Q3 2024 Fastenal Co Earnings Call
Speaker Change: Hello, and welcome to the Fasten All 2024 Q3 earnings results conference call. At this time, I'll participate in the list in only mode. If anyone wants to require operator assistance, please press star zero under telephone keypad.
Speaker Change: A question and answer session will follow the formal presentation.
Speaker Change: You may be placing the question cute at any time by pressing star 100 telephone keypad. We ask you please ask one question and one follow-up in return to the queue. As a reminder, this conference is being recorded. If you found my pleasure to turn the call over to Taylor Ranta of the Fathural Company, please go ahead Taylor.
Taylor Ranta: Welcome to the FAFSA company 2020-24 third quarter earnings conference call.
Speaker Change: The call was hosted by the Antborn is a chief executive officer, just like a president and chief sales officer and holden Lewis or chief financial officer. The call will last for up to one hour and we'll start with a general overview of our quarterly results and operations with the remainder of the time the open for questions and answers.
Speaker Change: Today's conference calls to proprietary fast-mill presentation and is being recorded by fast-mill. No reporting reproduction transmission or distribution of today's calls for mid-Audio fast-mill consent. The call is being audio-samilcast on the Internet via the fast-mill and that's the relation homepage and vester.fast-mill.com.
Speaker Change: A replay of the webcast will be available on the website until December 1, 2024 at Midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations and we undertake no duty to update them. It's 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 period of fibrillings with the Securities and Exchange Commission and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Dan Fornis. Thank you.
Speaker Change: Good morning everybody and welcome to the Q3, 2024, Ernest Call for Fast and All.
Speaker Change: Before I start, I just thought I'd share up
Speaker Change: A couple of things. First off, as everybody is painfully aware of, there's been a...
Speaker Change: Several hurricanes that have hit the South Eastern United States in recent weeks, and our hearts go out to all those affected. And each month when we put out our sales release, either I send out a video to our organization or Jeff Watts, our president sends one out, by the way, in addition to holding me being in the call today, the Jeff Watts is sitting in and just to get a feel for what it, what, what it feels like, the call on this end. And I told him if we get a really tough question, I'll send it his way. But, but all kidding aside,
Speaker Change: When a hurricane is coming or any type of weather event
Speaker Change: or catastrophic situation occurs. We created Teams page internally, and it's really meant to be a very agile way of communicating. We hone the skill incredibly during COVID, but it's a way of providing information to our team in the field who can get a lot of requests from customers that need help, maybe employees that need help, but people that need help, and sometimes locating things when it's loc chaotic. It's nice to have one point to go to. There's two individuals that I'm mentioned on the video this month, Zach Wise, and Danae Baren's.
Speaker Change: who, in my mind, have gone above and beyond the call and keeping things updated on our system. And I recognize them on the video and Bob Hopper will lead our business down in Florida, live in Orlando, personally, and it's been spending the last few days making sure his family is okay, his fast-knife family is okay, and our customers are okay.
Speaker Change: He sent me an email this morning, thanking me for mentioning those two and echoing the sentiment that they've been crucial.
Speaker Change: and our ability to react in this event so my thanks to them. I'd also like to announce that there'll be an AK that is filed or a toughening goes out on this. I'm not sure the details.
Speaker Change: But yesterday our board elected a new officer to pass it all. Don't leave Papophoose. He joined us back in July of 1999. So he just hit 25 years with pass it all.
Speaker Change: in February of 2014, she became our VP of contract development. I worked with her quite a bit over the years, and...
Speaker Change: and her role has been slowly expanding as Jeff has stepped into the chief sales of the role. We really took a hard look at our strategy as an organization, defining
Speaker Change: Who we are and where we think the business is going and what does that mean for priorities in the future and getting everybody aligned to that? Donnelly's been an incredible asset.
Speaker Change: In that and one of her recent things she worked on was our sharing with the world, our approach to ESC. And my congratulations to Donna Lee and to everybody that helped Donna Lee develop her skills set over the last 25 years into the team at CLEATS.
Speaker Change: I'm getting to the quarter.
Speaker Change: 3rd quarter net fails plus 3.5% produced earnings per share of 52 cents, up about 1% over a year ago. If you take out the fact that we had an extra business day, our daily sales rate grew 1.9%.
Speaker Change: Some things have stand out on the quarter from me.
Speaker Change: and one of them is a welcome sign.
Speaker Change: The quarter-finished stronger than it started.
Speaker Change: Uh, especially considering that the hurricane impacted the last few days of the month and you I called out a couple of individuals for communicating, I also want to call out our transportation and distribution groups.
Speaker Change: The amount of flexibility they exhibited in that Thursday Friday Saturday Sunday Monday period, the last four or five days of September.
Speaker Change: Obtaining Truck Route
Speaker Change: Running Trucker Elves on Friday evening Saturday evening to get the product moved for our customers' needs.
Speaker Change: was nothing but incredible to witness and so my compliments to them, but the quarter I thought September would weaken and we were impacted by it, but we finished the quarter stronger than we started it.
Speaker Change: are some templates. When I look at the daily sales rate for September, it really, I believe, points to some very good changes.
Speaker Change: and Alignment.
Speaker Change: and some personal moves that we've made in the last 12-18 months and I credit Tepp Watts and his team for some really smart moves. And I believe it's starting to show through in our numbers.
Speaker Change: We continue to manage the both current conditions and future growth and you know the way we thought about it in the July calls we talked about
Speaker Change: In a period like this, we manage expenses very tightly, but we still build for the future.
Speaker Change: because we don't think our shareholders want us to be focused on managing sales growth in the low single digit and the expenses around it. They want us to be thoughtful about it. But the real goal is to not be growing in the lower single digit. And I think we're doing a nice job of bouncing things. If you look at the head count that we added, it's really about the fact that we're signing on site. [inaudible]
Speaker Change: Which really means we're engaging with customers.
Speaker Change: on Facebook's just one way of measuring that.
Speaker Change: Our IT group continues to build, and our business analytics continues to build. We're doing millions of transactions now through our FMI platform. It provides incredible data to be thoughtfully analyzed. To provide insight for our customers and for our business.
Speaker Change: The asset efficiency improvements we've made in the last few years allow us to be very flexible and strategic and what we're doing during the quarter and holding the touch on this event in his part of the talk.
Daniel Florness: We added inventory into our distribution network and will continue to add inventory in Q4 and Q1 into distribution, to make to remove some sourcing activities occurs at the branch, to improve our cost on that, because sometimes that could be lower margin business, and to improve our efficiency of supply chain for our customer. The real way of paying for it is we believe we're more efficient.
Speaker Change: We added inventory into our distribution network and will continue to add inventory in Q4 and Q1 into distribution.
Speaker Change: to remove some sourcing activities that occurs at the branch, to approve our cost on that, because sometimes that could be lower margin business.
Speaker Change: and to improve our efficiency of supply chain for our customer.
Daniel Florness: And we believe we can lower our cost and realize that in margin, and it pays for a return on inventory.
Speaker Change: The real way of paying for it is we believe we're more efficient.
Speaker Change: And we believe we can lower our costs and realize that in margin and it pays for a return on inventory.
Daniel Florness: I also believe that will help us grow a little bit faster, because that inventory will be more readily available, and we can say, yeah, more often and say it easily.
Speaker Change: I also believe that will help us grow a little bit faster because that inventory will be more readily available and we can see more often and see it easily.
Daniel Florness: Clip in the page four, on sites we signed 93 in the quarter. Active sites are up about 12% from the end of third quarter 23. Our goal remains to be in that is in that 375 to 400. Based on where we are right now, probably at the lower end of that range, and we've had that range for a number of years.
Speaker Change: Pippin to page 4 on sites, we signed 93 in the quarter, active sites are up about 12% from the end of third quarter, 23.
Speaker Change: Our goal remains to be in that 375 to 400, based on where we are right now, probably at the lower end of that range. And we've had that range for a number of years.
Daniel Florness: We've struggled to make it, and it's not about the range; it's about the mindset of the organization that I joined back in 1996. The monster was always about, we're adding active and we're adding dollars for active, it was really about, we're adding account numbers, we're adding customers with accounts and how much of these customers spending, and we were opening 25 30% more branches a year.
Speaker Change: we've struggled to make it and it's not about the range it's about the minds that of the organization that i joined back in one thousand ninehundredandninety six the monterm was always about rating activ and riting dollars fractive it was really about writing account numbers where custoers with accounts in how much of wee those customer spending and we were opening twenty five thirty percentbermer branches a year
Daniel Florness: Over time, that math started to change, and I was talking to a group of our two main district managers, so our leaders in our what we call our Winona-based region, and I was talking to them earlier in the week, and I shared some perspective with them that I shared with the, with our board back in April. And it talked to this onsite FMI key account acquisition strategy and what drives our growth over time. And I said to them, I said, no, we've added a lower $5 billion since in the last 16 years. In 2007, we came out and said, we're going to stop opening 14% more branches a year; we're going to 7.
Speaker Change: Over time.
Speaker Change: That math started to change and I was talking to a group of Army, to me, district managers. So our leaders in our, what we call our Winona-based region.
Speaker Change: and I was talking to them earlier in the week and I shared some perspective with them that I shared with our board back in April.
Speaker Change: and it talks to this onsite FMI key account acquisition strategy and what drives our growth over time.
Speaker Change: And I said to them, I said, you know, we've added a lower $5 billion since in the last 16 years. In 2007, we came out and said we're going to stop opening 14% more branches a year. We're going to 7%.
Daniel Florness: Six years later, we, that seven has slowly trickled down to one or two, and we actually said, we're going to start consolidating some of our branches because we don't know that that's the right strategy. Going forward, and as we've shared in previous calls, we closed about a thousand locations in that decade. But in that whole time frame that we were slowing the openings and eventually stopping the openings. We had back in 2007. Roughly, 25, 2,600 customers, sites that we supplied to. We were the customer was sourcing more than $10,000 a month for a month. Between 2007 and 2023, we added about 94, 9,500 sites, that's on the map, where we're doing more than $10,000 a month.
Speaker Change: Six years later, that's seven that slowly trickled down the one or two, and we actually said, we're going to start consolidating some of our branches, because we don't know that that's the right strategy.
Speaker Change: Going forward, and as we've shared in previous calls, we close about a thousand locations in that decade.
Speaker Change: But in that whole time frame that we were slowing the openings and eventually stopping the openings.
Speaker Change: We had back in 2007.
Speaker Change: Roughly, 25, 2600 customers, sites that we supplied to, were the customer was sourcing more than $10,000 a month.
Speaker Change: Between 2007 and 2023, we added about 94-9500 sites that's on the map.
Daniel Florness: That was 93% of our growth in that 16-year period. The other 7% came from customers doing between 5 and 10,000.
Speaker Change: We're doing more than $10,000 a month.
Speaker Change: That was 93% of our girls in that 16-year period.
Speaker Change: The other's 7%
Speaker Change: came from customers doing between 5 and 10,000 a month.
Speaker Change: and all the buckets below that.
Speaker Change: We keep pulling pulling people up into those additional groups and and that's what really drives now we put it on hyperdrive in the last decade with the on site expansion that you see here because today about 78% of our sales go to those customer sites doing more than 10,000 a month, half that business is in an on site, but it's about we're not adding account numbers we're adding customer sites we're not adding account numbers we're not adding account numbers we're not adding account numbers
Speaker Change: and then what's our wallet's here.
Speaker Change: One real effective way to add Wallet's there is a great OEM Faster Program.
Speaker Change: Reason Fasteners are still 30% of our sales is because 2-thirds of that is an Illium Fastener.
Speaker Change: Then we have after my technology.
Speaker Change: We signed 7,281 weighted devices.
Speaker Change: and the third quarter, that's 114 a day.
Speaker Change: I remember when we were doing 2 a day and then 10 a day and 20 a day and we always talked about hey we should build the infrastructure to do 100 a day the blue team when it comes to FMI technology I believe we're crushing it.
Speaker Change: So there's some challenging aspects if we're established in a customer location and their business is off, we feel it directly because we are their supply chain partner.
Speaker Change: and so let's create some challenges for us in the current environment.
Speaker Change: But we're taking markets here at a fast pace as I've ever seen in this organization.
Speaker Change: and I think the FMI technology is a great proxy for that.
Speaker Change: and to Jeff Hicks and the team within our solutions group, my compliments for you.
Speaker Change: for supporting this great blue team organization.
Speaker Change: One realignment we made during the quarter is all of our digital strategy, whether it be the e-commerce or FMI, or what we call fast crib, which is essentially a software program that we've created, a couple hundred customers use it today, but a software program that we've created for managing the tool crib that's customer-facing.
Speaker Change: and those three pieces are under the umbrella now of our FMI Digital Solutions with in Paso and Jeff Hicks along a 30-plus year employee leave that charge.
Speaker Change: Speaking of e-business, so e-commerce grew about 25 and a half percent. It's a good news, bad news.
Speaker Change: Our e-procurement, we're supply chain customers, are using technology to tell us what they need. That continues to grow 30-some percent.
Speaker Change: Our e-commerce, which is much more web-centric, that was single digits and those trends are part of the reason for realigning that umbrella because when we really study how customers use our web, it's a very faster centered proposition.
Speaker Change: and we're trying to get that better and better align to the business.
Speaker Change: Finally, a digital footprint.
Speaker Change: 61.1% of our sales went through a digital footprint this quarter.
Holden Lewis: and that was 57 a year ago, 49 a year before that. With that, I'll shut up and let Holden stick spin. Great, thanks Dan, and good morning everyone. I will begin on slide five. As Dan indicated, our daily sales rate in the third quarter of 2024 was up 1.9%.
Holden Lewis: Hurricane Helene, Helene.
Holden Lewis: Drought. Which hit several Southeastern regions late in the quarter, reduced our daily sales rate in the quarter by 5 to 25 basis points.
Holden Lewis: Pricing was still slightly negative, though targeted pricing actions moderated the drag relative to the second quarter of 2024. But the primary challenge remains sluggish end markets. The purchasing managers in Dex has been sub-50 indicating manufacturing contraction for 22 of the last 23 months.
Holden Lewis: Industrial production might be best characterized as flat-ish, but key components for Fastenal, such as machinery and fabricated metal, remain weaker than the overall index and have posted long strings of monthly declines of their own. We continue to navigate along in grinding albeit shallow contraction in the third quarter of 2024. We continue to navigate along in the third quarter of 2024.
Holden Lewis: In an otherwise unchanged environment, a couple elements of the quarter were highlighting. First, a reseller and market weakened markedly with daily sales declining 11.3% in the quarter versus declining 6.4% in the second quarter of 2024. It's not a large segment for Fastenal at roughly 5% of sales in the third quarter of 2024. Still, these customers tend to be wholesalers, dealers, rental firms that sit between producers and OEMs and the weakness suggest that there was channel destocking in the period.
Holden Lewis: Second, our September Daily sales rate improved to up 3.2%. Despite a 35-55 basis point negative impact from the hurricane in the months and moderating growth in our warehousing end market, where mid-teens September growth is roughly half the July and August growth rate as we begin to hit tougher comparisons.
Speaker Change: This is a company by what I would call a mixed tone from regional leadership, which is an improvement on the universal pessimism of preceding months Now one month does not make a trend still coming against another strong quarter for contract FMI and on site signings momentum does seem to be building around changes aimed at improving customer acquisition
Speaker Change: The improved tone from regional leadership seems to reflect a willingness on the part of the marketplace to look past the November elections and into the first half of 2025. Still, in the immediate term, many markets remain weak, the PMI continues to flash pessimism, and there is uncertainty over what plant shutdowns might look like during the November and December holiday seasons. We aren't expecting much change from underlying business activity in the fourth quarter of 2024. However, we do believe the strong year-to-date signing should benefit sales trends in the fourth quarter of 2024. And into 2025.
Speaker Change: Now to slide 6.
Speaker Change: Operating margin in the third quarter of 2024 was 20.3% down 70 basis points year to year. Gross margin in the third quarter of 2024 was 44.9% down 100 basis points from the year ago period.
Speaker Change: Product and customer mix played its customary role. Two elements of our logistical operations also weighed on the margin. First, certain countries have raised import duties, lifting the cost to us of moving product across borders. Second, we received a shipper rebate in the third quarter of 2023, which did not recur in the current quarter. And then finally, we are experiencing lower supplier rebates, a sustained slow demand has reduced our purchasing activity relative to last year. Price cost did not materially impact the third quarter of 2023. 2024. And then we are experiencing lower supplier rebates in the third quarter of 2020. And then we are experiencing lower supplier rebates in the third quarter of 2020.
Speaker Change: Moving to operating costs, STNA was 24.6% of sales in the third quarter of 2024, improved from 25% in the year ago period.
Speaker Change: The most notable contributor to the leverage was an increase in supplier marketing credits. Otherwise, it was an accumulation of modest leverage in many areas, including selling related transportation from lower fuel costs, IT spending, bad debt expense and general insurance costs.
Speaker Change: Here today, our SGA is up 2.8% which is above our DSR of up 1.9% over the same period, which contributes to the 60 basis points of margin of pressure over the period.
Speaker Change: Our goal remains to prioritize balancing cost management with growth investments. For example, in the third quarter of 2024, our FTE was up 2.8% above our daily sales rate of up 1.9%. However, we've invested as Dan indicated in onsite personnel to support our strong signings momentum, as well as in IT and business analytics, all areas we think are critical to future growth. Our FTE was up 2.8% above our daily sales rate of up 1.9% above our daily sales rate of up 1.9%.
Speaker Change: If we remove these additions, our FTE growth was 1% which trails our DSR growth.
Speaker Change: Similarly, our total discretionary cost category was up 3.7% in the third quarter of 2024, again above our daily sales rate, but if you remove sales-related travel, which I believe is contributing to the improved signing sleeve experience in 2024, then remaining spending on non-sales travel, meals and supplies is down 8.7%.
Speaker Change: Viewed in this context, we believe we are effectively managing expenses and expect to leverage when growth accelerates. We intend to remain tight with cost in the fourth quarter of 2024, given continued sluggish and market demand.
Speaker Change: Putting everything together, we reported third quarter, 2024 EPS of 52 cents, which matches the 52 cents from the third quarter of 2023.
Speaker Change: Now turn you slide seven.
Speaker Change: We generated 297 million in operating cash in the third quarter of 2024, which was 100% of net income.
Speaker Change: With good cash generation and a softman environment, we continue to carry a conservatively capitalized balance sheet with debt being 6.3% of total capital, down from 7% of total capital at the end of the third quarter of 2023.
Speaker Change: Accounts receivable were up 2.5%, reflecting sales growth in a shift towards larger customers which tend to have longer terms. Inventories were up 3%, the first annual increase is the first quarter of 2023. Two things are playing out here. First, the third quarter of 2024 is the first quarter since the supply chain crisis where we are no longer comparing to elevated levels of inventory. The third quarter of 2022 is the first quarter since the supply chain crisis where we are no longer comparing to elevated levels of inventory.
Speaker Change: Second, we began adding incremental inventory, primarily a fasteners, to improve availability to our in-market locations and reduce sourcing through less cost-effective channels. This is also intended as for picking efficiency programs in our distribution centers.
Speaker Change: We added roughly 25 million in new inventory for these purposes in the third quarter of 2024 and anticipating adding another 5 to 10 million in the fourth quarter of 2024.
Speaker Change: NetCapital spending in the third quarter of 2024 was 55.8 million, up from 42.9 million in the third quarter of 2023. Our full year anticipated NetCapital spending range remains 235 million to 255 million. Though we currently are trending towards the bottom of this range.
Speaker Change: The projected increase in net capital spending for the full year of 2024 is driven by higher outlays for how automation and capacity, the substantial completion of an upgraded distribution center in Utah, and an increase in FMI's spend to support increased signings. With that operator, we'll turn it over to begin the Q&A.
Speaker Change: Thank you. Another conducting your question and answer session, if you'd like to be placing the question Q, please press star one on your telephone keypad.
Speaker Change: As a reminder, we ask you, please ask one question and one follow-up, then return to the queue. Once you have star one, please place into question queue and star two, if you like to move your question from me.
Speaker Change: Who, one moment please, what will you call for questions?
Speaker Change: Our first question is coming from Ryan Merkel, from William Blair, your line is that life?
Ryan Merkel: Hey, good morning. Thanks for taking the question. I wanted to start with September. I know it's one month, but it's been a stronger. You feel like some of the moves you've made are starting to lead to more new customer ads. You know, you've turned a corner here and we should expect that we'll see outcrowth and prove going forward.
Speaker Change: Hey, Ryan Good Morning and thanks for the question.
Speaker Change: I personally believe we've turned to corner. When you make, we've made a lot of changes in 2023 and early part of 2024 and any organization changes are distracting.
Speaker Change: and when I look at the tools we put in place and more importantly the leaders we put in place.
Speaker Change: to get everybody aligned down the same path. I feel good that we're focused and I do expect out growth as we move into 2025.
Speaker Change: Okay, great to hear. And then maybe the second one for Holden. Just on Gross margin, how should we think about 4KU usually sees anality down 30 basis points, but there was a bit of noise in 3KU. So just curious if you can provide any help there.
Holden Lewis: Yeah, if I...
Holden Lewis: You know, as you said, the seasonality typically is about 30 basis points. I actually think we'll do a little bit better than traditional seasonality in the fourth quarter. I mean, I do believe that we'll still see some decline in gross margin from where we were in the third. But, you know, there's a number of things I think particularly when I look at the impact of the lower rebates on gross margin in Q3. You know, I think we'll do a little bit better in the next quarter. I think we'll do a little bit better in the next quarter.
Holden Lewis: When I don't believe that the impact of that is going to be as significant in Q4 as we saw in Q3 and so there's probably a couple million dollar swing that plays out that benefits the gross margin in Q4. So yeah, you're right about the seasonality. I think there'll be a little seasonality that asserts itself but I think that we will have some offsets to that that moderates it.
Speaker Change: Next question is coming from Ken Newman from Keybank Capital Market Salad
Ken Newman: Hey, morning, thanks for taking the call and the question I should say. Holden, just thinking about the margins here and obviously you've got some, some impact you called out from negative mix and rebates and then you just answered the question on seasonality here. As you think about some of the cost actions you've taken here recently over the last 12 or 18 months, what do you think is now the minimum level of sales growth to get you back to that historical low 20% incremental margin?
Speaker Change: Well, hopefully the message you've received is that whereas we have been tight with certain expenses, we've also invested in other expenses and, you know, if you get to or when we get to a period where you have strong growth again, then obviously some of those expenses we've been tightly controlling.
Speaker Change: We'll still tightly control, but they'll clearly move upwards, right? I don't know that our overall profile.
Speaker Change: has changed, right? We've reacted to the cycle, but I still believe that as we get revenue, north of revenue growth, north of mid-single digits, that's where I begin to leverage again.
Speaker Change: I don't think that that level has necessarily changed, where that level would change.
Speaker Change: is if we began to rethink how we invest in our business, that we have not done.
Speaker Change: So as long as we continue to take the approach of investing in our business, investing in growth, I think the overall profile is similar. If you're below mid-single-digit growth, it'll be difficult to leverage. If you're above mid-single-digit growth, we should expect ourselves to leverage the P&L and grow our margins. That doesn't change. One element that comes into play. [inaudible]
Daniel Florness: Growth improves; one of the things that would drive that is our faster performance improves, particularly the MRL. That tends to be a friend when it comes to growth smartgen, and it tends to be a friend when it comes to what the efficiencies we've introduced. I believe some of the recent efficiencies that we're introducing with the expanded faster inventory and distribution allow us to also not just get to growth smartgen, a friendship, but it's more operating efficient if we have it on the shelf.
Speaker Change: Growth improves. One of the things that would drive that is our faster performance improves. Particularly the MRO. That tends to be a friend when it comes to gross margin. It tends to be a friend when it comes to what the efficiencies we've introduced. And I believe some of the recent efficiencies that we're introducing with the expanded faster inventory and distribution. It allows us to also not just get the gross margin. And, uh,
Speaker Change: Friendship, but it's more operating efficient.
Unknown Attendee: Right, no, that makes sense.
Unknown Attendee: Maybe just for my follow-up, just as a, you know, kind of said, tagging onto the end of your comment there, Dan, and I know the visibility into the channel could be difficult to track from and market to end market, just give them nature of the faster inventory, but I'm curious if you could, or if you have any color on some of the other, you know, moving pieces from a heavy manufacturing perspective, whether it's automotive or a OERO space with the Boeing strike going on, if there's any way to kind of parse out what impacts or how you view those moves in coming quarters.
Speaker Change: If we have it on the shelf.
Speaker Change: Right, now that makes sense.
Speaker Change: Maybe just for my follow-up, just as, you know, kind of said, tagging on to the end of your, your comment there, Dan. I know the visibility into the channel can be difficult to track from end markets to end market, just given the nature of, of fastener inventories, but I'm curious if you could, or if you have any color on some of the other, you know, moving pieces from a heavy manufacturing perspective, whether it's automotive or OEARO space with the Boeing strike going on, and if there's any way to kind of parse out what impacts or how you view those moves and coming quarters. Thank you very much.
Daniel Florness: Well, I was velvy. We've always joked that it's about eight hours, but we do have one indicator of this building that's ISM, and you know, that's not, that's not given us any help.
Speaker Change: Well, our visibility we've always soaked in its Vodade hours, but we do have one indicator of this building, that's ISM.
Daniel Florness: The one thing that does come into play, that that makes me a little bit more bullish when I look out into 2025. And time will tell if I'm a naive fool or if I'm accurate on it. And that is, you know, since November 22, our customers' business took a step down. So you go, you take a step down from 22 to 23; you take a step down from 23 to 24. Then you start asking yourself, from 24 to 25, we don't need the business to go back to what it was in 22, or even what it was in 23.
Speaker Change: and that's not given any help. The one thing that does come in to play, that makes me a little bit more bullish when I look out into 2025 and time will tell if I'm naive or if I'm accurate on it. And that is since November 22, our customers' business took a step down.
Speaker Change: So you take a step down from 22 to 23. You take a step down from 23 to 24. Then you start asking yourself from 24 to 25. We don't need the business to go back to what it was in 22 or even what it was in 23.
Daniel Florness: But you, you ask yourself, what's the probability of a taking another step down and creating a whole bunch of headwinds for us, or the probability of it being staying the same, you know, a weak environment, but staying the same, or marginally improving. Again, not going back, but just marginally improving. How do those three scenarios? Personally, I think the second and third have a greater probability. One or the other than the first.
Speaker Change: But you actually said, what's the probability of a taking another step down and creating a whole bunch of headwins for us or the probability of it being staying the same, you know, a weak environment, but staying the same or marginally improving. Again, not going back, but just marginally improving, how those three scenarios.
Daniel Florness: That's our friend when we go into 2025, because in our growth signs through, you know, I often cite some stats. We do millions of transactions now through FMI. So I'll use what we call Fast stock. That's where we're going out with our scanning device, and we're scanning bins. In January, we did 16,387 orders every day. And our average order was $224. So we got the scans of bins, $224 we bring out a day or two later. By May, that 224 had dropped to 214. That's the bad news, you know, and the, from May to September, that 214 has risen to 216.
Speaker Change: Personally, I think the second third have a greater probability, one or the other than the first.
Speaker Change: That's our friend when we go into 2025, because in our girls' signs through, you know, I often cite some stats, we do millions of transactions now through FMI.
Speaker Change: So I'll use what we call fast stock. That's where we're going out with our scanning device and we're scanning bins.
Speaker Change: In January, we did 16,387 orders.
Speaker Change: Every day.
Speaker Change: and our average order was $224. So we got the Scansabins, $224 for a bring out a day or two later.
Speaker Change: by May that 224 had dropped the 214.
Speaker Change: That's the madness, you know, and the, from May to September that 214 has risen to 216.
Daniel Florness: I don't know what it's going to be in October; what's going to be in January. But, you know, right now from January to September, it's down about 11.5%.
Speaker Change: I don't know what it's going to be in October, what's going to be in January, but right now from January to September, it's down about 11.5%.
Speaker Change: Which means we have, today we have 18,290 scans a day. So we're doing 11 and a half percent more scans. We have more customers, we're providing the service, 11 and a half percent more.
Speaker Change: But the contraction in spend per customer is wipe it out 31% of our growth.
Speaker Change: If we don't wipe out 31% of our growth, because 2016 goes to 2010 or 2008.
Speaker Change: That's a different number and if I do the math on next year, we're doing 20,000 in the day in the first quarter's, a number.
Speaker Change: That's based on the 216, that's 91 million a month, 420,000 scams in a 21 day month.
Speaker Change: If that 216 stays there, it's 91 million. If it drops, you know, three and a half or a 3%, 11% whatever, you know the math there. If it goes back to 224, that adds 3 million a month to our revenue. That's like for the year getting another calendar day, because we do 31 million a day and that's 36 million. Sorry to get really wonky on you there, but it really changes the math quite dramatically if things just stabilize.
Speaker Change: Or, take up slowly, because we're adding customers. We're taking market share. It'd be nice to have more than 70% of it shining through or 60% or 40% of it shining through because of contraction. [inaudible]
Speaker Change: And I will say to follow up on that there were a couple markets that stood out in regional leadership's commentary. Ag is very weak and I think our expectation is there's going to be extended shutdowns and ag over the course of the fourth quarter. You know, and doing decently and those are probably the call outs, so not comprehensive by any means, but a few things that were we're mentioned by by the field.
Speaker Change: Thank you, next question is coming from Tommy Mall from Stephen Rewind, is that a lot?
Speaker Change: Good morning and thank you for taking my questions.
Speaker Change: We're in boarding.
Tommy Mall: I wanted to touch on Sip Timber
Tommy Mall: Do you sense that there was any help from the macro there, or would you attribute all or substantially all of the benefit from market share and on the market share point?
Tommy Mall: Where there are some big things that failure way or does it feel more like an accumulation of a bunch of little things that have been in process for some time. Thank you.
Tommy Mall: on the market.
Tommy Mall: I think Mix is the right to write.
Tommy Mall: is the right expression for it.
Speaker Change: If I think, for instance, about our midwestern markets in particular, you know, a couple of them actually said if anything was a little bit weaker in September than what we'd seen proceeding. But then there are a whole bunch of markets that kind of said that it was kind of stable. A couple said that maybe there was a little bit of improvement. So when we say that that was mixed, that that was the feeling I would say the last few quarters have been more universally pessimistic so it does.
Speaker Change: Representative and an uptake of sentiment if you will.
Speaker Change: But I do believe that the feedback from the field, though, was that overwhelmingly...
Speaker Change: The degree to which we're seeing improvement has to do with the new customers that we have added and the process of implementing them, bringing them on and getting to revenue.
Speaker Change: Yeah, and Markets mixed, the benefits we're seeing have a lot more to do with the things that we're doing and the traction we're gaining there.
Speaker Change: I don't have a reason to believe that September was unusual in that regard for any reason. I think we spent the balance of this year seeing our contracts grow. That's not only at the national account level, but I think the work is being done in the field, you know, to sign contracts at that level. That's also been growing quite nicely. That's manifest in onsite signings, FMI signings. I just think you're seeing, as you said, the accumulated impact of those things, playing through, and that's why, as Dan indicated, we're excited about what's coming down the pike. Again, fourth quarter can always be tricky, but I think that the trend line.
Speaker Change: Going out of the Out of 4th quarter into 2025 is a really solid trend line in those areas.
Speaker Change: The other thing I'll add to that, some things that stood up for me when I was looking at September , and these are relatively small pieces, but they're ones where I'm probably more dialed into it because I'm sensitive to it. And that is, we made some changes to our branch, how we operate at the branch location, and as a result, we had some fall off in different customer groups, some of our smaller customer groups, because we changed how we stopped back the front room. This has been recent years, not just in recent years, but as a result, our construction business has been negative for quite a few quarters.
Speaker Change: and in September.
Speaker Change: The group 1% of 0.9 to be exact. Is that a moral victory? Well, the fact that there isn't a bracket around it is a moral victory. And I believe that means that that change has anniversary itself.
Speaker Change: And now the question is what is that industry doing? Again, that's a relatively small piece of our business but
Speaker Change: You know what?
Speaker Change: I want growth at every customer segment we have.
Speaker Change: Another one that stood out, our government accounts grew quite a bit in September.
Speaker Change: Sometimes government business can do that because of the federal government and when their year end is and budgets and all that kind of stuff we don't have much federal business to speak of. Are the state and local.
Speaker Change: We have a very strong
Speaker Change: September, time will tell if that has legs to it. When I dug into the numbers,
Speaker Change: It was about our onsite findings. It was about that chunk of the business that really gave it a lift Because it's again, it's about 4% of our sales as government and in the U.S. about 5% of our business. But there was something that stood out there, but it didn't change the fact that we ended the quarter stronger or then how we started the quarter.
Speaker Change: And just sticking with the theme of on sites and market share, then you've been very explicit and recent quarters about some of the personnel changes that were made and the redoubling of efforts to drive those on site signings higher. You touch on it a little bit today, but any more detail you can give us about the maturity of those initiatives and in particular any regional insight would be helpful as well. Thank you. Yeah, well, the maturity of both on site and NRFMI is quite strong. There's incredible our average district manager.
Daniel Florness: Miller has 58 dots on the map in their geography that we believe is sufficient to warrant an onsite, and for us that means 100,000 plus a revenue month is kind of that guiding figure.
Speaker Change: has 58 dots on the map in their geography that we believe is sufficient to warrant an onsite and for us that means 100,000 plus a revenue bump.
Daniel Florness: One of the things that we've talked a lot about, and as we move in the 2025, we'll talk to this to our shareholders in the investment community and this community, a lot about, is what's the best way to tell our story. One thing that we've done for years is we started, you know, and I'll see a whole prior to my current job, so I have a good recollection of some of the steps and changes how we told the story over time. In 2007, we started talking about something we've been doing for three, four years, and that was bending. We felt it was big enough to talk about because, in all honesty, the first seven or eight years that we had bending, we didn't know tech we were doing.
Speaker Change: is kind of that guiding figure. One of the things that we've talked a lot about, and as we move in the 2025, we'll talk to our shareholders in the investment community and this community a lot about.
Speaker Change: is what's the best way to tell a story.
Speaker Change: One thing that we've done for years is we started, you know, and I'll see a whole prior to my current job.
Speaker Change: A good recollection of some of the steps and not changes how we told the story over time in 2007. We started talking about pathway to profit.
Speaker Change: 2,11, we started to actually talk about something we've been doing for three, four years and that was bending. We've had a big enough to talk about, because in all honesty, the first seven or eight years that we had bending, we didn't know tech we were doing.
Daniel Florness: We'd get to the end of the year, and we knew that of the, of the vending devices we had deployed that year. 25 to 30% of them were going to pull out because they were just; they were dumb mistakes. And it was learning mistakes, and I'm glad we went through it. Today, when we put a vending machine out, not only do I feel really good; it's a good signing. I feel good that we put in the right number of devices that this customer should have 10 machines, and we don't find out six months later, well, it should be six, and we pull four out.
Speaker Change: We'd get to the end of the year and we knew that of the vending devices we had deployed that year.
Speaker Change: 25 to 30% of them were going to pull out because they were dumb mistakes. And it was learning mistakes. And I'm glad we went through it. Today, when we put a vending machine out, not only do I feel really good, it's a good signing. I feel good that we put in the right number of devices that this customer should have 10 machines and we don't find out six months later, well, it should be six and we pull four out. Does that still happen? Sure. But we've really gotten good at it. And so over time, we've changed how we tell the story in a number of years ago, we started talking about our digital footprint because it was really talking about our service model and how we go to market.
Daniel Florness: So that still happened, sure. But we've really gotten good at it.
Daniel Florness: And so over time, we've changed how we tell the story. In a number of years ago, we started talking about our digital footprint because it was really talking about our service model and how we go to market. In the last two years, we've been building internally. The capabilities did not look at our business account number by account number, but customer by customer. We've done that for years with our national account, but it takes a small army of people to take our computer systems that weren't designed for that type of business and link all these account numbers and tell the story of what's going on with our national accounts.
Speaker Change: In the last two years, we've been building internally.
Speaker Change: The capabilities did not look at our business account number by account number, but customer by customer. We've done that for years with our national account but it takes a small army of people to take our computer systems that weren't designed for that type of business and link all these account numbers and tell the story of what's going on with our national counts. [inaudible]
Daniel Florness: But it doesn't allow us to do it for that customer in a district that has 10 account numbers because they have two manufacturing plants in southern Indiana. And so the district manager knows it, but we can't support the DM in the way we want to do that.
Speaker Change: But it doesn't allow us to do it for that customer in a district.
Speaker Change: that has 10 account numbers because they have two manufacturing plants in southern Indiana. And so the district manager knows it, but we can't support the DM in the way we want.
Daniel Florness: So one of the challenges that's building structure to do that. We've been doing that for the last two years. And so when I started, when I talked about where our growth comes from in a number of customer sites. And that's not on site. That's just a building, a dot on the map where we're selling to one customer. Whether we have one account number or 10 account numbers, we think about it to how we serve that customer. That's really what we should be telling our story about.
Speaker Change: To do that. So one of the challenges that really laid out is, that's building structure to do that. We've been doing that for the last two years.
Speaker Change: And so when I started when I talked about where our growth comes from in a number of customer sites, and that's not on site, that's just a building, a dot on the map where we're selling to one customer, whether we have one account number or 10 account numbers, we think about it.
Daniel Florness: And how do we craft that? In other words, telling you, you know, here's how many customers we've added. Here's how many of those customers do less than 5,000 a month. Here's how many of those customers do 5 to 10, 10 to 50 plus, 100 plus. And what's our strategy for going after each of those customers to be a great supply chain partner. So that customers' needs. And I think as we go into 2025, frankly, I think it won't be too distant in the future. And I think careful I say this because I don't want to send a message internally to confuse people.
Speaker Change: So how we serve that customer?
Speaker Change: That's really what we should be telling our story about and how do we craft that? In other words, telling you, you know, here's how many customers we've added.
Speaker Change: Here's how many of those customers do less than 5,000 a month. Here's how many of those customers do 5 to 10?
Speaker Change: 10 to 50 plus, 100 plus, and what's our strategy for going after each of those customers?
Speaker Change: To be a great supply chain partner for that customer's needs and I think as we go into 2025
Speaker Change: Frankly, I think...
Daniel Florness: But I think we'll talk more about customer acquisition and customer maturity and how we're growing the business. And less about, hey, we signed 104 on sites this quarter. Because I think that's a better story to tell because it's easier to understand. Frankly, it's probably easier for this group to model. Business and understand what's driving success? What's creating headwinds either for ourselves or the economy is delivering to us because sometimes you don't do yourself any favors, and sometimes it's the case of you're executing under the hood, but the headwinds are too strong, and I think it's a better story.
Speaker Change: It won't be too distant in the future.
Speaker Change: and I'd be careful I say this because I don't want to send a message internally.
Speaker Change: The confused people, but I think we'll talk more about...
Speaker Change: Customer Acquisition and Customer Maternity.
Speaker Change: and how we're growing the business and less about, hey, we signed.
Speaker Change: A hundred and four on-site to score. Because I think that's a better story to tell because it's easier to understand, frankly, it's probably easier for this group to model.
Speaker Change: The Business.
Speaker Change: and understand what's driving success.
Speaker Change: What's creating headwinds either for ourselves or the economy's delivering to us. But sometimes you don't do yourself any favors and sometimes it's a case of you're executing under the hood.
Daniel Florness: Even some of the stuff, and maybe it's a little wonky, we're we talk about. Hey, when we're up scanning bins, every time we scan a bin, it's eight dollars more, it's eight dollars less. That's that tells a lot about what's going on in the economy because those bins are at, you know, five, ten, fifteen thousand dots across the planet. I don't think there's a better indicator of economic activity than that. I still think the PMI is a great forward-looking indicator. We're a great real-time indicator.
Speaker Change: But but the headlines are too strong and and I think it's a better story even some of the stuff and maybe it's a little wonky we're we talk about Hey, when we're up scanning bins every time we scan a bin it's eight dollars more it's eight dollars less That's that tells a lot about what's going on in the economy because those bins are at you know five ten fifteen thousand dots across the planet I don't think there's a better indicator of economic activity than that I still think that the PMI is a great forward-looking indicator we're a great real-time indicator
Daniel Florness: Just to make sure I address a little bit of the nuance of the question, you know the changes that were made and the investments that are being made were not about driving onsite to three seventy five to four hundred. Just to be clear, it was about driving customer acquisition. You know we need to recognize that onsite pendant onsite growth is a byproduct of winning new customers. Not every new customer has an onsite; many of them do. It's such an incredibly valuable tool, and that's what the signings come from. But it's the wins that we're having in our national account contract signings, in our regional account contract signings, our government account sign contract signings. It's wins there that the investments were intended to drive, and it's going to be a good thing.
Speaker Change: And just to make sure, I address a little bit of the nuance, the question, you know, the changes that were made and the investments that are being made were not about driving onsite to 375 to 400 just to be clear. It was about driving customer acquisition.
Speaker Change: You know, we need to recognize that onsite growth is a byproduct of winning new customers. Not every new customer.
Daniel Florness: It's the effectiveness that we're seeing there that's driving better onsite signings, better FMI signings, so just make sure, just make sure you understand what the real driver is.
Unknown Attendee: Thank you. Next question is coming from Stephen Volkman from Jeffries. Your line is not live.
Stephen Volkmann: Thank you, guys. I had a couple of quick follow up. Dan, you mentioned that you've kind of anniversary the headwinds in the branches, but I know you guys were really focused on trying to get those branches growing again. Have that happened yet or could it happen maybe in 25? What's the outlook for that. I expected to happen in 25 and and you know there's a couple of things we're very crisp about measuring when there's cannibalization because of an onsite signing but I expect it to happen because once you get to the point you kind of enter anniversary to change and we still have there's two stories going on inside a fast one when I think of the US based business and I touched on it.
Speaker Change: Thank you. Next question is coming from Stephen Volkman from Jeffree's Irvine, is that alive?
Stephen Volkman: Thank you. I had a couple of quick follow-ups. Daniel, you mentioned that you've kind of anniversary the headwind in the branches, but I know you guys were really focused on trying to get those branches growing again. Has that happened yet or could it happen maybe in 25? What's the outlook for that?
Speaker Change: I expected to happen in 25.
Speaker Change: and there's a couple of things we're very crisp about measuring when there's
Speaker Change: But I expect it to happen because once you get to the point you kind of anniversary to change and we still have there's two stories going on inside a fast phone when I think of the US based business and I touched on it this morning with our our BP's and BP's on the call and that is this transition has started faster.
Daniel Florness: This morning with our BP's and BP's on the call and that is this transition has started faster during COVID. The transition has started a little faster in our eastern business unit. And and and and and when you look at September, for example, our business in the United States grew two and a half percent. And I don't have the numbers in front of me, but to and change in the eastern United States. We grew almost 5 percent; we grew 4.9 percent in the western United States, and our definition of West is draw line from the eat from Detroit.
Speaker Change: During COVID, the transition has started a little faster in our Eastern Business Unit.
Speaker Change: and
Speaker Change: and when you look at September for example.
Speaker Change: Our business in the United States grew two and a half percent, I don't have the numbers in front of me, but two in change.
Speaker Change: in the Eastern United States.
Speaker Change: We grew almost 5% We grew 4.9% And the Western United States and our definition of West is draw a line from the east from Detroit
Daniel Florness: Down to just the western tip of Texas, and so Wisconsin, Minnesota, Iowa, Missouri, down to New Mexico. That's all in what we'd call the West, and everything else to be in the East. So that's just the way we've defined it internally. It's a lot better than it used to be; Southern Cal was in the East, but that's kind of like the Big 10th. But all kidding aside, the business in the Eastern US has grown about 5% right now, and the business in the Western US is slightly negative, and it's been slightly negative for a number of quarters.
Speaker Change: Down to just the western tip of Texas.
Speaker Change: And so Wisconsin, Minnesota, Iowa, Missouri, down to New Mexico, that's all what we call the West, and everything else being the East, so that's just the way we've defined it internally.
Speaker Change: It's a lot better used to be selling cows in the east, but that's kind of like the big tent. But...
Speaker Change: But all kidding aside, the business in the Eastern US is growing about 5% right now, and the business in the Western US is slightly negative, and it's been slightly negative for a number of quarters. That's just, that's really about who's anniversary didn't who hasn't.
Daniel Florness: That's just, that's really about whose anniversary didn't know who hasn't. So we still have a little, we're still a little bit of a lingering effect in the Western US, and we have a lot of revenue in the Western US. But, but I feel good about what that means for the branch side of our business as we move forward. We've also gotten really dialed in. And if I think of some of the changes that our sales leadership has made, we're better aligned with our national counts group, region by region, and we've been in years. We're better aligned with the role we call our CSC.
Speaker Change: So we still have a little bit of a lingering effect in the Western U.S., we have a lot of revenue in the Western U.S., but I feel good about what that means for the branch side of our business as we move forward. We've also gotten really dialed in. If I think of some of the changes that. [inaudible]
Speaker Change: For sales leadership it's made.
Daniel Florness: It's a customer service consultant, sales consultant, excuse me. And we have those now in a large, large piece of our district manager group, and where we don't, we're weeks and months away. And that really allows us to be very, very focused locally to go after the market. And that's going to help; that's going to help our on-site signings, but frankly, it's probably going to help the branches more, because it's going to, it's going to, it's going to allow us to be more aggressive going after that, that, that customer, that, that building there that could be a $25,000 a month customer.
Speaker Change: We're better aligned with our national counts group region by region than we've been in years.
Speaker Change: We're better aligned with the role we call our CST, it's a conference service consultant, sales consultant, excuse me. And we have those now, and...
Speaker Change: Large, large piece of our district manager group and where we don't, we're weeks and months away.
Speaker Change: And that really allows us to be very, very focused locally to go after the market. And that's going to help our onsite signings, but frankly it's probably going to help the branch is more. Because it's going to allow us to be more aggressive going after that, that customer, that building there that could be a $25,000 a month customer.
Daniel Florness: But sometimes, you know, when you're really busy, maybe we're not being consistently calling on that the way we should, and it really dials you in. I also want to say what makes it feel better about the branch and the on-site side of the business. Bill Dresskowski was head of national counts starting about 2014. I believe that's what it was. Prior to that, he was a regional vice president in what we call the One Owner region. He took over national counts. Yours truly, who's speaking right now, pull them out of that role and put them in a different role in 2019.
Speaker Change: But sometimes, you know, when you're really busy, maybe we're not being consistently calling on that the way we should, and it really does end.
Speaker Change: I also want to say what makes me feel better about the branch and the outside of the business.
Speaker Change: Bill Doris Calspie was head of national counts starting about 2014. I believe that's what it was. Prior to that, he was the regional vice president and what we call the Winona Region.
Daniel Florness: And, and Jeff, a lot in 2023 asked if we could put a bet, actually suggest that he's Canadian style. It's given that time that he's asking. He suggested that Bill go back into the role. Great move on Jeff's part. Bill is naturally talented in that area, and his team responds to him. Incredible talent there. They're responding really well. Makes me feel really good because we're, the contract signings that hold and talked about. It's a big chunk of that. It's related to what our national counts team is doing. They're really executing well right now.
Speaker Change: He took our national cones, yours truly, who's speaking right now, pulled him out of that role and put him in a different role in 2019 and Jeff Watts in 2023 asked if we could put him back, actually suggest that he's Canadian SIL is given that time to be zasting. He suggested that Bill goes back into the role.
Speaker Change: Great move on Jeff's part. Bill is naturally talented in that area and his team responds to him. Incredible talent there. They're responding really well. Makes me feel really good because the contract signings that Holden talked about.
Stephen Volkmann: Okay, great. And just a quick follow-up. You mentioned hold and adding some inventory, maybe giving you a little bit of cost. Benefit.
Speaker Change: Big chunk of that is related to what our national comes team is doing and they're really executing well right now.
Stephen Volkmann: I'm just curious if it's enough that we should be thinking about a gross margin tailwind from that, or is that more of a rounding. Share. There should be a gross margin tail end from that, but we'll have several quarters to discuss it. The reality is importing fasteners is a multi-quarter process. And by the time that begins, you know, we're actually adding the inventory currently from local suppliers to make sure that the availability is high because that's a big part of why we're doing this. Just to make it easier, as they are indicated for the branches to get products faster, helps customer service, helps us grow.
Speaker Change: Okay, great. And just a quick follow-up. You mentioned Holden adding some inventory, maybe giving you a little bit of cost. Benna said, I'm just curious that it's enough that we should be thinking about a girl's margin tail in from that, or is that more of a rounding error.
Speaker Change: There should be a gross margin to go in from that, but we'll have several quarters to discuss it. The reality is importing fasteners is a multi-quarter process.
Speaker Change: and by the time that begins, you know, we're actually adding the inventory currently from local suppliers to make sure that the availability is high. Because that's a big part of why we're doing this. Just to make it easier as they indicate it for the branches to get products faster, helps customer service helps us grow.
Stephen Volkmann: So we're currently adding that through domestic sources. There's not a lot of cost-benefit to that. We are currently placing orders with our import partners to send that product overseas. That's going to take several quarters.
Speaker Change: So we're currently we're adding that through domestic sources. There's not a lot of cost benefit to that. We are currently placing orders with our import partners to send that product overseas. That's going to take several quarters. So I don't think you're going to start to see the benefits or the tailwinds of that until you probably get into maybe Q2 next year but probably more like Q3 next year. Thank you very much.
Stephen Volkmann: So I don't think you're going to start to see the benefits or the tailwinds of that until you probably get into maybe Q2 next year, but probably more like Q3 next year. Thank you.
Nigel Coe: Next question is coming from Nigel Cove from Wolf Researcher. Line is our line. Thank you. Good morning. We've got a lot of ground, but I did want to hold maybe go back to some of the gross margin dynamics, and you called out in the PR Mexico duties. I'm not quite sure what that means. Just curious in terms of what's driving that, is that's going to require going forward. Mexico really over the past 12 months, but they've even done some in the I think the past three to six months. They've been very much more active in charging duties on product that moved across the border.
Speaker Change: Thank you, good morning. We cut a lot of ground, but I did want to hold maybe go back to some of the gross Martian demographics and you called out in the PR Mexico duties, high-imaxid duties and I'm not quite sure what that means. Just curious in terms of, you know, what's driving that is that I'm just going to record going forward.
Speaker Change: Mexico really over the past 12 months, but they've even done some in the past 3 to 6 months.
Stephen Volkmann: Now, if you understand our logistics, we ship a lot of product from the US, Canada, to Mexico, to Europe, etc. And so the current Mexico system has a significantly higher charge for those movements than was the case 12 months ago. And so we're feeling the effect of that. Canada has some as well, specifically on gloves that are up meaningfully. And so, just really in the last call, it six to 12 months, you've seen a number of federal authorities in other countries simply raise the cost of moving product across borders. And that was a meaningful impact on the quarter.
Speaker Change: They've been very much more active.
Speaker Change: Ian.
Speaker Change: Charging duties on product that moves across the border.
Speaker Change: If you understand our logistics
Speaker Change: We ship a lot of product from the U.S. to Canada to Mexico to Europe, etc. And so, you know, the current Mexico system has a significant in the higher charge for those movements.
Speaker Change: then was the case 12 months ago and so we're feeling the effect of that. Canada has some as well specifically on gloves that are up meaningfully and so just really in the last call it six to 12 months you've seen a number of you know federal authorities in other countries simply raise the cost of moving product across borders and that was a meaningful impact on the quarter. The plan is more provincial than it was 10 years ago. And so we're going to move on to the next one.
Stephen Volkmann: The planet is more provincial than it was 10 years ago. Okay.
Nigel Coe: I thought we had a free trade agreement, but maybe I'm wrong there. So this is, so this is because duty rates are increasing, not because there's more product coming across the border. Yeah, keep in mind that the free trade agreement, we're not necessarily talking about product that's going from country to country. We're talking about a product that's not maybe natively from North America. Okay. Got it. Okay. That's interesting.
Speaker Change: Okay, I thought we had a free trade agreement, but maybe I'm wrong there. So this is because duty rates are increasing, not because there's more product coming across the border.
Speaker Change: Yeah, keep in mind that the free trade agreements were not necessarily time of product that's going from country to country. We're talking product that's not maybe natively from North America.
Stephen Edward Volkmann: And then just a quick one on sort of, I know 2025 is the next year. But how do we think about the world and capital sort of investments and maybe CAPEX into 25. Do you think that 250 or so is a good one right for CAPEX? And would you expect world capital to be use of funds? You know, we haven't had those conversations to budget the CAPEX, but I mean CAPEX generally speaking is volatile related to whatever investments are making in the hub. And the reality is a significant proportion, probably half, of the investment we're making in our hub category of CAPEX this year is related to the construction of our Utah hub.
Speaker Change: Oh, okay, got it. Okay, that's interesting. And then just to quick one on sort of like, I know 225 is next year. But how do we think about the working capital sort of...
Speaker Change: Investment and maybe CapEx into 25. Do you think that 250 or so is a good run rate for CapEx and would you expect World Capital to be a use of funds?
Speaker Change: You know, we haven't had those conversations to budget the cat backs, but I mean, cat backs generally speaking is volatile related to whatever investments are making in the hub.
Speaker Change: and the reality is a significant proportion. Probably half of the investment we're making in our hub.
Stephen Volkmann: We have a hub in Utah today. Smaller lease, not automated. That business has gotten big enough that we can invest in a larger, more automated facility. That's what we're doing this year. There'll be a little bit more expense falling into next year related to that. But I think most of it falls into this year. And so I think you would expect that to step back. So I would expect the 250 is probably a little bit higher than I would expect for next year. But again, we haven't had those conversations yet with various departments. I'll have more detail when we convene three months from now.
Speaker Change: Category of CapEx this year is related to the construction of our Utah hub. We have a hub in Utah today. Smaller lease, not automated. That business has gotten big enough that we can invest in a larger, more automated facility. That's what we're doing this year. There'll be a little bit more expense falling into next year related to that. But I think most of it falls into this year. So I think you would expect that to step back. So I would expect the 250 is probably a little bit higher than I would expect for next year. But again, we haven't had those conversations yet with various departments. I'll have more detail when we convene three months from now.
Daniel Florness: Yeah. When that question came up with the board yesterday, the only added twist I put in there, as I said to the board, when I think of the number and Holden's done a wonderful job of really challenging us, of where we put on the investment where it makes sense, but also challenging us on where it, where it doesn't. And for me, the guidepost I've been, we've been about 3% of sales, I think. Over time, and our cash flow really supports that. And about a third of that is because of FMI. And the nice thing about that is that that's a great business for us.
Speaker Change: When that question came up with the board yesterday, the only added twist I put in there as I said to the board. When I think of the number and Holden's done a wonderful job of really challenging us, of where we...
Speaker Change: We're on the investment where it makes sense, but also challenging us on where it doesn't. And for me, the guidepost I've been, we spend about 3% of sales, I think, over time and our cash flow really supports that. And about a third of that is because of FMI. And the nice thing about that is that that's a great business for us. A decade ago when we were still trying to figure it out up and down of what the heck bending meant. It was a, it was a, it was a, it was a drag to our P&L. It was a drag to our returns. The, the fact that inventory turns a lot faster in a minute machine, you could make that capital investment.
Daniel Florness: A decade ago, when we were still trying to figure it out, up and down of what the heck that bending meant, it was a, it was a, it was a, it was a drag to our PNL, it was a drag to our returns. The, the fact that inventory turns a lot faster than a machine, you can make that capital investment. And so the cost of the shelf. Whether it's a vending machine shelf or a shelf or an onsite or a shelf in the brand, the cost of that vending shelf, it's a percentage of sales is, is as good if not better than the company.
Speaker Change: and so the cost of the shelf, whether it's of any machine shelf or a shelf or an on-site or a shelf in the branch, the cost of that vending shelf for some percentage sales is as good if not better than the company. So it's great business because it's a great tool for our customer.
Daniel Florness: So it's a great business because it's a great tool for our customer. They like that as part of supply chain for customers that have vending. Usually, about a third of the revenue goes through the vending machine, and two thirds is outside of any machine. So it's a tool in that supply chain, some stuffs in the two crib, some stuffs in a bin stock, some stuffs in a, in a vending machine. So it's a great way with the, with our blue team in the field to be incredibly strong supply chain partners for our customers. So a third of the, of CapEx goes into FMI; about 40% goes into distribution of transportation.
Speaker Change: They like that as part of supply chain for customers that have vending usually about a third of the revenue goes through the vending machine and two thirds is outside of any machine so it's a tool in that supply chain some stuffs in the two crib, some stuffs in a bin stock, some stuffs in a in a vending machine so it's a great way with the with our blue team in the field. [inaudible]
Speaker Change: to be incredibly.
Speaker Change: Strong Supply Chain Partner for our customers. So a third of the of CapEx goes into FMI. About 40% goes into distribution of transportation.
Daniel Florness: And then the remaining chunk is really about what we're spending on IT. We have an incredible team there; we're going to continue to pour love and investment into that group. And that's, that was some of our headcon growth during the year. And it's on all the other stuff that goes on in life. But, but that's really what race felt. But 3% is the number to me. And fortunately, we have a better CFO today than we did 10 years ago. And that, and that number is sub 3% because he challenges us to get rid of stuff we don't need and to really optimize.
Speaker Change: And then the remaining chunk is really about what we're spending on IT. We have an incredible team there. We're going to continue to pour love and investment into that group. And that was some of our headcon growth during the year. And it's on all the other stuff that goes on in life. But that's really what raised out, but 3% is the number to me. And fortunately, we have a better CFO today than we did 10 years ago. And that number is sub 3% because he challenges us to get rid of stuff we don't need. And to really optimize. And if you want to plug something, Nigel, I would tell you it's probably probably between 200 and 225 is a better number. And congratulations. You just kicked off our internal conversations.
Daniel Florness: And if you want to plug something, Nigel, I would tell you it's probably between 200 and 225 is a better number. And congratulations. You just kicked off our internal conversations. Thank you.
Unknown Attendee: Next question is coming from Chris Snyder from Morgan Stanley.
Unknown Attendee: Your line is not live. Thank you. I wanted to follow up on the bifurcation between onsite signings, you know, flat and Q3 in the FMI signings of 20%. Is this more so driven by increasing penetration at existing customers, or when you guys are adding customers, they're larger, or is it that, you know, the customers you're adding are just not, it's not coming through via the onsite. It's kind of more color on that; you know, 20% spread would be helpful.
Speaker Change: He's like, he's like...
Speaker Change: Thank you, next question is coming from Chris Leider for Morgan Stanley, your line is not live.
Chris Leider: Thank you. I wanted to follow up on the bifurcation between onsite signings, you know, flat and Q3 in an FMI signings of 20%. Is this more so driven by, you know, increasing penetration at existing customers or when you guys are adding customers, they're larger or that, you know, the customers you're adding are just not, it's not coming through via the onsite. Just kind of more color on that, you know, 20% spread would be helpful. Thank you. Thank you.
Unknown Attendee: Thank you.
Daniel Florness: A couple of things from me. One, onsites are inherently more lumpy. The, the amount of investment that goes into getting an onsite from signing through implementation to revenue generation. It's not an enormous amount of cost. It is a fair bit of energy that goes into that on, on our part as well as the customer's part, right? And that's not the same degree as FMI. So, in many cases, you know, customers who are not in an onsite still want to deploy FMI, right? And I think that's the broader point. You know, there we deploy a lot of FMI hardware at locations that are not on.
Speaker Change: Couple things from me. One, on-site are inherently more lumpy. The amount of investment that goes into getting an on-site from signing through implementation to revenue generation. It's not an enormous amount of cost. It is a fair bit of energy that goes into that. On our part as well as the customer's part, right? And that's not the same degree as FMI. So in many cases, you know, customers who are not in an on-site still want to deploy FMI, right? And I think that's the broader point. You know, there we deploy a lot of FMI hardware at locations that are not on-site.
Daniel Florness: Sites, you know, and so I would point out again what you're seeing, and I would focus on the installed base. You're seeing a better than 10% growth in our national contracts. You're seeing better than 10% growth in our onsite installed base, and you're seeing better than 10% growth in your FMI installed base. I would tell you those things feel like they're fairly consistent to me. You know, the month-to-month orders in onsite, that can be lumpy. You know, and I guess I'm not seeing the disconnect that you're asking about. The couple of things I'll point out: I think the Delta is more a statement about FMI and the success we're seeing.
Speaker Change: I would point out again what you're seeing, and I would focus on the install base. You're seeing a better than 10% growth in our national contracts. You're seeing better than 10% growth in our onsite install base. And you're seeing better than 10% growth in your FMI install base.
Speaker Change: I would tell you those things for your field, like they're fairly consistent to me. You know, the month orders in on site, that can be lumpy. You know, and I guess I'm not seeing the disconnect that you're asking about.
Daniel Florness: So our FMI team will play cringe. I'm shooting from the hip with some numbers here, and I don't know if I'm 100% accurate. But you know, we have a couple thousand onsites; probably 80% of those have FMI or have vending; probably 95% have FMI, if not 100. But we have onsites where it's just OEM pastors, and we're not doing the safety vending, for example. But I think we have FMI now vending at about 20,000 locations, between 19,000 and 21,000. So that tells me 90% of the locations where we have vending is not an onsite. And so, and the one thing nice about FMI growing faster than onsites, speed the revenue in FMI is incredible.
Speaker Change: The couple things I'll point out, I think the Delta is more a statement about FMI and the success we're seeing.
Speaker Change: Our FMI team will fight cringe, but I'm shooting from the hip with some numbers here and I don't know if I'm 100% accurate, but you know we have a couple thousand on sites, probably 80% of those have FMI or have vending, probably 95% have FMI if not 100, but we have on sites where it's just OEM pastors and we're not doing the safety vending, for example. [inaudible]
Speaker Change: But I think we have FMI now, vending at about 20,000 locations between 19 and 21,000. So that tells me 90% of the locations where we have vending.
Speaker Change: is not a non-site.
Speaker Change: and so, and the one thing nice about FMI growing faster than on-site.
Daniel Florness: The speed to revenue on an onsite, it's a gift that keeps giving into the future. But the speed to revenue is different because you're doing a massive lift as opposed to dropping in five vending machines, and they're producing revenue this month as opposed to over the next six to 18 months of ramping up. So selfishly, I like the fact that our FMI is incredibly strong because it's great speed to revenue. I think a good platform as well to sort of move customers into more value added areas such as onsites because the vending machines pull us into those facilities on a regular basis, engaging with those employees.
Speaker Change: The speed, the revenue, now found my
Speaker Change: is incredible. The speed to revenue on an onsite, it's a gift that keeps giving into the future but it's the speed to revenue is different because you're doing a massive lift as opposed to dropping in five vending machines and they're producing revenue this month as opposed to over the next six to 18 months of ramping up. So selfishly, I like the fact that our FMI is incredibly strong because it's great speed to revenue. I think a good platform as well to sort of move customers into more value added areas such as onsites because the vending machines pull us into those facilities on a regular basis engaging with those employees. So it's
Daniel L. Florness: So it's a good system.
Daniel Florness: I see we're about two minutes for the hour, and I'm just going to share a quick thought here, and partly to put a little pressure on Jeff, partly to put a little pressure on Donnelly and our new role. A decade ago, I stepped into this role and remember at the time we had a lot of discussions about what do we have to do as an organization. We're about four billion back then. What do we have to do as an organization to add half a billion a year in revenue. And that's our strategy. That's our guideposts.
Speaker Change: and good.
Speaker Change: I see we're about two minutes for the hour and I'm just going to share a quick thought here and partly to put a little pressure on Jeff, partly to put a little pressure on Donnelly in our new role. A decade ago, I stepped into this role and I remember at the time we had a lot of discussions about what do we have to do as an organization. We are about four billion back then. What do we have to do as an organization to add half a billion a year in revenue.
Daniel Florness: And you know, if I look at it over time, we were 4.4 billion in 2017. If we had a half a million every year and forget the fact that the base changes every year, just do a simple map. Half a million every year. That would imply in 2023, we should be 7.4 billion. So we're adding a billion dollars every two years. We did 7.3 billion last year. Our challenge today is, you know, a few years we're going to be a 10 billion dollar organization. What strategy do we need to add a billion dollars a year in revenue.
Speaker Change: And that's our strategy. That's our guideposts. And you know, if I look at it over time, we were 4.4 billion in 2017. If we had a half a million every year and forget the fact that the base changes every year, just do a simple math, half a million, half a billion every year, that would imply in 2023 we should be 7.4 billion. So we're adding a billion dollars every two years.
Speaker Change: We did 7.3 billion last year.
Speaker Change: Our challenge today is, you know, a few years we're going to be a 10 billion dollar organization.
Daniel Florness: And that's what's one of the reasons for putting Donnelly in the role is to help us, help her to cast a little bit of really having a great strategy. Probably going to do that. It allows us to be really focused on we're making IT investments and why some of the real diamonds that Jeff's making with our digital strategy is really, it's really focused on that.
Speaker Change: What strategy we do in need?
Speaker Change: to add a billion dollars a year in revenue.
Speaker Change: and that's what's one of the reasons for putting down on the rules is to help us.
Speaker Change: I've heard to catch a little bit of really having a great strategy, probably going to do that. It allows us to be really focused on what we're making IT investments and why. Some of the real elements that just making with our digital strategy is really focused on that.
Daniel Florness: To that regard, and Holden's probably going to kick me because I don't know that he was ready to announce it yet. In April, we plan on having an analyst day in connection with our employee, excuse me, our customer expel that we hold in April of each year. So for the analyst community, you can bug hold in with the exact date. I don't know if he's nailed it down yet, but we'll be getting that information out shortly. But, but really we want to be able to tell the story about how do we add a billion dollars a year in revenue over the, you know, in the years to come and what's our guidepost and what's our KPIs to do it.
Daniel Florness: Thanks, everybody. Thanks for joining our call today and for the folks in harm's way. And I did receive a message from Bob Hopper during the call. All of our employees are accounted for in state of Florida from latest hurricane. Thanks, everybody.
Operator: Have a good day. Thank you.
Operator: Thank you, that does conclude today's teleconference to webcast, and we just connect our line at this time and have a wonderful day. We thank you for your participation today.