strongest of the year for many of our customers. Perhaps we had some district managers that are looking at their expectations for 2024, and maybe some onsite signings split into 2024.

Daniel L. Florness: <unk> supply change became erratic you can't count it was not a reliable timeframe of getting containers through ports and getting product.

Dan Fairness: We're up 12, 3% we finished the year with <unk> hundred 22 locations.

Daniel L. Florness: And we're not a salary company, we don't say to our customer sorry, I Couldnt get it.

Dan Fairness: Our our older onsite, it's had a pretty tough year.

Daniel L. Florness: We're a supply chain company.

Daniel L. Florness: And if we feel that it's going to take an extra 40 or 45 days to get a container.

Dan Fairness: That speaks more I believe to the PMI index than anything else.

Daniel L. Florness: We will add 50 days of inventory six days of inventory. So we consumed a tremendous amount of cash Fortunately things have become more stable and we harvested that cash in 2023 and.

Dan Fairness: But we still anticipate.

Dan Fairness: 300, 7400 signings next year, we think we think we're poised.

Dan Fairness: To do that we think the energies behind it.

And we will generate ample cash as we move into 'twenty four and beyond we didn't need it we send it to our shareholders. We feel we have a really conservative balance sheet and we have plenty of gunpowder for anything that we need to do as we move into 2024.

Dan Fairness: And we think the team is really focused on it and that speaks back to some of our execution issues I mentioned on the prior page.

Dan Fairness: <unk> technology.

Dan Fairness: We had a good year with fmri.

Speaker Change: You did a nice job assigning if I if I look at just below the bullet where we stay we signed 24126 Emmy use you divide that by 253 days, that's 95 per day over the span of the year.

Daniel L. Florness: Flipping to page 458 signings in the fourth quarter of 'twenty three.

Daniel L. Florness: That's not a particularly impressive number.

Speaker Change: One thing we've talked about a number of years ago was building our infrastructure to support signing 100 devices a day.

Daniel L. Florness: Perhaps.

Daniel L. Florness: The environment came a little bit tougher late in the year signing on sites that is not the strongest of the year for many of our customers. Perhaps we had some district managers that are looking at their expectations for 2024, and maybe some onsite signings split into 2024.

Speaker Change: And that was a long way away from what we were doing at the time, but that was kind of number we had in our head and I am pleased to say that the team is essentially gotten there and came in at 95 per day for the year or.

Daniel L. Florness: We're up 12, 3% we finished the year with <unk> hundred 22 locations.

Our intention for next year is to sign 26 20000, it's a big number.

Speaker Change: I believe the team is up to it.

Daniel L. Florness: Our our older onsite, it's had a pretty tough year.

Speaker Change: E Commerce continues to grow well a lot of that obviously, we're not going we're not growing 28%. So a lot of that is customers are changing how they engage with us.

Speaks more I believe to the PMI index than anything else.

Daniel L. Florness: But we still anticipate 300 7400 signings next year, we think we think we're poised.

Speaker Change: And were not unique to that and so I believe ecommerce as a percentage of our business is about 25% of sales now that go back not too many years ago. It was 5% of sales. So it continues to grow and then finally, our digital footprint, that's where we engage electronically with our customer it might be we deploy <unk> so our vending devices.

Daniel L. Florness: To do that we think the energies behind it and we think the team is really focused on it and that speaks back to some of our execution issues I mentioned on the prior page.

Daniel L. Florness: <unk> technology.

Daniel L. Florness: We had a good year with fmri.

Speaker Change: You did a nice job assigning if I if I look at just below the bullet, where we stay we signed 24126 Emmy.

Speaker Change: <unk>.

Speaker Change: Been.

Speaker Change: We use you divide that by 253 days, that's 95 per day over the span of the year.

Speaker Change: Been with technology embedded mobility scanned.

Speaker Change: Ben whatever it might be but we engage with our customer and then we had the e-commerce on top of that.

One thing we've talked about a number of years ago was building our infrastructure to support signing 100 devices a day.

Speaker Change: Remove the double counting and in January of 2020 that was 36% of sales a year later it was 38 a year later it was <unk> 46, a year later it was 53 and now we ended this year at 50 859 type of neighborhood.

Speaker Change: Flipping to page five this is the last time, you're going to see this chart.

Speaker Change: I believe the team is up to it.

Speaker Change: We started at a number of years ago.

Speaker Change: E Commerce continues to grow well a lot of that obviously, we're not we're not growing 28%. So a lot of that is customers are changing how they engage with us.

Speaker Change: Back in.

Speaker Change: So we have about 3400 19 and market locations.

Speaker Change: Three 5% from where we were a year ago.

Speaker Change: Back in 2015 about 9% of our end market locations for what we call an on site now in onsite might be we're physically inside the customers facility.

Speaker Change: And were not unique to that.

Speaker Change: So I believe e-commerce as a percentage of our business is about 25% of sales now that go back not too many years ago. It was 5% of sales. So it continues to grow and then finally, our digital footprint, that's where we engage electronically with our customer it might be we deploy <unk> so our vending device.

Speaker Change: We are operating in a facility down the street from the customer are dedicated at customer we might be operating a facility. That's in the back of a branch because the customer doesn't have enough room for us to put everything in there and we only put some stuff in there and we backfill our back room as the back of the branch.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: Been with technology embedded a mobility scanned.

Speaker Change: But it's where we engage in a discrete business with the customer and it ramped up our ability to grow as we really looked at this as being not just something that had happened once or twice back in the Ninety's and the first one was frankly, we couldn't find the building the rent in town and the customer said I have some room and we moved in so it was more of a born out of necessity.

Speaker Change: Beyond whatever it might be but we engage with our customer and then we had the e-commerce on top of that.

Remove the double counting and in January of 2020 that was 36% of sales a year later it was 38 a year later it was <unk> 46, a year later it was 53 and now we ended this year at 50 859 type of neighborhood.

Speaker Change: <unk>.

Speaker Change: Flipping to page five this is the last time, you're going to see this chart.

Speaker Change: But as we realized this was really a business model that can help us grow.

Speaker Change: It prompted us to revisit our branch network.

Speaker Change: We started at a number of years ago.

Speaker Change: Back in.

Speaker Change: And so we peaked out in 2013 at.

Speaker Change: So we have about 3400 19 and market locations, it's up three 5% from where we were a year ago.

At that point in time, we estimated we were within a 30 minute drive of 95% of the manufacturing base in United States with our 2600 or so stores or branches and that included our U S and Canadian <unk>.

Speaker Change: Back in 2015 about 9% of our end market locations for what we call an on site now in onsite might be we're physically inside the customers facility.

Speaker Change: Network.

We are operating in a facility down the street from the customer that dedicated at customer we might be operating a facility. That's in the back of a branch because the customer doesn't have enough room for us to put everything in there and we only put some stuff in there and we backfill our back room as the back of the brands.

Speaker Change: But we looked at and said if we pulled that back a bit.

Speaker Change: Because some of that business that would be in a branch is going to be an onsite overtime.

Speaker Change: What would it look like.

Speaker Change: And we settled on a number of about 40 to 150 at 4200 50 locations that 95% penetrated.

Speaker Change: Access to the manufacturing base drops to about 93 and a half.

Speaker Change: And we know if there's customers that are outside that 30 minute window.

Speaker Change: And they are onsite customers.

Speaker Change: That our branches 45 minutes away it doesn't matter. So we saw this as the right density.

Speaker Change: And I'll use some.

Speaker Change: Yesterday.

Speaker Change: I'm always.

Speaker Change: But as we realized this was really a business model that can help us grow.

Speaker Change: One beauty about being organic grow over the years and all of our systems are one system you have access to a tremendous amount of information.

Speaker Change: It prompted us to revisit our branch network.

Speaker Change: And I did a look at our oldest four states in the company.

Speaker Change: And so we peaked out in 2013.

Speaker Change: At that point in time, we estimated we were within a 30 minute drive of 95% of the manufacturing base in United States.

Speaker Change: And if I go back to 2007 in Minnesota, Iowa, Wisconsin, and Illinois, We did just under $400 million in revenue is about 19% of our sales.

Speaker Change: With our 2600 or so stores or branches and that included our U S and Canadian.

Speaker Change: We had 236 branch locations in those four states, we had 20 onsite.

Speaker Change: Network.

Speaker Change: In the next decade.

Speaker Change: But we looked at and said if we pulled that back a bit.

Speaker Change: That business that those four states. We grew our CAGR was about five 7% a year.

Speaker Change: Because some of that business that would be in a branch is going to be an onsite overtime.

What would it look like and we settled on a number of about 40 550 at 1400 50 locations that 95% penetrated.

Speaker Change: And as you can appreciate it's a nicely profitable business, it's above the company average.

Speaker Change: A few percent a few hundred basis points.

Speaker Change: And about 18% of our revenue was on site.

Speaker Change: Access to the manufacturing base drops to about 93 and a half.

Speaker Change: Since 2017, we've closed one since 2013, we closed a bunch of locations.

Speaker Change: And we know if there's customers that are outside that 30 minute window.

Speaker Change: We've opened a bunch of onsite fact, we've gone from 200, we peaked out at 263 branches. Currently we have 191, so we're down about 30% from our peak.

Speaker Change: And they are onsite customers. The fact that our branches 45 minutes away. It doesn't matter. So we saw this as the right density and I'll use some.

Speaker Change: I'm always.

Speaker Change: Our on site count.

Speaker Change: One.

Speaker Change: He has over 220 once we have more onsite than we have branches.

Speaker Change: In the last since 2017.

Speaker Change: That areas is a CAGR of five 7%.

Speaker Change: It has a CAGR of $8. Two so we took an old mature profitable part of the <unk> business and.

Speaker Change: <unk> grew at faster today, it's about it's about a $1 $1 billion business since about 15% of our sales.

Speaker Change: And about 46% of our sales run through non site, sorry for taking us down memory Lane, there, but thought I'd give a little insight on why we're excited about.

Speaker Change: The rationalization of the branch network.

Speaker Change: And the.

Speaker Change: Onsite and the potential to expand our ability to grow with that I'll turn it over to hold them great. Thank you Dan good morning, everybody I'm going to.

Holden Lewis: Start on slide six.

Holden Lewis: Total and daily sales in the fourth quarter of 2023 were up three 7% the quarter finished stronger with daily sales in December being up five 3% and outperforming historical sequential patterns.

Holden Lewis: Much of this strength relates to our warehousing end market, which represents sales into the fulfillment centers of retail oriented customers. This end market has grown significantly for us since the pandemic, helping to diversify our end market exposure and representing 3% to 4% of sales in 2023.

Holden Lewis: It also grew 45% in the fourth quarter and roughly 60% in December so strength in this end market was a significant contributor to the performance of our other end markets and our safety products categories in the period.

Holden Lewis: Now if you remove warehousing our sales results continued to reflect sluggish demand for example, our manufacturing end market continues to grow but at moderating rates, while our fastener product line experienced contraction in MRO and for the first time this cycle OEM products <unk>.

Holden Lewis: Trends in these markets and product categories tend to be more reflective of cyclical trends and are being impacted by PMI readings that remain sub 50, and soft industrial production, particularly for key components, such as fabricated metals machinery.

Holden Lewis: This setting is matched by muted feedback from regional leadership.

Holden Lewis: But if conditions didn't get better in the fourth quarter of 'twenty three they didn't get worse, either if we adjust warehousing out of our November and December daily sales rates than the months would still have been very slightly ahead of normal sequential.

Holden Lewis: As was the case in the third quarter of 2023 pricing was consistent.

Holden Lewis: It was consistent and positive and within the typical range of zero to 2% with modest deflation within our fastener line.

Holden Lewis: With the usual caveat that our forward vision is limited we are constructive about 2024 with easier comparisons channel inventories being in good shape and generally favorable customer outlooks from regional leadership entering the year, though business activity remains subdued.

Holden Lewis: Now to slide seven.

Holden Lewis: Operating margin in the fourth quarter of 2023 was 21% up 50 basis points year to year, and achieving a 33% incremental margin. We view this as solid execution against the backdrop of soft growth.

Holden Lewis: <unk> low seasonal volumes.

Holden Lewis: Gross margin in the fourth quarter of 2023 was 45, 5% up 20 basis points from the year ago period, we had year over year margin drag from product and customer mix, though the effect did moderate sequentially. This was offset by slightly higher fastener product margins and freight margins, though the impact of the latter moderated meaningfully from the prior quarter.

This setting is matched by muted feedback from regional leadership.

But if conditions didn't get better in the fourth quarter of 2003, they didn't get worse, either if we adjust warehousing out of our November and December daily sales rates than the months would still have been very slightly ahead of normal sequential.

As was the case in the third quarter of 2023 pricing was consistent.

Holden Lewis: And we had slightly positive price cost.

Holden Lewis: Our view of price cost is unchanged from what we described in the third quarter of 2023. It does not reflect any incremental pricing actions in the most recent quarter, but rather the recapture of the negative price cost that we had discussed in the fourth quarter of 2022, our objective remains to be price cost neutral over time.

It was consistent and positive and was in a typical range of zero to 2% with modest deflation within our fastener line.

With the usual caveat that our forward vision is limited we are constructive about 2024 with easier comparisons channel inventories being in good shape and generally favorable customer outlooks from regional leadership entering the year, though business activity remains subdued.

Holden Lewis: SG&A was 25, 3% of sales in the fourth quarter of 2023 improved from 25, 7% in the year earlier period.

Now to slide seven.

Operating margin in the fourth quarter of 2023 was 21% up 50 basis points year to year, and achieving a 33% incremental margin. We view this as solid execution against the backdrop of soft growth and low seasonal volumes.

Holden Lewis: This amounts to small improvements in a lot of areas rather than significant improvement in just one or a few areas for instance, more favorable comparisons in good expense discipline produced flattish cost and modest leverage around selling related transportation information technology and spending on travel meals and supplies.

Gross margin in the fourth quarter of 2023 was 45, 5% up 20 basis points from the year ago period, we had year over year margin drag from product and customer mix, though the effect did moderate sequentially. This was offset by slightly higher fastener product margins and freight margins, though the impact of the latter moderated meaningfully from the prior quarter.

Holden Lewis: We experienced modest occupancy leverage as a result of vending devices used in a past lease locker program passing their depreciable lives.

Holden Lewis: These were joined by contribution stemming from improvements in our supplier contribution collaboration programs.

Holden Lewis: The Blue team did a nice job tightening spending over the course of the year as business activity continued to slow.

And we had slightly positive price cost our view of price cost is unchanged from what we described in the third quarter of 2023. It does not reflect any incremental pricing actions in the most recent quarter, but rather the recapture of the negative price cost that we had discussed in the fourth quarter of 2022, our objective remains to be price cost neutral over time.

Putting everything together, we reported fourth quarter 2023, EPS of <unk> 46 of.

Holden Lewis: Of eight 4% from 43 in the fourth quarter of 2022.

Holden Lewis: Now turning to slide eight.

Holden Lewis: We generated $354 million in operating cash in the fourth quarter of 2023 or 133% of net income and $1 43 billion in operating cash for the full year of 2023.

SG&A was 25, 3% of sales in the fourth quarter of 2023 improved from 25, 7% in the year earlier period.

Holden Lewis: Both dollar amounts represent record operating cash generation that was driven by reduced working capital needs. This produced strong cash balances that allowed us to pay a supplemental fifth dividend in December of 2023, putting cash returned to shareholders through dividends at one point or $2 billion for the full year.

This amounts to small improvements in a lot of areas rather than significant improvement in just one or a few areas for instance, more favorable comparisons in good expense discipline produced flattish costs and modest leverage around selling related transportation information technology and spending on travel meals and supplies.

Holden Lewis: Even with this we finished 2023 with a conservatively capitalized balance sheet with debt being seven 2% of total capital down from 14, 9% of total capital at the end of 2022.

We experienced modest occupancy leverage as a result of vending devices used in a past lease locker program passing their depreciable lives.

Holden Lewis: Working capital dynamics were similar in the fourth quarter of 2023 to what we experienced throughout the full year accounts receivable were up seven 3%, which is primarily a combination of total sales growth and a shift in mix towards larger customers, which tend to have longer terms.

These are joined by contribution stemming from improvements in our supplier contribution collaboration programs.

The Blue team did a nice job tightening spending over the course of the year as business activity continued to slow.

Putting everything together, we reported fourth quarter 2023, EPS of <unk> 46.

Holden Lewis: Inventories were down 10, 3%, owing primarily to the effects of slower customer demand. The unwinding of inventory layers built a year ago to manage supply constraints are field and hub operations sustainably streamlining inventory processes and modest inventory deflation.

Up eight 4% from 43 in the fourth quarter of 2022.

Now turning to slide eight.

We generated $354 million in operating cash in the fourth quarter of 2023 or 133% of net income and $1 43 billion in operating cash for the full year of 2023.

Holden Lewis: Net capital spending in 2023 finished at 161 million little changed from the $162 million in 2022 and below our forecasted range of $180 million to $190 million.

Both dollar amounts represent record operating cash generation that was driven by reduced working capital needs. This produced strong cash balances that allowed us to pay a supplemental fifth dividend in December of 2023, putting cash returned to shareholders through dividends at one point <unk> 2 billion for the full year.

Holden Lewis: This shortfall has less to do with deliberate project deferrals than it does the slower business activity, reducing the need for certain investments to support immediate growth and timing delays outside our control for certain expenditures.

Even with this we finished 2023 with a conservatively capitalized balance sheet with debt being seven 2% of total capital down from 14, 9% of total capital at the end of 2022.

Holden Lewis: Our net capital spending expectations in 2000 22024.

Holden Lewis: Is there a range of $225 million to $245 million, which reflects catch up spending for hub automation and capacity. The substantial completion of an upgraded distribution center in Utah and increase in F&I spend in anticipation of increased signings and information technology.

Working capital dynamics were similar in the fourth quarter of 2023 to what we experienced throughout the full year accounts receivable were up seven 3%, which is primarily a combination of total sales growth and a shift in mix towards larger customers, which tend to have longer terms.

Holden Lewis: 2023 had its successes, while acknowledging that we didn't hit all our goals. We nonetheless closed the year with a higher installed base of on sites in F&I devices, and a greater proportion of our sales moving through our digital footprint.

Inventories were down 10, 3%, owing primarily to the effects of slower customer demand. The unwinding of inventory layers built a year ago to manage supply constraints are field and hub operations sustainably streamlining inventory processes and modest inventory deflation.

Holden Lewis: Organization adapted to one less selling day and slower growth than originally anticipated effectively controlling expenses and defending our operating margin, we improved our balance sheet and produced record operating cash, which allowed us to return record capital to our shareholders.

Net capital spending in 2023 finished at 161 million little changed from the $162 million in 2022 and below our forecasted range of $180 million to $190 million.

Holden Lewis: Where we fell short of our expectations was in our ability to generate stronger sales growth. However, we are enthusiastic about the leadership changes made to our sales operations in 2023, and regardless of macro conditions expect these to lead to improved market share gains in 2024 with that operator, we'll turn it over to begin Q&A before we start Q&A.

This shortfall has less to do with deliberate project deferrals than it does the slower business activity, reducing the need for certain investments to support immediate growth and timing delays outside our control for certain expenditures.

Our net capital spending expectations in 2000 22024.

Speaker Change: <unk> items I thought I would share from a conversation we had this morning with our senior leadership from throughout the company.

Is there a range of $225 million to $245 million, which reflects catch up spending for hub automation and capacity. The substantial completion of an upgraded distribution center in Utah and increase in F&I spend in anticipation of increased signings and information technology.

Speaker Change: And part of it was sharing with them a little bit of a recap of our board meetings over the last couple of days and some thoughts on the quarter and some thoughts on 2024 and I just thought I would share.

Speaker Change: First some thoughts on the P&L and Holden touched on some of these but sort of presented maybe in the way we talked about it with our own team internally first.

Taylor Ranch: 2023 had its successes, while acknowledging that we didn't hit all our goals. We nonetheless closed the year with a higher installed base of on sites in F&I devices, and a greater proportion of our sales moving through our digital footprint. The organization adapted to one less selling day and slower growth than originally anticipated effectively controlling expenses and defending our operating margin.

Speaker Change: First one was when I when I think of 2023, and then going into 2024.

Speaker Change: So this is the last year that we've had that will have.

Speaker Change: Some branch closings.

Speaker Change: Branch closings do two things for us they do they do a free up a little bit of occupancy. What we've found over time is typically when were consolidated in two locations into one some of that occupancy savings is spent on maybe a larger location for the two locations because of business doesn't fit.

Holden Lewis: We improved our balance sheet and produced record operating cash, which allowed us to return record capital to our shareholders.

Speaker Change: Where we fell short of our expectations was in our ability to generate stronger sales growth. However, we are enthusiastic about the leadership changes made to our sales operations in 2023, and regardless of macro conditions expect these to lead to improved market share gains in 2024 with that operator, we'll turn it over to begin Q&A before we start Q&A.

Speaker Change: Or.

Speaker Change: As we've seen in the last during the Covid period, a lot of buildings that we operated in became really attractive buildings for a lot of local.

Speaker Change: Distribution points for a lot of E. Commerce. So those there was some competition for the space that competition doesn't make it cheaper.

Speaker Change: Few items I thought I would share from a conversation we had this morning with our senior leadership from throughout the company.

But but with that said.

Speaker Change: We've been we've had benefited from some some occupancy savings there those benefits are going to be behind us and we need to be thoughtful about that as we enter in 2024, there's a flip side of that coin consolidated two locations and one is a heck of a lot of work and it's a big distraction to the business to our customers.

Speaker Change: First some thoughts on the P&L and Holden touched on some of these sort of presented maybe in the way we talked about it with our own team internally first.

Daniel L. Florness: First one was when I when I think of 2023, and then going into 2024.

Speaker Change: And that distraction of our own selling energy our own local energy is now behind us and the challenge that put in front of everybody is make sure that translated into selling activity to grow the darn business the.

Daniel L. Florness: So this is the last year that we've had that will have.

Daniel L. Florness: Some branch closings.

Daniel L. Florness: Branch closings do two things for us they do they do a free up a little bit of occupancy what we've found over time is typically when we are consolidating two locations into one some of that occupancy savings is spent on maybe a larger location for the two locations because the business doesn't fit.

The second.

Speaker Change: We had the benefit in 2023.

Speaker Change: <unk>.

Speaker Change: Some lower bonus payouts benefit to the P&L not benefit to the recipients.

Speaker Change: 2022 was a really good year for us and a lot of our folks are our incentive <unk>.

Daniel L. Florness: <unk>.

Daniel L. Florness: As we've seen in the last during the Covid period.

Daniel L. Florness: Buildings that we operated in became really attractive buildings for a lot of local.

Speaker Change: Simple growth in earnings.

Speaker Change: And we grew earnings tremendously in 2022 with that falling off as we went into 2023.

Daniel L. Florness: Distribution points for a lot of E. Commerce. So those there was some competition for the space.

Speaker Change: That contracted the bonuses, we won't we don't anticipate having that benefit in 2024, because we don't anticipate the P&L doing what it did in 2023.

Daniel L. Florness: Petition doesn't make it cheaper.

Daniel L. Florness: But but with that said.

Daniel L. Florness: We've been we've had benefited from some some occupancy savings there those benefits are going to be behind us and we need to be thoughtful about that as we enter into 2024, there's a flip side of that coin.

Speaker Change: And that means we need to be really dialed in on everything else. We do so that can we expand.

Daniel L. Florness: Validating two locations and one is a heck of a lot of work and it's a big distraction to the business to our customers.

Speaker Change: The final piece Holden touched on it.

Speaker Change: Some vending depreciation.

Speaker Change: We had a runoff and benefited the fourth quarter. The beauty of that is it will also benefit the first quarter and the second quarter and third quarter until we anniversary that so that will give us some benefit in 2020 for.

Daniel L. Florness: And that distraction of our own selling energy our own local energy is now behind us and the challenge that put in front of everybody is make sure that translated into selling activity to grow the darn business.

Speaker Change: The next one was a challenge to everybody on that call, whether you are in sales or not.

Daniel L. Florness: The second.

Daniel L. Florness: We had the benefit in 2023.

Speaker Change: As are our focus has to be on everything we're doing.

Daniel L. Florness: <unk>.

Daniel L. Florness: Some lower bonus payouts benefit to the P&L not a benefit to the recipients.

Speaker Change: It is helping our branch and onsite locations hit their goal in fact I had to laugh. After shortly after the call and I suspect I needed. Thank John Soderberg for this but out on the printer Theres assigned help help help our branch and onsite hit their sales goals in 2024.

2022 was a really good year for us and a lot of our folks are our incentive <unk>.

Daniel L. Florness: Simple growth in earnings.

Daniel L. Florness: And we grew earnings tremendously in 2022 with that falling off as we went into 2023.

Speaker Change: Thanks for that John and.

Speaker Change: But that's where our head is at.

Speaker Change: We didn't feel good about 2023, and the best way to feel better about it.

Daniel L. Florness: That contracted the bonuses, we won't we don't anticipate having that benefit in 2024, because we don't anticipate the P&L doing what it did in 2023.

Speaker Change: <unk> faster.

Speaker Change: My compliments to our team that work on ESG, a few years ago, we were probably a little bit slower to it.

Daniel L. Florness: And that means we need to be really dialed in on everything else. We do so that can we expand.

Speaker Change: Primarily because.

Our operating style.

Daniel L. Florness: The final piece Holden touched on it.

Frugality is naturally conserving and as we stepped into the ESG world. What we really learned is we needed to do a better job, telling our story and I've been pleased to say that while we maybe formalized up some of our public facing policies and things like that.

Daniel L. Florness: Some vending depreciation.

Daniel L. Florness: <unk>.

Daniel L. Florness: We had a runoff and benefited the fourth quarter. The beauty of that is it will also benefit the first quarter and the second quarter and third quarter until we anniversary that so that will give us some benefit in 2020 for.

Daniel L. Florness: The next one was a challenge to everybody on that call, whether you are in sales or not.

Speaker Change: Most of most of the efforts we put into it is understanding what we do it's a lot of work quantifying some things that we do.

As are our focus has to be on everything we're doing.

Speaker Change: But really telling a better story in here in January I'm pleased to say for those of you familiar with <unk>.

Speaker Change: It's helping our branch and onsite locations hit their goal in fact I had to laugh. After shortly after the call and I suspect I needed. Thanks, John Soderberg for this but out on the printer Theres assigned help help help our branch and onsite hit their sales goals in 2024.

Speaker Change: Its a rating.

Speaker Change: Agency per se for ESG.

Speaker Change: We had a bonds in the past here in January we were upgraded we now hold a silver and equaled notice I'm not aware of any other north American distribution businesses that have silver as perhaps there are some I'm not aware of any so my compliments to the team.

Speaker Change: Thanks for that John and.

Speaker Change: But that's where our head is at.

Speaker Change: We didn't feel good about 2023, and the best way to feel better about it.

Daniel L. Florness: <unk> grew a little faster.

My compliments to our team that work on ESG, a few years ago, we were probably a little bit slower to it primarily because.

We're doing a great job, telling our story.

Speaker Change: Finally.

Speaker Change: Earlier this week I had the opportunity to tour, our shop, and I say an opportunity I've done it before timber koski, who has led a big piece of our manufacturing for 29 years.

Daniel L. Florness: Our operating style.

Daniel L. Florness: Frugality is naturally conserving and as we stepped into the ESG world. What we really learned is we needed to do a better job, telling our story and I've been pleased to say that while we maybe formalized up some of our public facing policies and things like that.

Speaker Change: Tired this week.

Speaker Change: And Tim is famous for given you a 20 minute tour, but taking 60 minutes to do it because he loves what he does and he loves to explain it and gloves to describe it must be an engineering background thing.

Daniel L. Florness: Most of most of the efforts we put into it is understanding what we do it's a lot of work quantifying some things that we do.

Speaker Change: But but.

Speaker Change: I had a really nice visit with almost a handful of us thoroughly touring and one challenge I would put out to our regional leadership today as I said during COVID-19, we reward them out with virtual tours.

Daniel L. Florness: Really telling a better story in here in January I'm pleased to say for those of you familiar with <unk>.

Daniel L. Florness: Its a rating agency.

Speaker Change: And Thats kind of gone radio silent.

Daniel L. Florness: Agency per se for ESG.

Speaker Change: Last two years and I said to the group I said, you know when customers see our capabilities. It has.

Daniel L. Florness: We had a bonds in the past here in January we were upgraded we now hold a silver and equaled Addis I'm not aware of any other north American distribution businesses that have silvers, perhaps there are some I'm not aware of any so my compliments to the team.

Speaker Change: Sales itself.

Speaker Change: <unk> thousand 822 on sites.

Speaker Change: We plan to sign and close to 400 in the next 12 months.

Speaker Change: I would think.

Speaker Change: If just the onsite each did a tour in 'twenty over the 253 254 days of the year at seven a day, that's what our model.

Daniel L. Florness: We're doing a great job, telling our story.

Daniel L. Florness: Finally.

Daniel L. Florness: Earlier this week I had the opportunity to tour, our shop, and I say an opportunity I've done it before timber koski, who has led a big piece of our manufacturing for 29 years.

Speaker Change: Because right now our own internal manufacturing capabilities represents between 9% and 10% of our fastener sales were really quite good at it.

Daniel L. Florness: Retired this week.

Speaker Change: And.

Daniel L. Florness: And Tim is famous for given you a 20 minute tour, but taking 60 minutes to do it because he loves what he does and he loves to explain it and gloves to describe it must be an engineering background thing.

Speaker Change: So when customers see that.

Speaker Change: <unk> makes us special in their eyes with that I'm going to shut up and open it up for Q&A.

Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.

But but.

Speaker Change: I had a really nice visit with almost a handful of us federal are touring and one challenge I'd put out to our regional leadership today as I said during Covid, we wore them out with virtual tours.

Daniel L. Florness: And Thats kind of gone radio silent.

Speaker Change: Before pressing star one and we ask you. Please ask one question one follow up then return to the queue. Our first question today is coming from Michael Hoffman from Stifel. Your line is now live.

Daniel L. Florness: And the last two years and I said to the group I said, you know when customers see our capabilities.

It sells itself.

Daniel L. Florness: We have 822 onsite, we plan to sign and close to 400 in the next 12 months.

Michael Hoffman: Alright. Thank you very much so one of the things about looking at data inventories less.

Michael Hoffman: Orders would suggest PMI should be over 50. So when you look at in your end markets can you see pockets, where this is starting to.

Daniel L. Florness: We think there is.

Daniel L. Florness: Just the onsite each did a tour in 'twenty and over the 253 254 days of the year at seven a day, that's where I'm all in.

Michael Hoffman: Validate that thesis.

Daniel L. Florness: And because right now our own internal manufacturing capabilities represents between 9% and 10% of our fastener sales were really quite good at it and.

Michael Hoffman: For the most part no.

Michael Hoffman: The feedback from the regional leadership has been fairly consistent through much of the year much of the back half of the year, which is that our customers remain cautious they remain fairly tight with their spending.

Daniel L. Florness: So when customers see that that makes us special in their eyes with that I'm going to shut up and open it up for Q&A.

Speaker Change: Thank you.

Michael Hoffman: I will say that I think that when I asked the leadership about what what their customers are saying about 2020 for I would say that the forward looking statements are probably on balance more optimistic than the current statements.

Conducting a question and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad I'll confirmation tone will indicate your line is another question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up a handset before pressing star one and we ask that you.

Michael Hoffman: I also suspect that's always true.

Michael Hoffman: But the.

Michael Hoffman: If I look at the markets that are sort of shared with me through regional leadership in general.

Speaker Change: Please ask one question one follow up then return to the queue. Our first question today is coming from Michael Hoffman from Stifel. Your line is now live.

Michael Hoffman: I don't think theres been much of a change over the past three to six months.

Speaker Change: Alright. Thank you very much so one other thing it's about looking at data inventories less orders would suggest PMI should be over 50.

Michael Hoffman: Okay, and then you all have consistently talked about sort of pricing to market share, it's 5% or better we've had a little bit of metals inflation at the end of the year do we trend to the higher end of that zero to two and then Where's your confidence about five or better.

Daniel L. Florness: When you look at in your end markets can you see pockets, where this is starting to Val.

Daniel L. Florness: Valley date that thesis.

Michael Hoffman: Sure.

Speaker Change: For the most part no.

Speaker Change: Yes in terms of inflation I mean, we keep track of various steel indices, I would say that sort of the the Chinese and Taiwanese Taiwanese industries are probably more relevant to us than say the U S or European ones are and in general Yes. There has been some wiggle in some movement, but if you take the longer view.

Speaker Change: The feedback from the regional leadership has been fairly consistent through much of the year much of the back half of the year, which is that our customers remain cautious they remained fairly tight with their spending.

Speaker Change: I will say that I think that when I asked the leadership about what what their customers are saying about 2020 for I.

Speaker Change: That wiggle in movement is kind of within the context of I think fairly stable steel pricing over the last six to 12 months. So I haven't heard anything suggesting that we believe that steel pricing is a catalyst to incremental price increases going forward. The other thing to remember Michael is when you think about the total.

Speaker Change: I would say that the forward looking statements are probably on balance more optimistic than the current statements.

Speaker Change: I also suspect that's always true.

Speaker Change: But the.

Speaker Change: If I look at the markets that are sort of shared with me through regional leadership in general.

Michael Hoffman: Value of a fastener.

Speaker Change: I don't think theres been much of a change over the past three to six months.

Michael Hoffman: Only about I believe 30% of that is actually in the raw material itself by the time, you sort of wrap onto it the cost of transportation and various other elements of value add processing, yes processing, it's just not a huge piece.

Speaker Change: Okay, and then you all have consistently talked about sort of prices erode or two market share is 5% or better we've had a little bit of metals inflation at the end of the year.

We trend to the higher end of that zero to two and then Where's your confidence about five or better.

Michael Hoffman: So I am not hearing anything to suggest that the environment is.

Speaker Change: Sure.

Michael Hoffman: Moving back to an inflationary one.

Speaker Change: In terms of inflation I mean, we keep track of various steel indices, I would say that sort of the the Chinese and Taiwanese Taiwanese industries are probably more relevant to us than say the U S or European ones are and in general Yes. There has been some wiggle in some movement, but if you take the longer view.

Michael Hoffman: With possibly one exception.

Michael Hoffman: I think that Theres been a lot of global conflict around the Suez Canal.

Michael Hoffman: You hear about a lot about very little water in the Panama Canal.

Michael Hoffman: And we are beginning to see shipping costs start to tick up again.

Michael Hoffman: Don't know how to how durable that'll be I don't know how far that will go it's not creating any actions today, but that is something that we're watching fairly closely.

Speaker Change: That wiggle in movement is kind of within the context of.

Speaker Change: Fairly stable steel pricing over the last six to 12 months. So I haven't heard anything suggesting that we believe that steel pricing is a catalyst to incremental price increases going forward. The other thing to remember Michael is when you think about the total value of our fastener.

Michael Hoffman: One thing that was an interesting update we had this week our head of transportation, we've done a lot of work over the last several years to improve our own ability to track product. So if I'm if I'm in a branch I can pull up a screen now and I'm looking for some product I can look at it and say all the truck that's bringing that is in the middle of <unk>.

Speaker Change: Yes.

Speaker Change: Only about I believe 30% of that is actually in the raw material itself by the time, you sort of wrap onto it the cost of transportation and various other elements of value add processing processing, it's just not a huge piece.

Michael Hoffman: <unk>.

Michael Hoffman: And it's going to be here and 30 minutes to be here in three hours or it might be on a container and we've gotten the point now where we're tracking it where we're seeing it at the container level. So we can so you pulled up the screen. The other day and the number of Docs you saw on the map that went around the southern tip of Africa were meaningful and I didn't see any.

Speaker Change: I'm not hearing anything to suggest that the environment is.

Speaker Change: Moving back to an inflationary one <unk>.

Speaker Change: With possibly one exception.

Speaker Change: I think that Theres been a lot of global conflict around the Suez Canal.

Michael Hoffman: They went through the Suez Canal on the product we were moving and that just was a snapshot at that point in time and the and the information so something to watch and then as it relates to market share.

Speaker Change: I hear about a lot about very little water in the Panama Canal.

Speaker Change: And we are beginning to see shipping costs start to tick up again.

Michael Hoffman: This year has been unusual in that we didn't achieve market share at the levels. We expect of ourselves I don't think it reflects a change in our cultural attitude, we think that ultimately gaining market share is what we're here to do.

Speaker Change: I don't know how to how durable that'll be I don't know how far that will go it's not creating any actions today, but that is something that we're watching fairly closely.

Speaker Change: One thing that was an interesting update we had this week are ahead of transportation.

Michael Hoffman: Structurally we still have the tools to be able to do it and I think we made changes to our approach in our leadership in the past six to eight months, which have us very enthusiastic that.

Speaker Change: Done a lot of work over the last several years to improve our own ability to track product. So if I'm if I'm in a branch I can pull up a screen now.

Speaker Change: I'm looking for some product I can look at it and say all the truck that's bringing that is in the middle of Nebraska.

Michael Hoffman: Going to kick that market share machine back up in 2024 so.

Speaker Change: Thank you very much you expect to be expected of ourselves, let me put it that way.

Speaker Change: And it's going to be here in 30 minutes to be here in three hours or it might be on a container and we've gotten the point now where we're tracking it where we're seeing it at the container level. So we can so you pulled up the screen. The other day and the number of Docs you saw on the map that went around the southern tip of Africa were meaningful and I didn't see any.

Speaker Change: Thank you. Our next question today is coming from David Manthey from Baird. Your line is now live.

David Manthey: Hey, guys. Good morning, good morning.

David Manthey: Morning, first question I did want to ask you about.

David Manthey: Shipping containers.

Speaker Change: They went through the Suez Canal on the product, we were moving and Thats just a snapshot at that point in time and the and the information so something to watch and then as it relates to market share.

Clearly we've seen an uptick but is that is it primarily is.

David Manthey: Focused on those containers that were coming through the Red Sea of Panama Canal or is there any impact that rolls over on those containers coming directly from Asia to Californias day.

Speaker Change: This year has been unusual.

Speaker Change: And that we didn't achieve market share at the levels. We expect of ourselves I don't think it reflects a change in our cultural attitude, we think that ultimately gaining market share is what we're here to do.

Just thinking about where your.

David Manthey: Main exposures are and how we should think about that if it if it does extend.

Speaker Change: I think you may have caught me with a question that's more granular than that I studied to be honest what I can tell you is <unk> seen an uptick in recent weeks the meaningful uptick in the cost of a container how that looks route by route I don't know a lot of our product Dave does come in through the West coast in.

Speaker Change: Structurally we still have the tools to be able to do it and I think we made changes to our approach in our leadership in the past six to eight months, which have us very enthusiastic that that we're going to kick that market share machine back up in 2024. So.

Speaker Change: Recent years as our.

Speaker Change: Thank you very much you expect to be expected of ourselves, let me put it that way.

Speaker Change: Our volumes have grown we have more containers that would we would bring into the east coast, so bringing it into our North Carolina facility, our Atlanta facility, because when you bring in full containers and <unk>.

Speaker Change: Thank you. Our next question today is coming from David Manthey from Baird. Your line is now live.

Speaker Change: But historically a lot of our product comes into the West coast.

David J. Manthey: Hey, guys good morning.

David J. Manthey: Good morning first question I did want to ask you about.

Speaker Change: And I think.

Speaker Change: This is probably some speculation, but I would say that the disruption moving from China to the west coast ports as less things moving the other direction, but.

David J. Manthey: Shipping containers.

David J. Manthey: Clearly we've seen an uptick but is that is it primarily or is it.

David J. Manthey: Focused on those containers, when we're coming through the Red Sea or Panama Canal or is there any impact that rolls over on those containers coming directly from Asia to California.

Speaker Change: The existing capacity is going to be consumed on trips for a longer period of time, that's going to stress the entire global network, which is going to impact ultimately our cost as well and that's what we've begun to see against very early we don't know how this plays out but it's something we're watching.

David J. Manthey: Just just thinking about where your.

David J. Manthey: Main exposures are and how we should think about that if it if it does extend.

Speaker Change: Yes fair enough.

David J. Manthey: I think you may have caught me with the question that's more granular than that I studied to be honest what I can tell you is <unk> seen an uptick in recent weeks a meaningful uptick in the cost of a container how that looks route by route I don't know a lot of our product Dave does come in through the West coast.

Speaker Change: And then second on.

Speaker Change: Var channel work, we've been hearing about some suppliers cutting the number of distributors they deal with directly.

Speaker Change: I'm wondering if any of your suppliers actively consolidated your distributor partners that you know.

David J. Manthey: In recent years as our volumes have grown we have more containers that would we would bring into the east coast, so bringing it into our North Carolina facility, our Atlanta facility, because when you bring in full containers.

Speaker Change: I am not aware of any.

Speaker Change: But but it wouldn't surprise me.

Speaker Change: Because if you look at where the outgrowth is coming from it's coming from fewer and fewer so it wouldn't surprise me, but im not aware of any David.

David J. Manthey: But.

David J. Manthey: But historically a lot of our product comes into the West coast.

Speaker Change: I would say that over time, so I can't speak to I don't know what period of time you are hearing about it sounds like it's probably more recent over time you have seen gradual consolidation just in terms of who we spend with and engage with it.

David J. Manthey: And I think.

David J. Manthey: This is probably some speculation, but I would say that the disruption moving from China to the West Coast ports is less and things moving the other direction, but.

Speaker Change: It did extensive list, but obviously you have tears and I would say our higher tiers as consolidated slightly over time and that's by design just as relationships evolve, but I haven't necessarily heard of anything that is a.

David J. Manthey: The existing capacity is going to be consumed on trips for a longer period of time, that's going to stress the entire global network, which is going to impact ultimately.

Our cost as well and that's what we've begun to see against very early we don't know how this plays out but it's something we're watching.

Speaker Change: Recent and deliberate initiative on the part of a lot of suppliers to consolidate I havent heard anything in that regard.

Speaker Change: Yes fair enough.

Speaker Change: And then second on.

Speaker Change: Var channel work, we've been hearing about some suppliers tied to a number of distributors they deal with directly.

Speaker Change: Got it thanks, a lot guys.

Speaker Change: Thanks.

Speaker Change: Thank you next question is coming from Chris Dankert from loop capital markets. Your line is now live.

Speaker Change: And I'm wondering if any of your suppliers actively consolidated through distributor partners that you know.

Chris Dankert: Hey, good morning, guys. Thanks for taking the question.

I guess I guess onsite sales growth for the quarter was only slightly ahead of company average rate, which is a notable slowdown versus past performance here. I mean do you think that's kind of a one off due to some both the customer plant shutdowns exiting the year I guess, how how much or how little so we really make of.

Speaker Change: I am not aware of any.

Speaker Change: <unk>.

Speaker Change: But it wouldn't surprise me.

Speaker Change: Because if you look at where the outgrowth is coming from it's coming from fewer and fewer so it wouldn't surprise me, but im not aware of any David.

Speaker Change: And I would say that over time, so I can't speak to I don't know what period of time you are hearing about it sounds like it's probably more recent over time you have seen gradual consolidation just in terms of who we spend with and engage with.

Chris Dankert: That lower onsite sales growth rate in the quarter.

Chris Dankert: Yes.

Chris Dankert: Okay.

Chris Dankert: It's relevant.

Chris Dankert: I think what Youre seeing is we've talked about how our signings. This year, we're not at the level that we expected them to be.

It did extensive list, but obviously you have tears and I would say our higher tiers as consolidated slightly over time and that's by design just as relationships evolve, but I haven't necessarily heard of anything that is a.

Chris Dankert: And I think that at the at the beginning part of the year you were benefiting from the.

Chris Dankert: The signings rolling through.

Chris Dankert: Earlier that were greater than the year prior to that which is being affected by the pandemic right and so as you as you get the benefit of those but then you layer in another year, where signings are slower youre going to naturally have that effect rolled through so I think in many respects.

Speaker Change: Recent and deliberate initiative on the part of a lot of suppliers to consolidate I havent heard anything in that regard.

Speaker Change: Got it thanks, a lot guys.

You bet. Thanks.

Speaker Change: Thank you next question is coming from Chris Dankert from loop capital markets. Your line is now live.

Chris Dankert: It feels to me like it has a lot more to do just with the signings cadence, which again I think we.

Chris Dankert: Hey, good morning, guys. Thanks for taking the question.

Chris Dankert: We suggested we'd love the fact that our on site continues to grow in the in the mix, we'd love that installed base continues to grow but the signings pace has not been what we expected it to be and I think what youre seeing is a byproduct to that one.

Chris Dankert: I guess I guess onsite sales growth in the quarter was only slightly ahead of company average rate, which is a notable slowdown versus past performance here. I mean do you think that's kind of a one off due to some of the customer plant shutdowns exiting the year I guess, how how much or how little so we really make of it.

Chris Dankert: One thing.

Chris Dankert: I think I've shared in prior calls I have conversations.

Chris Dankert: With all of our district managers throughout the course of the year.

Chris Dankert: And that lower onsite sales growth rate in the quarter.

Chris Dankert: One thing that I've seen that's changed is.

Chris Dankert: Yes.

Chris Dankert: Uh huh.

It's relevant.

Chris Dankert: Our average <unk> has the opportunity for about 60 odd sites.

Chris Dankert: What youre seeing is we've talked about how our signings. This year, we're not at the level that we expected them to be.

Chris Dankert: And so we're having these conversations you could tell the ones that we're really dialed into the ones that aren't the ones that are really dialed in our sitting there with him.

Chris Dankert: And I think that at the at the beginning part of the year you were benefiting from.

Chris Dankert: Here's my number of potential here's what we have the top it's warm.

Chris Dankert: The signings rolling through.

Chris Dankert: Warming and how good they are at communicating that tells me. They do they have a plan. So they have a plan that you feel comfortable coming into the year their pipelines and again I'm a couple of onsite.

240, <unk> district managers, if if if.

Chris Dankert: Percentage of a really good plan to give them a couple of onsite maybe some have three maybe somewhat one but consistently a couple of onsite.

It feels to me like it has a lot more to do just with the signings cadence, which again I think.

Chris Dankert: Your number with with cushion.

We suggested we'd love the fact that our onsite continues to grow.

Chris Dankert: Yes.

Chris Dankert: Feel good about whats your pipeline.

Chris Dankert: In the mix, we'd love that installed base continues to grow but the signings pace has not been what we expected it to be and I think what youre seeing is a byproduct of that.

Speaker Change: I might also say either Dan start office comments talking about how the year was marked by two things one was difficult markets. The other was execution I think I described the part of it that was the execution. The other thing to think about is if you look at where industrial production has weakened.

Chris Dankert: One thing.

Chris Dankert: I think I've shared in prior calls I have conversations with all of our district managers throughout the course of the year.

Speaker Change: It's really weakened in.

Speaker Change: The machinery and fabricated metals parts of the industrial production spectrum and those are areas that are relevant to us as a company, but they are they are particularly relevant extremely well in that onsite world and what we saw in the third and the fourth quarter to give you a sense as you know all year, we've had a fairly significant gap between OEM <unk>.

Chris Dankert: One thing that I've seen that's changed is.

Chris Dankert: Our average <unk> has the opportunity for about 60 odd sites.

Chris Dankert: And so we're having these conversations you could tell the ones that we're really dialed into the ones that aren't the ones that are really dialed in our sitting there with here.

Chris Dankert: Here is my number of potential here's what we have the top it's warm that warming.

Speaker Change: <unk> growth.

Warming.

Speaker Change: And MRO fastener contraction, which is a reflection of the onsite is coming on in the fourth quarter that gap narrowed appreciably and I think what Youre also seeing is simply the relative weakness in the machinery and fab metals is having a disproportionate impact on areas that disproportionately impacted the on sites.

Chris Dankert: And how good they are at communicating that tells me. They do they have a plan. So they have a plan that you feel comfortable coming into the year their pipelines and again I'm a couple of onsite.

Chris Dankert: 240, <unk> district managers, if if if.

Chris Dankert: A high percentage of a really good plan to give them a couple of onsite as maybe some have three maybe some have one but consistently a couple of onsite youre at your number with cushion.

Speaker Change: I think again, it's the combination of market and our own execution.

Chris Dankert: And feel good about whats your pipeline.

Speaker Change: Got it that's really helpful color. Thank you and I guess, maybe just touching on that last point.

Speaker Change: I might also say, though Dan start office comments talking about how.

Speaker Change: The year was marked by two things one was difficult markets. The other was execution I think I described the part of it that was the execution and the other thing to think about is if you look at where industrial production has weakened.

Speaker Change: As all of those growth drivers impact gross margin. We saw mix was better this quarter at these current trends hold I guess I would assume kind of the same story for 'twenty four I guess, how do we think about the impact of mix on gross margin in this year kind of as you see it today.

Speaker Change: It's really weakened in.

Speaker Change: The machinery and fabricated metals parts of the industrial production spectrum and those are areas that are relevant to us as a company, but they.

Speaker Change: Yes.

Speaker Change: I think.

I think I try to predict what mix will be every year, it's a fairly thankless effort to be quite honest, but I think I've used like 50 to 70 basis points in the past.

Speaker Change: They are particularly relevant extremely well in that onsite world and what we saw in the third and the fourth quarter to give you a sense as you know all year, we've had a fairly significant gap between OEM fastener growth.

Speaker Change: It'll be less than that and I think it will be less than that for a few reasons. One we talked about fewer branch closures. If we have fewer branch closures I think the rate of attrition in our smaller customer set will also slow. So you won't have the same order of magnitude impact from that.

Speaker Change: And MRO fastener contraction, which is a reflection of the on sites coming on in the fourth quarter that gap narrowed appreciably and I think what Youre also seeing is simply the relative weakness in the machinery and fab metals is having a disproportionate impact on areas that disproportionately impacted the on sites and so I think again.

Speaker Change: We have had slower onsite signings and again that ripple effect that at least in the earlier part of the year, that's going to put less pressure on the channel mix impact I.

It's the combination of market and our own execution.

Speaker Change: I would also point out that over the balance of this year, you've had a dramatic difference in growth between fasteners and non fasteners.

Speaker Change: Got it that's really helpful color. Thank you and I guess, maybe just touching on that last point.

Speaker Change: And maybe there's a little element of both comparison in market here, but I would wager that next year that that gap is not going to be as wide now would relieve some pressure off of the product mix.

Speaker Change: All of those growth drivers impact gross margin. We saw mix was better this quarter at these current trends hold I guess I would assume kind of the same story for 'twenty four I guess, how do we think about the impact of mix on gross margin in this year kind of as you see it today.

Speaker Change: Mix element as well and so I still think mix will be negative just the nature of our growth drivers, but I don't think it will be as negative as that is sort of the normal 50 to 70 that I'm talking about is that I've talked about in the past I think it can be narrower than that.

Speaker Change: Yes.

Speaker Change: I think.

I think I try to predict what mix will be every year, it's a fairly thankless effort to be quite honest, but I think I've used like 50 to 70 basis points in the past.

Speaker Change: Got it thank you both and good luck this year.

Speaker Change: Thank you.

Speaker Change: I think it'll be less than that and I think it will be less than that for a few reasons. One we talked about fewer branch closures. If we have fewer branch closures I think the rate of attrition in our smaller customer set will also slow. So you won't have the same order of magnitude impact from that.

Speaker Change: Thank you. Your next question is coming from Ken Newman from Keybanc capital markets. Your line is now live.

Ken Newman: Hey, good morning, guys.

Ken Newman: Good morning.

Ken Newman: I just wanted to touch on the.

Ken Newman: The color on some of the warehousing demand that you saw this quarter.

Speaker Change: We have had slower onsite signings and again that ripple effect at least in the earlier part of the year, that's going to put less pressure on the channel mix impact.

Ken Newman: Just curious what really drove that increase.

Ken Newman: New customer acquisition has been gaining market share with existing customers.

Speaker Change: I would also point out that over the balance of this year, you've had a dramatic difference in growth between fasteners and non fasteners and.

Speaker Change: I know, it's small for you now, but just where do you think that could go in terms of mix longer term.

Well for really about the last five six years, we made a really concerted effort to go after that business because.

Speaker Change: With our vending platform and our strength in the safety area.

Speaker Change: Mix element as well and so I still think mix will be negative just the nature of our growth drivers, but I don't think it will be as negative as that is sort of the normal 50 to 70 that I'm talking about that I've talked about in the past I think it can be narrower than that.

Speaker Change: Natural fit for us to be a great partner to that type of customer and we saw really nice growth in it.

Speaker Change: <unk>.

Speaker Change: When I think of.

Speaker Change: Like when Covid hit.

Speaker Change: That was all that and in our government business and our access to safety products, where a lifestyle.

Speaker Change: Got it thank you both and good luck this year.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is coming from Ken Newman from Keybanc capital markets. Your line is now live.

Speaker Change: To help us get through that very successfully because the industrial business was just hammered when we went through that period.

Ken Newman: Hey, good morning, guys.

Speaker Change: And so it's become an ever larger piece, if I think about it discretely now there is a number of things going on there as well.

Ken Newman: Good morning.

Ken Newman: Just wanted to touch on the.

Ken Newman: Color on.

Ken Newman: The warehousing demand that you saw this quarter.

Speaker Change: <unk> had.

Speaker Change: Hum.

Just curious what really drove that increase.

Speaker Change: I want I want attributed to necessarily customer acquisition.

Ken Newman: Really new customer acquisition is it gaining market share with existing customers.

Speaker Change: We're always adding locations with those customers because they are growing.

Speaker Change: I know, it's small for you now, but just where do you think that could go in terms of mix longer term.

Speaker Change: But it continues to be deeper penetration and we had <unk>.

Speaker Change: Well for really about the last five six years, we made a really concerted effort to go after that business because.

Speaker Change: Samples were.

Speaker Change:

Speaker Change: Some other suppliers couldn't get stuff to them and we stepped up to the plate and helped which always helps our position to be a stronger partner and to gain market share with that customer because.

Speaker Change: With our vending platform and our strength in the safety area. It's a natural fit for us to be a great partner to that type of customer and we saw really nice growth in it and.

Speaker Change: You rely on people you can rely on.

Speaker Change: And so those things really helped us and they had a <unk>.

Speaker Change: When I think of.

Speaker Change: Like when Covid hit.

Speaker Change: <unk> business environment themselves.

Speaker Change: That was all that and in our government business and our access to safety products, where our lifeboat.

Speaker Change: Using more product and we had some examples where there was some products. They needed that we were uniquely situated to help them with sometimes those for the safety of their employees, sometimes it was moving some product around.

Speaker Change: To help us get through that very successfully because the industrial business was just hammered when we went through that period.

Speaker Change: Things just call us really well in the quarter.

Speaker Change: And so it has become an ever larger piece, if I think about it discretely now there's a number of things going on there as well.

Speaker Change: I would point out maybe a couple of things one pri.

Prior to the pandemic that warehousing sector was less than 1% of our sales and so oftentimes we get asked like what was can you show that you actually have improved your business coming out of the pandemic. This is an example of a market where we retained business coming out of the pandemic that we gained because of what we're able to do there and so again, we think it's.

Speaker Change: We had.

Speaker Change: Hum.

Speaker Change: I want I want attributed to necessarily customer acquisition.

Speaker Change: We're always adding locations with those customers because they are growing.

Speaker Change: But it continues to be deeper penetration and we had <unk>.

Speaker Change: <unk> were.

Speaker Change: We love having that customer set involved the only thing I think I would point out I think I sort of indicated that market was up 60% in December.

Speaker Change: <unk>.

Speaker Change: Some other suppliers couldn't get stuff to Loma and we stepped up to the plate and helped which always helps our position to be a stronger partner and to gain market share with that customer because.

Speaker Change: Christmas doesn't come every months present state doesn't have the same commercial value.

Speaker Change: Wouldn't expect that kind of order of magnitude from that customer set as we go forward into 2024 that we experienced over the most recent.

Speaker Change: You rely on people you can rely on.

Speaker Change: And so those things really helped us and they had a <unk>.

Speaker Change: Holiday period.

Speaker Change: Debbie.

Speaker Change: <unk> business environment themselves.

Speaker Change: Sure.

Speaker Change: No.

Helpful.

Speaker Change: For my follow up here.

Speaker Change: Looking at the seasonal benchmark for this year.

Speaker Change: Assuming that 24, followed by seasonal benchmark as a baseline it does imply quarterly adi's steps up pretty strongly here in call. It the high single digit range in the back half.

Things just call us really well in the quarter.

Speaker Change: I would point out maybe a couple of things one.

Speaker Change: Prior to the pandemic that warehousing sector was less than 1% of our sales and so oftentimes we get asked like what was can you show that you actually have improved your business coming out of the pandemic. This is an example of a market where we retained business coming out of the pandemic that we gained because of what we're able to do there and so again, we think it's.

Speaker Change: South out of the comps that normal seasonality I'm, just trying to weigh that against maybe the slower on sites and how that may be ramps through the year is there anything to suggest that sales wouldn't necessarily follow those trends that we should be kind of aware of.

Speaker Change: And I'm not getting into the business of predicting January February and March <unk>.

Speaker Change: We love having that customer set involved the other thing I think I would point out I think I sort of indicated that market was up 60% in December.

Speaker Change: Here's I would tell you.

Speaker Change: On sites could have an impact does it have an impact in January specifically I really don't know right I've always said that there's a lot of value a lot of.

Speaker Change: Christmas doesn't come every months present state doesn't have the same commercial value.

Speaker Change: Wouldn't expect that kind of order of magnitude from that customer set as we go forward into 2024 that we experienced over the most recent.

Speaker Change: Value and sort of understanding how those trends work, but there is a lot of error variable anytime that you're talking about 20 days of activity Youre trying to apply a lot of meaning to it.

Holiday period.

Speaker Change: Debbie.

Speaker Change: Sure.

Speaker Change: On sites over over a multi month period of time, yes, I think that they may grow a little bit less quickly in the absence of a market improvement because of some of the signings, but I'll tell you. We're also seeing a little bit of an uptick in the sales activity in non onsite national accounts.

Speaker Change: No that's.

Speaker Change: That's helpful.

Speaker Change: Just for my follow up here.

Speaker Change: Just looking at the seasonal benchmark for this year.

Speaker Change: And I think that could also pick up so there's just a lot of moving pieces.

Speaker Change: The accounts that normal seasonality I'm, just trying to weigh that against maybe the slower on sites and how that may be ramps through the year.

Speaker Change: That makes it difficult for me to say with any sort of Definitiveness that you should expect us to beat or Miss those DSR benchmarks, probably the the.

Speaker Change: Anything to suggest that sales wouldn't necessarily follow those trends and that we should be kind of aware of.

Speaker Change: The piece that I would throw out on that relates to less too.

Speaker Change: The question per se and more too.

Speaker Change: And I'm not getting into the business of predicting January February and March <unk>.

Speaker Change: Examples so we had our board meeting last couple of days and one thing I ask all of our leadership team is hey.

Speaker Change: Here's what I would tell you.

Speaker Change: In Winona the week of the board meeting.

Speaker Change: On sites could have an impact does it have an impact in January specifically I really don't know right I have always said that there's a lot of value a lot of.

Speaker Change: You spent some time with your teams with with other with other folks and be here because we participate in the board meetings in person.

Speaker Change: Value and sort of understanding how those trends work, but there's a lot of error variable anytime that you're talking about 20 days of activity you are trying to apply a lot of meaning to it.

Speaker Change: We had one person I wasn't here because he was sitting at an airport in Nashville, Tennessee, and it was eight inches of snow and so he he participated remotely and al Stanton with them. This morning, and he is kind of freaked out right now because.

Speaker Change: The winter weather has not been our friend in January.

Speaker Change: And it has not been our industry's friend has not been our customers brand fact.

Speaker Change: I received a picture or the other day. It was it was actually from a supplier in the Memphis area. So a little bit further for the west from from Nashville.

Speaker Change: And I think that could also pick up so there's just a lot of moving pieces.

Speaker Change: That makes it difficult for me to say with any sort of Definitiveness that you should expect us to beat or Miss those DSR benchmarks.

Speaker Change: And.

Speaker Change: Had a picture of their.

Speaker Change: Our house distribution facility and their head of sales sent it over to our traffic manager and said <unk>.

Speaker Change: The piece that I would throw out on that.

Speaker Change: It's less too.

Speaker Change: Every.

Speaker Change: Truck that was coming and pickup product today canceled.

Speaker Change: The question per se and more to an.

Except for one.

Speaker Change: An example, so we had our board meeting last couple of days and one thing I ask all of our leadership team is hey.

Speaker Change: You said there was a blue fastball semi that was here in 15 minutes ago I'm sorry, it wasn't in the picture, but it was great to see you guys still run it.

Speaker Change: In Winona the week of the board meeting.

Speaker Change: You spent some time with their teams with with other with other folks.

Speaker Change: And so the weather's hammering the month pretty hard there's a lot of months left we'll see how we dig out no pun intended but but our distribution network is working that's a beautiful thing and net truck was there to pick up product.

Here, because we participate in the board meetings in person.

Speaker Change: We had one person I wasn't here because he was sitting at an airport in Nashville, Tennessee, and it was eight inches of snow and so he participated remotely and offsetting with them. This morning, and he is kind of freaked out right now because.

Speaker Change: Very helpful. I appreciate the color guys.

Speaker Change: Thank you. Your next question is coming from Nigel Coe from Wolfe Research. Your line is now live.

Speaker Change: The winter weather has not been our friend in January.

Speaker Change: Yes.

Nigel Coe: Thanks, Good morning, everyone.

Speaker Change: And it's not been our industry's friend has not been our customers brand.

Nigel Coe: Yes, the weather is not our friend right and how that's for sure.

Nigel Coe: So just going back to the onsite.

Speaker Change: <unk>.

Speaker Change: I received a picture or the other day. It was it was actually from a supplier in the Memphis area. So a little bit further for the west from from Nashville, and Ted.

Nigel Coe: It seems.

Nigel Coe: You seem to be this is more of a cyclical.

<unk> caught up.

Nigel Coe: What about looking kind of sector. There is there anything structural here that we need to consider maybe some of the E com capitalization.

Speaker Change: It had a picture of their of their warehouse distribution facility.

Speaker Change: Their head of sales sent it over to our traffic manager and said.

Nigel Coe: Mmm is talking about their implant offerings as well I'm just curious if there's a bit more I don't know if pockets of structural headwinds here, we need to consider.

Speaker Change: Every.

Speaker Change: Truck that was coming and pick a product they cancelled.

Speaker Change: <unk> for one.

Nigel Coe: When I think of onsite.

Speaker Change: And he said there was a blue fastball semi that was here in 15 minutes ago I'm sorry, it wasn't in the picture, but it was great to see you guys still run it and so the weather's hammering the month pretty hard.

Nigel Coe: Site and AECOM don't even come into play.

Nigel Coe: I could see because really what the onsite is about.

Is we're stepping into their shoes.

Speaker Change: A month left we'll see how we dig out no pun intended but.

Nigel Coe: And we're operating inside their facility on something that they were probably doing themselves before and didn't really have the expertise or the tools or the visibility into the supply chain that we have to help operate it more effectively more efficiently and then we arm that onsite with all the tools we have in place whether it be vending machines are.

Speaker Change: Our distribution network is working that's a beautiful thing and net truck was there to pick up product.

Speaker Change: Very helpful.

I appreciate the color guys.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is coming from Nigel Coe from Wolfe Research. Your line is now live.

Speaker Change: Okay.

Nigel Coe: Thanks, Good morning, everyone.

Nigel Coe: Yes, the weather is not our friend right and how that's for sure.

Nigel Coe: Technology embedded bins or areas, where we're scanning it's just a much more efficient way to operate.

Nigel Coe: So just going back to the onsite.

Nigel Coe: Seems you seem to be this is more of a cyclical factor.

Nigel Coe: And thats about logistics as much as it is ordering because quite frankly, when we're there on onsite.

Nigel Coe: <unk>.

Nigel Coe: The metalworking kind of sector.

Nigel Coe: Anything that has gone through <unk> and <unk> is a high percentage of on site.

Nigel Coe: Is there anything structural here that we need to consider maybe some of the E com cannibalization.

Nigel Coe: Anything on the <unk> the customers that haven't really ordering.

Nigel Coe: MSM is talking about their implant offerings as well I'm just curious if there's a bit more I don't know if pockets of structural headwinds here, we need to consider.

Nigel Coe: And so e-commerce really isn't a thing there e-commerce is probably a bigger thing with some smart with smaller customers because oftentimes smaller customers.

Nigel Coe: And sometimes the way you and I do.

Nigel Coe: When I think of on site.

Nigel Coe: I buy a lot of stuff.

Nigel Coe: Onsite and AECOM don't even come into play.

Nigel Coe: Online.

Nigel Coe: The other part of it can play into is when we saw this really in 2020.

Nigel Coe: I could see because really what the onsite is about.

Nigel Coe: A market change in activity in that.

Nigel Coe: Is we're stepping into their shoes.

Nigel Coe: And we're operating inside their facility.

Nigel Coe: When all of a sudden people started working more remotely.

Nigel Coe: Something that they were probably doing themselves before and didn't really have the expertise or the tools or the visibility into the supply chain that we have to help operate it more effectively more efficiently and then we arm that onsite with all the tools we have in place whether it be vending machines are technology embedded bins or areas, where we are.

Nigel Coe: You're ordering more things electronically than maybe you were before because we're delivering product one of the facilities they might catch us and order some stuff they might phone us and people tend to phone less when they're at home they tend to do more things on the computer at least that's a worsening.

Speaker Change: And I would say as well Nigel it I'm not sure I would agree with the underlying premise that there is some competition between on sites and E. Commerce I mean, the reality is if we look at our E Commerce business, which remember it's.

Nigel Coe: Scanning it is just a much more efficient way to operate.

And thats about logistics as much as it is ordering because quite frankly, when we're there on onsite.

Nigel Coe: Anything that has gone through <unk> and <unk> is a high percentage of on site.

Speaker Change: An aggregation of Adi and.

Speaker Change: Web sales.

Anything on the <unk> the customers that haven't really ordering.

Speaker Change: Variety of different ways that we engage digitally.

Nigel Coe: And so e-commerce really isn't a thing there e-commerce is probably a bigger thing with some smart with smaller customers because oftentimes smaller customers buy and sometimes the way you and I do.

Speaker Change: Roughly 50% of our e-commerce sales are going through on site.

Speaker Change: So at one.

Speaker Change: I don't believe that there is a one.

Nigel Coe: I buy a lot of stuff.

Speaker Change: Sort of channel approach by the customer said I think the customer sets are looked at as the customers are looking for a range of solutions to solve different issues.

Nigel Coe: Online.

The other part of it can play into is and we saw this really in 2020.

Nigel Coe: A market change in activity in that win.

Speaker Change: And I don't think that they are in conflict.

Nigel Coe: When all of a sudden people started working more remotely.

Speaker Change: But a high percentage of that e-commerce Youre talking about is Adi.

Nigel Coe: You're ordering more things electronically than maybe you were before because we're delivering product one of the facilities they might catch us and order some stuff they might phone us and people tend to phone less when they are at home. They tend to do more things on the computer at least that's what we're seeing.

Speaker Change: Although.

Speaker Change: Joining me, 30% to 40% of our web has also run into one okay. That's fair.

Speaker Change: Okay.

Speaker Change: Helpful. And then just on the on the points, but are you seeing pockets of competition on onsite again.

Speaker Change: One of your public competitors talk about.

Speaker Change: They're important offerings and I'm just thinking about you.

Speaker Change: Dan you've been very honest about the outgrowth in 'twenty three fell below your expectations do you think that in 'twenty four.

Dan Fairness: You'd be back to that five points plus of outgrowth versus the market.

Speaker Change: An aggregation of Adi and.

Speaker Change: Web sales.

Dan Fairness: Coming into the year that'd be our expectation.

Speaker Change: Variety of different ways that we engage digitally.

Speaker Change: Roughly 50% of our e-commerce sales are going through on sites.

Dan Fairness: And.

Dan Fairness: But as far as competition, we have competition in everything we do there is a lot of companies out there that that we compete with better local businesses that do.

Speaker Change: So at one.

Speaker Change: I don't believe that there is a one.

Speaker Change: Sort of channel approach by the customer said I think the customer sets are looked at as the customers are looking for a range of solutions to solve different issues.

Dan Fairness: To answer what they don't have as maybe similar tools.

Dan Fairness: And.

Dan Fairness: Our natural strength to our onsite model.

Dan Fairness: Is the fact that we have the branch network.

Speaker Change: And I don't think that they're in conflict.

Dan Fairness: Because what's really difficult and were a lot of organizations fail on PS.

Speaker Change: But a high percentage of that e-commerce Youre talking about is <unk>.

Speaker Change: Although.

Dan Fairness: Pieces of onsite.

Speaker Change: Joining me, 30% to 40% of our web has also run into one okay. That's fair.

Dan Fairness: We have a natural density of people.

Dan Fairness: So, let's say you have an onsite with two employees.

Speaker Change: Okay.

Speaker Change: Helpful. And then just on the on the points, but are you seeing pockets of competition on onsite again.

Dan Fairness: Well, let's say employees out on maternity leave, let's say employees out on vacation and say employee there is turnover how do you replace that well. If you have 50 fastow employees that are in this market.

Speaker Change: One of your because public competitive stuff to talk about.

Speaker Change: <unk> offerings and I'm, just thinking about you.

Dan you were very honest about the outgrowth in 'twenty three fell below your expectations do you think that in 'twenty four.

Dan Fairness: <unk>.

Dan Fairness: Omaha.

Dan Fairness: <unk> opened the twin cities that we have more than 50 in twin cities, but if you have employees in this market you have redundancy to support that onsite. So we have a natural advantage in that marketplace versus not necessarily a local competitor, but a national competitor because we have we have a footprint.

You would get back to that five points plus of outgrowth versus the market.

Speaker Change: Coming into the year that'd be our expectation.

Speaker Change: And.

Speaker Change: But as far as competition, we've competition everything we do there's a lot of companies out there that that we compete with better local businesses that do onsite what they don't have as maybe similar tools.

Speaker Change: And maybe the only other thing I would add this is largely anecdotal again I sort of ask the regionals, how things are going.

Speaker Change: Every month.

Speaker Change: And.

Speaker Change: They sort of.

Speaker Change: Just free Wheeling give me answers and oftentimes there is comments about our competitors in there sometimes it is favorable to us sometimes is not favorable to us but I can tell you is I haven't noticed any difference in the cadence.

Speaker Change: <unk>.

Our natural strength to our onsite model.

Speaker Change: Is the fact that we have the branch network.

Speaker Change: What's really difficult and where a lot of organizations fail on pieces of onsite.

Speaker Change: Of that conversation over the course of this year.

Speaker Change: We have a natural density of people.

So it's part of the question is are you seeing things intensify I haven't gotten that from the feedback from the field.

Speaker Change: So, let's say you have an onsite with two employees.

Speaker Change: Well, let's say employees out on maternity leave let's say employees out on vacation that they employ there is turnover how do you replace that well. If you have 50 fastow employees that are in this market.

Speaker Change: Okay. That's great color. Thanks, guys I appreciate it.

Speaker Change: Thank you. Your next question is coming from Ryan Merkel from William Blair. Your line is now live.

Speaker Change: <unk>.

Omaha.

Ryan Merkel: Hey, guys. Congrats on your out quarter Jorge Thank you. Thank you.

Speaker Change: It's up in the twin cities that we have more than 50 in twin cities, but if you have employees in this market you have redundancy to support that onsite. So we have a natural advantage in that marketplace versus not necessarily a local competitor, but a national competitor because we have we have a footprint.

Ryan Merkel: Two questions and I'll, just ask them upfront.

Ryan Merkel: Leadership changes, Dan what changes did you make and why Youre confident that that will accelerate the share gains and then second question can you clarify the tweak to the business model, where the front doors open now on all of the branches.

And maybe the only other thing I would add this is largely anecdotal again I sort of ask the regionals, how things are going.

Dan Fairness: And I think the question I'm getting asked us could that help sales in 'twenty four or is it not that impactful.

Speaker Change: Every month.

Speaker Change: And.

Speaker Change: They sort of.

Speaker Change: Just free Wheeling give me answers and oftentimes there is comments about our competitors and there sometimes it's favorable to us sometimes it's not favorable to us, but I can tell you is I haven't noticed any difference in the cadence.

Dan Fairness: First off.

Dan Fairness: We made a number of changes we.

We moved.

Dan Fairness: Within our national accounts team, we move some folks around are some folks that arent enrolls that they had before.

Speaker Change: Of that conversation over the course of this year.

Dan Fairness: We made some changes.

Dan Fairness: In our regional leadership that was probably that wasn't necessarily performance that was more of a case of just some natural.

So it's part of the question is are you seeing things intensify I haven't gotten that from the feedback from the field.

Dan Fairness: We all get older.

Dan Fairness: So submit some natural changes there.

Speaker Change: Okay. That's great color. Thanks, guys I appreciate it.

Dan Fairness: I think the fact that we have the U S under well under one leader now.

Thank you. Your next question is coming from Ryan Merkel from William Blair. Your line is now live.

Dan Fairness: Over the last 15 years, the eastern Western United States had been under dual two different leaders and so over time.

Ryan J. Merkel: Hey, guys. Congrats on your out quarter Jorge Thank you. Thank you.

Ryan J. Merkel: Had two questions and I'll just ask them upfront.

Dan Fairness: There is economic reasons wild how the business changes a little bit and there is personality reasons why that business changed a little bit.

Ryan J. Merkel: Leadership changes, Dan what changes did you make and why Youre confident that that will accelerate the share gains and then second question can you clarify the tweak to the business model, where the front doors open now on all of the branches.

Dan Fairness: If I were to characterize the eastern U S versus the Western U S and I can think back to who've been the leaders of the two business over time.

Daniel L. Florness: And I think the question I'm getting asked us could that help sales in 'twenty four or is it not that impactful.

Dan Fairness: Incredibly successful businesses.

Dan Fairness: I would say the way they go about being successful is different.

Daniel L. Florness: First off.

Daniel L. Florness: We made a number of changes we.

Dan Fairness: If I think of the Western U S. I think of a business that.

Daniel L. Florness: We moved.

Daniel L. Florness: Within our national accounts team, we move some folks around are some folks that arent enrolls that they had before.

Dan Fairness: They were groundbreaking early on.

Dan Fairness: And on site.

Dan Fairness: Particularly in the Midwestern part of the Western U S.

Daniel L. Florness: We made some changes.

Daniel L. Florness: In our regional leadership that was probably that wasn't necessarily performance that was more of a case of just some natural.

Dan Fairness: It was a more mature business and we needed to figure out ways to keep growing.

Dan Fairness: And so I think that part of the business.

Daniel L. Florness: We all get older.

Daniel L. Florness: So submit some natural changes there.

Dan Fairness: Is more.

Dan Fairness: Is better at.

Daniel L. Florness: I think the fact that we have the U S under well under one leader now.

Dan Fairness: You have a large customer we're better at getting deeper and deeper into that large customer I earlier I talked about our manufacturing division I suspect, there's a disproportionate mix of their business in the western than there is in the eastern and I might be wrong in that that's just.

Daniel L. Florness: Over the last 15 years, the eastern and Western United States have been under dual two different leaders and so over time.

Daniel L. Florness: There is economic reasons wild how the business changes a little bit and there is personality reasons why that business changed a little bit.

Dan Fairness: Speculating.

Dan Fairness: If I think of the eastern there's nobody better at Hunton.

Going out and finding new customers and growing their business than our eastern business unit and it.

Daniel L. Florness: If I were to characterize the eastern U S versus the Western U S and I can think back to who've been the leaders of the two business over time.

Dan Fairness: Again, it emanates from the leaders has been over time. It also emanates from the industrial activity over time.

Incredibly successful businesses.

Daniel L. Florness: The I would say the way they go about being successful is different.

Dan Fairness: And.

Dan Fairness: As it relates to our.

Dan Fairness: Our business our front doors are open.

Daniel L. Florness: If I think of the Western U S. I think of our business that.

Dan Fairness: And.

And.

Dan Fairness: <unk>.

Dan Fairness: I think.

Daniel L. Florness: They were groundbreaking early on.

Daniel L. Florness: And on site.

Dan Fairness: They werent closed that long, but.

Daniel L. Florness: Particularly in the Midwestern part of the Western U S.

Dan Fairness: And they werent closed everywhere they were closed in pockets.

Daniel L. Florness: <unk> was a more mature business and we needed to figure out ways to keep growing.

Dan Fairness: Sure.

Dan Fairness: There's a couple of exceptions there are a couple of states, where the rules are pretty onerous and we've just said you know what.

Daniel L. Florness: And so I think that part of the business.

Daniel L. Florness: Is more is better at.

Dan Fairness: California is too damn any requirements. So we'd just say, we're keeping them closed.

Daniel L. Florness: You have a large customer we're better at getting deeper and deeper into that large customer earlier I talked about our manufacturing division I suspect there is a disproportionate mix of their business in the western than there is in the eastern and I might be wrong in that that's just speculating.

Dan Fairness: And there is one other state I forget what it is off hand, I think it's Louisiana, but.

Dan Fairness: But we've been operating that way for.

Dan Fairness: Years in Canada, and it was primarily because as a wholesaler you just couldnt do retail transactions. So our front doors are open, but we had a much different business, we grow faster in Canada.

Daniel L. Florness: If I think of the eastern.

Daniel L. Florness: There is nobody better at Hunton.

Daniel L. Florness: Going out and finding new customers and growing their business than our eastern business unit and it.

Dan Fairness: Hope that answers your question and I think a couple of pieces of perspective, I might add I mean, Dan touched on it when.

Daniel L. Florness: And again it emanates from the leaders there has been over time. It also emanates from the industrial activity over time.

Dan Fairness: When we started this process, we had a lot of different experiments in the field going on right. Some people closed other people didn't close some people flip counters et cetera. Some people stuck with the traditional deal the older CSP model and I think we wanted to come up with a more consistent model and so having had the opportunity to evaluate all the different things that we're doing we wanted to sort of consolidate.

Daniel L. Florness: And.

Daniel L. Florness: As it relates to <unk>.

Daniel L. Florness: Our business our front doors are open.

Daniel L. Florness: And.

Daniel L. Florness: Okay.

Daniel L. Florness: I think.

Daniel L. Florness: Aye.

Daniel L. Florness: They werent closed that long, but.

Consolidated under under sort of one approach, we have a lot of customers and a lot of places that share our share of company and we want to make sure that we werent, creating conflict in that regard so that that was part of what went into that.

Daniel L. Florness: And they werent closed everywhere they were closed in pockets there.

Daniel L. Florness: There is a couple of exceptions. There are a couple of states, where the rules are pretty onerous and we've just said you know what.

Daniel L. Florness: California is too damn any requirements. So we just say we're keeping them closed.

Dan Fairness: As it relates to the impact on growth.

Dan Fairness: In mind that if you are talking about customer accounts.

Daniel L. Florness: And there is one other state I forget what it is off hand, I think as Louisiana.

Daniel L. Florness: <unk>.

Dan Fairness: At our smaller accounts, which tends to be what that walk in is because when we are talking about our larger customers, where typically go into their locations.

Daniel L. Florness: But we've been operating that way for.

Daniel L. Florness: Years in Canada, and it was primarily because as a wholesaler you just couldnt do retail transactions. So our front doors are open, but we had a much different business, we grow faster in Canada.

Dan Fairness: It represents mid single digits of our total revenue. So do you get some incremental revenue from that in all likelihood we will.

Dan Fairness: I wouldn't overstate.

Speaker Change: Hope that answers your question.

Dan Fairness: The overall impact of growth it could contribute something at the margin but.

Speaker Change: A couple of pieces of perspective, I might add I mean, Dan touched on it.

Speaker Change: When we started this process, we had a lot of different experiments in the fields going on right. Some people closed other people didn't close some people flip counters et cetera. Some people stuck with nutritional deal the older CSP model and I think we wanted to come up with a more consistent model and so having had the opportunity to evaluate all the different things we were doing we wanted to sort of consolidate.

Dan Fairness: I wouldn't overstate the potential impact most of our revenue don't even know where our location is exactly.

Speaker Change: Got it alright very helpful.

Speaker Change: I don't know if theres any other questions in queue. We're at three minutes to the hour. So I think I'll call. It there if anybody got cut off.

Speaker Change: But it was cut off I apologize for that I, just wanted to close with one thought.

Speaker Change: Consolidated under under sort of one approach, we have a lot of customers and a lot of places that share our share of company and we want to make sure that we werent, creating conflict in that regard so that that was part of what went into that.

Speaker Change: Got back two days ago from a week eight day trip I was over in <unk>.

Speaker Change: Staying high in Ningbo, China.

Speaker Change: There's a lot of.

Speaker Change: A lot of.

Speaker Change: As it relates to the impact on growth.

A lot of <unk>.

Speaker Change: <unk> level global level wrangling that occurs in society and is that just the nature of life.

In mind that if you are talking about customer accounts.

Speaker Change: At our smaller accounts, which tends to be what that walk in is because when we are talking about our larger customers, where typically go into their locations.

Speaker Change: I have to say I was over there we celebrated 20 years of fast co. Our trading company in 20 years of our for our sales organization over there.

Speaker Change: It represents mid single digits of our total revenue. So do you get some incremental revenue from that in all likelihood we will.

Speaker Change: The people I met were incredible.

I spent a lot of time with our team right in Shanghai I spent good time with our <unk> team.

Speaker Change: I wouldn't overstate.

Speaker Change: The overall impact to growth it could contribute something at the margin but.

Speaker Change: Our handful of district managers, our RVP over there are our senior VP that covers the European and Asian business and went down to visit a branch.

Speaker Change: I wouldn't overstate the potential impact most of our revenue don't even know where our location is exactly.

Speaker Change: Got it alright very helpful.

Speaker Change: South done by Sergio.

Speaker Change: And by prolonged set correctly.

Speaker Change: I don't know if theres any other questions in queue. We're at three minutes to the hour. So I think I'll call. It there if anybody got cut off.

Speaker Change: And.

Speaker Change: Great people and really impressed with what I saw and.

Speaker Change: But it was cut off I apologize for that I, just wanted to close with one thought.

The dedication they have to what we are about what our customers are about.

Speaker Change: Got back two days ago from a week eight day trip I was over in <unk>.

Speaker Change: And.

Speaker Change: When I think of the branch manager I met known Soo, Joel what an outstanding Young man and the team he had really impressive people and I'm always amazed their grasp of the English language.

Speaker Change: Staying high in Ningbo, China.

There's a lot of.

Speaker Change: A lot of.

Speaker Change: A lot of <unk>.

Speaker Change: <unk> level global level wrangling that occurs in society and is that just the nature of life.

Speaker Change: Probably better than my grasp of the English language with that thanks.

Speaker Change: Thanks for your time today and everybody have a great rest of day. Thank you.

Speaker Change: I have to say I was over there we celebrated 20 years of fast co. Our trading company in 20 years of our for our sales organization over there.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you.

Speaker Change: For your participation today.

Speaker Change: The people I met were incredible.

Speaker Change: I spent a lot of time with our team right in Shanghai I spent good time with our <unk> team.

Our handful of district managers, our RVP over there are senior VP that covers the European and Asian business and went down to visit a branch.

Speaker Change: Done by Suzhou.

Speaker Change: And by prolonged set correctly.

Speaker Change: And.

Speaker Change: Great people and really impressed with what I saw and.

Speaker Change: The dedication they have to worry about what our customers are about.

Speaker Change: And.

Speaker Change: When I think of the branch manager I met known Soochow, what an outstanding young men and the team he had really impressive people and I'm always amazed their grasp of the English language.

Speaker Change: Probably better than my grasp of the English language with that thanks.

Speaker Change: Thanks for your time today and everybody have a great with Vic Thank you.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you.

Speaker Change: And for your participation today.

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