Q2 2025 Fastenal Co Earnings Call

Operator: Q2 2025 Earnings Conference Call-In Webcast.

Operator: At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad.

Greetings and welcome to the fasten all Q2 2025 earnings conference calling webcast. At this time, all participants are going to listen only mode

Operator: A question and answer session will follow the formal presentation. You may be placed at the question queue at any time by pressing star one on your telephone keypad. We ask that you please ask one question and one follow up, then return to the queue.

Star zero and your telephone keypad.

No question and answer session will follow the formal presentation.

Operator: As a reminder, this conference is being recorded.

Dre Schreiber: It's now my pleasure to turn the call over to Dre Schreiber. Please go ahead, Dre.

You may be placed into the question Queue at any time by pressing star 1 on your telephone keypad. We ask that you, please ask 1 question and 1 follow up then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dre. Shriber, please go ahead Dre.

Dre Schreiber: Welcome to the Fastenal Company 2025 Second Quarter Earnings Conference Call. This call will be hosted by Dan Florness, our Chief Executive Officer, Jeff Watts, our President and Chief Sales Officer, and Cheryl Lasowski, our Interim Chief Financial Officer, Chief Accounting Officer, and Treasurer. The call will last for up to one hour, and we'll start with a general overview of our quarterly results and operations, with the remainder of the time being open for questions and answers. Today's conference call is a conference call.

Dre Schreiber: The recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until September 1, 2025 at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated.

Speaker Change: Welcome to the Fastenal Company, 2025 second quarter earnings conference. Call, this call will be hosted by Dan Flores, our chief executive officer, Jeff Watts, our president and chief sales officer and Cheryl lasowski. Our interim Chief Financial Officer Chief accounting officer and Treasurer the call will last for up to 1 hour and will start with a general overview of our quarterly results and operations with the remainder of the time, being open for question. And answers today's conference call is a proprietary fast and all presentation and is being recorded by fenol. No recording reproduction transmission or distribution of today's call is permitted without fastening all's consent. This call is being audiocast on the internet via, the fenol investor relation homepage investor.com. A replay of the webcast will be available on the website until September, 1st 2025 at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and Prospects. These statements are based on our current expectations and we undertake no duty to update them. It is important to note that the companies

Dre Schreiber: 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 Security and Exchange Commission, and we encourage you to review those factors carefully.

Jeff Watts: I would now like to turn the call over to Mr. Jeff Watts. Thank you, and good morning, everyone. Thanks for joining us today.

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 Security and Exchange Commission and we encourage you, to review those factors carefully. I would now like to turn the call over to Mr. Jeff Watts.

Jeff Watts: My name is Jeff Watts, President of CSO, and while I've listened to this call for decades and more recently sat on the call the last few quarters, this is my first time addressing you, and I'm excited to kick off our second quarter update today. I'd like to begin by extending my congratulations to the Fastenal team on delivering just a very strong quarter and exceeding the quarterly result of over $2 billion in revenue for the first time in our company's history. It's a significant achievement and I'd like to express my appreciation to everyone across the organization for their contributions.

Thank you, and good morning everyone. Uh thanks for joining us today. My name is Jeff Watts president CSO and while I've listened to this listen to this call for decades. And more recently sat on the call the last few quarters. This is my first time in addressing you and I'm excited to kick off for second quarter update today.

Jeff Watts: Now, jumping into it, sales in the second quarter increased by 8.6 percent, marking our highest daily growth since early 2023. And when I think about the growth this quarter, you know, market conditions, they haven't really helped us and remain sluggish. We did get some lift from price of about 140 to 170 basis points, which Cheryl will be addressing in more detail later in the deck. But what I'm really proud of the team for is their push and momentum in market share gains and contract signings. You know, that momentum has really built up the belief in the execution of our strategic plan, the one that we shared at our Investor Day presentation back in March.

Jeff Watts: The activities and actions that we've taken better align our field and corporate teams focused on something that our late founder, Bob Kirlin, taught us, the importance of a common goal. Now, Bob always emphasized that when everyone in the company is focused on a shared purpose, it drives unity and prevents division among groups and departments. It also drives results, and that's what we're focused on, with an emphasis on stronger, more embedded customer relationships, which reflect our strategic intent to be more than just a distributor. We're a supply chain partner, embedded at the point of use, delivering measurable value to our customers.

Like to begin by uh extending my congratulations to the fast on team on, delivering just a very strong quarter and exceeding the quarterly results of over 2 billion revenue. For the first time in our company's history. Now it's a significant achievement and I'd like to express my appreciation to everyone across the organization for their um for their contributions. Now. Jumping into it uh sales in the second quarter increased by 8.6% marking our highest daily growth since early 2023. And when I think about the growth this quarter, you know, market conditions. They haven't really helped us and remain sluggish. We did get some lift from price of about 140, uh, to 170 basis points, which which Cheryl will be addressing in more detail later in the deck. But what I'm really proud of as a team for is their push and momentum and market share gains and contract signings. You know, that momentum is really built up the belief and the execution of our strategic plan. The 1 that we shared it, uh, at our investor Day presentation. Back in March, the activities and actions that we've taken better line are fields,

Speaker Change: Corporate teams focused on something that our late founder Bob. Carolyn taught us the importance of a common goal.

Jeff Watts: I think this shows in our contract signings. Since implementing these changes back in the beginning of 2023, our contract growth has increased from 4% in the 2022-23 timeframe to 11.2% last year, and that momentum has continued as we move into 2025. In Q2, we saw 84 contract signings, well ahead of the last two quarters. And honestly, outperforming our expectations, considering the current market conditions. Contract customer sales for the quarter increased 11% and now represent 73.2% of our revenues, up from 71.2 in the previous year.

Jeff Watts: And moving on to slide four, and looking at our customer site performance, starting with revenue from sites generating 10,000 or more per month, these increased 11.6% in a quarter, accompanied by a nearly 7% rise in number of such sites. This change is primarily influenced by the growth in our onsite-like sites, or those generating $50,000 or more per month, which grew by 12.4% and showed revenue growth of 14.5%. Monthly sales per customer site increase in all customer categories, with the total sales per site increasing by 17.7% to $6,790 per month. We did see a decline in the number of accounts that are under 5K, which did contribute to the average increase in revenue per site in this category.

Now, Bob always emphasized that when everyone in the company is focused on a shared purpose, it drives unity and prevents division among groups and departments. It also drives results and that's what we're focused on with an emphasis on stronger more embedded customer relationships, which reflect our strategic intent to be more than just a distributor. We're supply chain partner embedded, at the point of views, delivering, measurable value to our customers. And I think this shows in our contract signings since implementing these changes back in the beginning of, um, of 2023, our contract growth is grown has increased from 4% of the 2223 time frame to 11.2% last year. And that momentum is continued as we move into 2025, in Q2, we saw 84, contracts signings. Well ahead of the last 2 quarters and honestly outperforming our expectations, considering the current market conditions, um, contract customer sales for the quarter, increased 11%, and now represents 73.2% of our revenues up from 71.2, in the previous year.

Speaker Change: And moving on to slide 4 and looking at our customer's site performance, starting with revenue from sites, generating 10,000 uh or more per month. These increased 11.6% in the quarter accompanied by a nearly 7% rise in number of such sites. This change is primarily influenced by the growth in our on-site like sites or those generating 50,000 more uh 50,000 or more per month, which grew by 12.4% and showed Revenue growth of 14 and a half.

Speaker Change: Monthly sales per customer site increase in all customer categories. With the total sales per site, increasing by 17.7% to 6,790 per month.

Jeff Watts: But when digging further, almost all of these declines were in the under 500 customers, with the bulk actually coming from the customers due less than $100 per month. Now, this decline was expected as we continue to drive our focus on our larger sites, but we also look to relaunch Fastenal.com later in 2025, and this is being done to really help address the spot by need of all of our customers, including the ones in the smaller categories.

Jeff Watts: Our goal has always been the same. Our goal is to grow in all of our categories. When you look at the slide and the results on slide four, you know, we use these to gauge our quarterly performance. But in the field, you know, we go down to the month. And what's exciting is when we look at our trends on a more granular basis. As we move throughout the quarter, growth has continued to increase in all categories 5000 and above, most notably our site counts, which were all double digit growth in June. Again, some very exciting numbers there.

Well, we also look to relaunch fastenal.com later in 25 and this is being done to really help address the spot by needs of all of our customers including the ones in the smaller categories. Our goal has always been the same. Our goal is to grow in all of our categories.

Speaker Change: 1 number that does stand out to me. Um in a growth is in uh is the non-manufacturing sites in the 50k plus category. Now, this group's Revenue has increased 30% year-over-year and the site count has increased over 18%. Now, this is a, this is we believe is a result of our realignment of our sales teams to work more closely with the regions in the, rvps, from the government teams, to the safety teams, we're driving more business together in areas. You know, we may have missed in the past especially in the non-manufacturing sector and again, some encouraging numbers.

Jeff Watts: Overall, for the quarter, a very nice job from the team, not only on the sales side, but also on how we're continuing to show progress on implementing our strategy across the organization.

Jeff Watts: So again, to the team, thank you very much.

Daniel Florness: And I'll now pass it over to Dan. Thanks, Jeff. And good morning, everybody.

Dan Flores: When you look at the slide and the results on slide 4, you know, we use these to gauge our quarterly performance, but in the field, you know, we go down to the month and and what's exciting is when we look at our Trends in a more granular basis, as we move throughout the quarter growth is continuing to increase in all categories, 5,000 and above most notably, our site counts which were all double digit growth in June. Again, some very exciting numbers. Their overall, for the quarter uh a very nice job from the team, not only on the sales side but also on how we're continuing to show progress on implementing our strategy across the organization. So again to the team, thank you very much and I'll now pass it over to Dan

Daniel Florness: You know, when I think back three years ago, in the summer of 2022. We were having we were having a good year. And but as we had reemerged from COVID, some things were going on, there was a lot of supply chain constraints, a lot of chaotic environment, bit of inflation, we were putting up really strong numbers. But in all frankness, It wasn't a year that felt good. And, and I've known Jeff for, for 30 years, or close to 30 years. And we were having a lot of discussions about what we're seeing. I was having a lot of discussions with other leaders in the organization.

Dan Flores: Thanks Jeff and good morning, everybody.

Dan Flores: you know, uh,

Dan Flores: when I think back 3 years ago,

Dan Flores: In the summer of 2022.

We were having we were having a good year.

Dan Flores: and uh, but uh, as as we had reemerged from Co some things were going on, there was, uh, a lot of supply chain constraints, uh, a lot of chaotic environment, bit of inflation, we were putting up really strong numbers, but in all frankness

Dan Flores: It wasn't a year that felt good.

Daniel Florness: And what didn't feel good was it didn't feel like the organization was aligned. And, and even worse than that, it felt like we had lost some humility, humility in the organization in that over the prior several years, and, and maybe it was masked a little bit, because of COVID, maybe the fact that we weren't, you know, keeping each other in check, because in life, we all need life partners, whether it's business partners, or in my case, my, my, my wife, who tells you when you're full of it once in a while, and keeps us all humble.

Dan Flores: And uh, and I've known Jeff for uh, for 30 years, we're close to 30 years and we were having a lot of discussions about what we're seeing. I was having a lot of discussions with other leaders in the organization.

Dan Flores: And what, what didn't feel good was, it didn't feel like the organization was aligned.

Daniel Florness: But it felt like we had, we'd lost some of it.

Daniel Florness: And so we made some change, we started making some changes late in 2022. And that continued as we moved into 2023.

And and and even worse than that, it felt like we had lost, some hum humility in the organization, um, in that over the the prior several years and and maybe it was masked a little bit, uh, because of Co maybe the fact that we weren't, you know, keeping each other in check. Because in life, we all need life Partners. Whether it's business partners or in my case my my uh, my wife who uh, tells you when you're full of it once in a while and and and keeps us all humble. Um, but it felt like we had, we had lost some of it. And so we made some change, we started making some changes late in 2022.

Daniel Florness: I asked Jeff to step out of his existing role and step it step into the chief sales officer role. I challenged him on some on some ways to think about the sales side of the organization, true to his nature, he took that and with a really strong team. Ask some folks to step in some different roles. And I'm really pleased to say that the changes they made felt good at the time, and they feel even better now as we're going through 2025.

Speaker Change: And that continued as we moved into 2023. Um, I asked Jeff the, the step out of his existing role and step step into the chief sales officer role.

Speaker Change: I uh, um, challenged him on some on some ways to think about the sales side of the organization, true to his nature. He took that and with a really strong team,

Speaker Change: Asked them folks to step in some different roles.

Daniel Florness: So, last fall, as I mentioned earlier, we named Jeff Watts president and reshuffled the deck a little bit more. And again, really, really pleased to see the outcome of those changes. last late last year at in our annual leadership meeting I shared with a few folks yeah Jeff's going to open the earnings call in July so it'd make it a it'd make it a lot easier for him. If we could put up a strong quarter, because it makes the call just a lot easier makes the q&a a lot easier. And so true to form. The team rose to the occasion and put up an excellent quarter and I'm proud of the entire organization.

And I'm really pleased to say that the changes they made felt good at the time, and they feel even better now as we're going through 2025.

Speaker Change: So uh last fall, as I mentioned um earlier we we named uh uh Jeff Watts president and uh and and and reshuffled the deck a little bit more and again really really pleased to see the the the outcome of those changes.

Speaker Change: um,

last late last year at um, in our annual leadership meeting. I I shared with a few folks, yeah, Jeff's going to open the earnings call in July. So it'd make it a, it'd make it a lot easier for them.

if we could put up a a strong quarter because it makes the call just a lot easier, it makes the Q&A a lot easier and so uh true to form

Daniel Florness: My only comments to Jeff and also to Cheryl coming into this call were make sure you slow down when you talk. Enjoy it and just tell our story. On on page four, Jeff shared some stats on that page. We have regular calls throughout the year with our district leadership A district leadership as well as our regional leadership. But in those district calls, we lead into it or give them some instruction ahead of time to talk about how the organization helps you, what helps you the most that we do, what hinders you the most in what we do in supporting you, and quite frankly, slowing you down.

Speaker Change: Uh, the team Rose to the occasion and put up, an excellent quarter. And I'm, I'm proud of the entire organization. My only comments to to Jeff and also to Cheryl coming into this call were uh, make sure you slow down when you talk.

Speaker Change: Enjoy it and just tell her story.

Speaker Change: On on page 4 Jeff shared some stats. On that page we have regular calls throughout the year.

Speaker Change: With our district leadership.

Speaker Change: A district leadership, as well as our regional leadership. But in those districts, we we, we, we, we lead into it or give them some instructions ahead of time, to talk about how the organization helps you. What, what helps you the most that we do? What hinders you the most?

Daniel Florness: It's a great way to challenge both directions in the firm inside and out. And we provide these types of statistics that you see on page four. One one thing that you'll you'd see if you were inside the four walls of the organization is that the closer we get to the action, the shorter the time frame. So if you're having a conversation district manager, we look at this and Jeff mentioned that we look at we look at these customer site performance statistics on a monthly basis. In our quarterly calls, we talk about it on a quarterly basis, because we think it's more relevant to the discussion.

Speaker Change: And what we do and supporting you. And and and and quite frankly, slowing, you down, it's a great way to challenge. Both directions and the firm inside and out.

Speaker Change: And and we provide these types of Statistics that you see on page 4 um 1 1 thing that you'll you'd see if you were inside the 4 Walls of the organization.

Speaker Change: Is that the closer we get to the action and the shorter the time frame?

Speaker Change: So if if you're having a conversation district manager, we look at this and Jeff mentioned it. We look at we look at these customer site performance statistics on a monthly basis

Daniel Florness: And as we did in our March Investor Day, and what I expect we'll do in our in our annual filings, is we'll talk about it on an annual basis to really talk about what it means. But regardless of the timeframe you're looking at, It's about what are the trends in the business. And what are driving the trends and how much of that is coming from the tide is lift is rising? And we're rising faster or not as fast, or the tide is stagnant or dropping, but we're performing. What I'm really pleased about this quarter is.

Speaker Change: In our quarterly calls, we we talked about it on a quarterly basis because we think it's more relevant to the discussion and and as we did in our March investor day. And and what I expect will do in our, in our annual filings is, we'll talk about it on an annual basis to really talk about what it means. But regardless of the time frame, you're looking at

Speaker Change: It's about what are the trends in the business.

Speaker Change: And what are driving the trends. And how much of that is coming from the tide? Is Lyft is rising.

Daniel Florness: Our numbers didn't change as we moved through 2025. because the tide is rising. I will say it has stabilized in our business. Last year, the last two years, quite frankly, you know, in the fall of 2022, the PMI really dropped and it's been sub 50 pretty much ever since, after a couple of months. And but what's changed is it's it's stabilized, but our execution has dramatically changed. And I feel like the organization is really aligned. And I believe it shines through on page four of our flip book. Going to page five, Jeff already touched on the daily sales rate, growth rate.

Speaker Change: And we're Rising faster or not as fast or the tide is, uh, um, stagnant or dropping. But we're performing what I'm really, uh, pleased about this quarter is

Our numbers didn't change as we move through 2025.

Speaker Change: Because the tide is rising.

I will say it has stabilized in our business.

Speaker Change: Um, last year, last 2 years, quite frankly, you know, in the fall of 20 22, the PMI really dropped and it's been sub 50 pretty much ever since absent, a couple months.

And but what's changed is, it's it's stabilized. But our execution has dramatically changed and I feel like the organization is really aligned, and I believe it shines through on page 4 of our flip book.

Speaker Change: Going to page 5 Jeff already touched on the daily sales rate.

Daniel Florness: For the quarter, we came in at 29 cents, EPS rose 12.7% from a year ago. One of the an under the hood story within the quarter. is a change we made in mid 2024 to undo a decision that had been in the works for a few years and that related to our stocking and distribution. of Fasteners. where it's really wide, you know, part of the person I've learned from the most, I mean, learned a ton from Bob Curlin learned a ton from the fast organization. One of the persons I've learned the most from over my career fast now is Nick Lung.

Speaker Change: Growth rate. Um, for the quarter we we came in at 29 cents, um, EPS rose 12.7% from a year ago.

Speaker Change: 1 of the

Speaker Change: Uh, in un and Under the Hood story within the quarter.

Speaker Change: Is a change. We made in mid 2024.

Speaker Change: Undo, a decision that had been in the works for a few years and that related to our stocking and distribution.

Speaker Change: Of fasteners.

Daniel Florness: And when Nick led supply chain and distribution, he always had a comment, he felt their job was to keep the trucks full. And what that meant is support the branch and onsite network in any way you can to give them hours in the And we pulled away from that after Nick had stepped out of that role for a few years, and we weren't stocking as deep as we should have been. And our supply chain team really dug into it and studied the branch and onsite activity. And we began ramping up our investments where we where we get a nice And we did that in the tail end of 2024 coming into 2025.

Speaker Change: Where it's really wide, you know, probably the person I've learned from the most. I mean, I've learned a ton from Bob Kurland, learned a ton from the fast organization, 1 of the persons. I've learned the most from over my career fast now is Nick Lunas.

Speaker Change: And when Nick LED supply chain and distribution, he always had a comment, he he felt their job was to keep the trucks full.

Speaker Change: And and what that meant is support the branch and on-site Network in any way you can to give them hours in the day.

Speaker Change: And we'd pulled away from that after. Nick had stepped out of that role for a few years and we weren't stocking as deep as we should have been.

And our supply chain team really dug into it and studied the branch and on-site activity.

And we began ramping up.

Speaker Change: Our investments where we where we get a nice return.

Daniel Florness: And this morning on our call with our regional leaders, I really challenged that group. to understand what that's done to your business. not just in revenue or margin. But an effort as you look at how many POs have dropped, and it gives hours in the day to our folks in the field in a huge, huge win. moving down the P&L the I'm pleased to say we leverage RSG&A. and as a consequence, put up 21% operating margin for the quarter. The, the only component of SG&A that we didn't leverage in the business, and our customers going forward, is the fact that everybody in the organization takes it on the when our performance suffers.

Speaker Change: And we did that in the tail end of 2024 coming into 2025 and this morning on our call with our regional leaders. I I really challenge that group

Speaker Change: to understand what that's done to your business.

Speaker Change: Not just in revenue or margin.

Speaker Change: but in effort, as you look at how many P's have dropped,

Speaker Change: And it gives hours in the day to our focus, in the field in a huge, huge win.

Moving down the pnl.

The uh I'm I'm pleased to say we leveraged

Speaker Change: Rsga.

Speaker Change: and and as a consequence, put up, 21% operating margin for the quarter,

The uh, the only component of sgna that we did in lever.

Speaker Change: Was bonus and commission. And I think it's Dave, mansy a number of years ago, used the phrase shock absorbers in our system. And, you know, on the way down what what helps us. Preserve our p&l. And frankly, preserve our ability to invest

In the business, and our customers going forward is the fact that everybody in the organization takes it on the chin.

Daniel Florness: So in 23 and 24, there were a lot of people in Fastenal that took pretty extreme pay And I'm pleased to say in the quarter, one of the things that that ate away some of our ate away at some of our leverage was the fact that our bonus pools expanded nicely, and we're able to celebrate and reward the team for what they've been doing the last two years. If I if I think about that operating margin, I'm really pleased to say our incremental margin for the quarter came in exactly at 30%. Again, a strong showing.

When our performance suffers. So in 23 and 24. There were a lot of people in Fastenal that took pretty extreme pay cuts.

Speaker Change: And I'm pleased to say in the quarter, 1 of the things that that ate away, some of our 80 away at some of our leverage, was the fact that our bonus pools expanded nicely, and we're able to, to celebrate and reward the team.

Speaker Change: For what they've been doing the last.

Speaker Change: 2 years.

Daniel Florness: And as you saw in the last week, we announced dividend payable in third quarter of 22 cents. We remain confident in our ability to generate cash flow to support the business and to support the dividend that we expanded in 2025.

Speaker Change: That again a strong feeling and as you saw end of last week, we announced a dividend payable and third quarter of 22 cents.

Daniel Florness: go on to page six. The FMI technology, little softer that we're seeing. And if I if I look at it, you know, in 2025, The contrast of 2024 is in 2024 we were hitting hard with converting a lot of existing customers. with the FMI technology with RFID, where you have a Kanban system, we're implementing that, that was extremely successful in 2024. And it reflected both new customer signings, but also again, the conversion of existing customers. That softened a little bit as we looked at this quarter, even our vending softened a little bit. Part of that is a function of how many we converted last year.

Uh, we remain confident in our ability to generate cash flow to support the business and to support the dividend that we expanded in 2025.

Speaker Change: Going to Page 6.

Speaker Change: The uh, FMI, uh, technology. A little softer that we're seeing. And if I, if I look at it, you know, in 2025

Speaker Change: The contrast of 2024.

Speaker Change: Is in 2024. We were hitting hard with converting a lot of existing customers.

Speaker Change: with the FMI technology related RFID, where we have a kanban system where implementing that that was extremely successful in 2024 and it reflected, both new customer signings but also again the conversion of existing customers

Speaker Change: That softened a little bit as we looked at this quarter. Even our vending soften a little bit.

Daniel Florness: Our holy grail has always been to keep that number above 100 a day. And in quarter we were at 101. There's a lot of conversations going on around that little thing called tariff. And there's a finite amount of energy in the room. And sometimes something's got to give. And I think what gave this quarter is all those discussions meant there were there were fewer discussions about expanding the FMI footprint. And our challenge to our team is we have to keep moving that forward. Despite all that, we ended the quarter with just over 132,000 devices installed at the equivalent weighted devices, 132,000 installed across the planet.

Speaker Change: Part of, that is a function of how many we converted last year. Our, our Holy Grail has always been to keep that number above 100 a day.

And in the quarter, we were at 101.

Speaker Change: There's a lot of conversations going on around that little thing called tariffs.

Speaker Change: And there's a finite amount of energy in the room.

Speaker Change: And sometimes something's got to give. And I think, what gave this quarter is all those discussions Mentor, there were fewer discussions about expanding the FMI footprint.

And our challenge to our team is we have to keep moving that forward, despite all that.

Daniel Florness: And that's almost an 11% increase. and what we had at the end of June last year. So that puts our FMI at 44.1% percent of sales. And we believe ultimately that number can get to about 65% where there's enough repetition with a customer that's large enough where you can install that. And so two years ago, that number was in the 30s. So continue to see that expand nicely. Because of the number being down slightly, we see the signings for the year coming in somewhere between 25 and 26,000 MEUs. Again, a great number, a number we would have killed for not too many years ago.

We uh ended the quarter with just over 132,000 devices installed at at the equivalent weighted devices 132,000 installed across the planet.

And that's almost an 11% increase.

Speaker Change: In what we had at the end of June last year.

So, uh, that puts our

Speaker Change: FMI at 44.1% percent of sales. And we believe ultimately that number can get to about 65% where there's enough repetition.

Speaker Change: With a customer, that's large enough. Where you can install that investment

Daniel Florness: And so a successful. But we want to get that number up a little bit higher, not just above 100, but a little bit deeper into the eBusiness grew 13.5%. I'm pleased to say for the first time ever, we broke 30% of sales and as we exited the quarter, well for the quarter, so excellent performance there. And I believe we have a lot of runway on that piece as we continue to improve our ecommerce capabilities. And finally, if you take those two and combine them, 61% of our sales fell under our digital footprint, that number was in the mid-50s two years ago, and our goal is to exit the year somewhere between 63 and 64%.

And so um 2 years ago, that number was in the 30s. So continue to see that expand nicely because of the the number being down slightly. We see the uh, the signings for the year coming in somewhere between 25 and 26,000 meus. Again, a great number. A number we would have killed for not too many years ago. And so I successful

Speaker Change: But we want to get that number up a little bit higher, not just above 100, but a little bit deeper into the hundreds.

E-Business um grew 13 and a half percent. I'm pleased to say for the first time ever. We broke 30% of sales and the

Um, as we exited the quarter well for the quarter, so uh, excellent performance there and I believe we have a lot of runway on that piece as we continue to to improve our e-commerce capabilities. And finally if you take those 2 and combine them,

Speaker Change: uh,

Speaker Change: 61% of our sales.

Daniel Florness: Page seven is the new one for the group. Frankly, it's a new one for us six months ago. And Kevin Fitzgerald was involved in our pricing efforts back in 2018 when some of the initial tariffs were going on. And at the time, we shut down our IT group for three months and built a system to track this.

Fault fell under our digital footprint. That number was in the mid-50s 2 years ago. And our goal is to exit the year somewhere between 63 and 64%.

Speaker Change: Page 7 is, is the is a new 1 for the group.

Speaker Change: Frankly, it's a new 1 for us 6 months ago.

and,

Kevin Fitzgerald. Um, was involved in our pricing, efforts back in 2018.

Speaker Change: When uh, some of the initial tariffs were going on. And at the time, we shut down our it group for 3 months.

Daniel Florness: And be in a position or we we convey insightful information to our customer about what we're seeing, and, and more importantly, what to expect, and what that might mean to give them time and options to pivot on their own supply And, and so when when the the tariff activity started ramping up, I said, I said to Kevin, Can you start producing a video for the field? convey order to the chaos, and try to simplify it as much as you can. And what you're seeing here is, in essence, a rolled up version of the slide deck that Kevin uses in those call in those videos, and I think he's produced 13 or 14.

Speaker Change: And built a system to track this.

Speaker Change: And be in a position where we, we could convey insightful information to our customer about what we're seeing and and more importantly what to expect and what that might mean to give them time and options to Pivot on their own supply chain.

and and so, when, when the the the, the, the Tariff, uh, activity started ramping up, I said, I said to Kevin

Speaker Change: Can you start producing a video for the field?

Speaker Change: To convey.

Speaker Change: Order to the chaos and try to simplify it as much as you can. And what you're seeing here is is in essence a rolled up version.

Daniel Florness: To date, it seems like about every other Friday, there's new video coming out, maybe it's more frequently than that. But what we do here is try to simplify it for the field, but also for the folks in supply chain. So when you start looking at that, that fourth column where it says, is it eligible for duty drawback? That's a really important distinction because we bring product into North America for North America. And if all of a sudden there's a 25 or a 10 or a 15 or whatever percent tariff being applied on product and you bring it into the US and then you subsequently move it into Canada or Mexico You've created an inefficient supply chain.

Of the slide deck that Kevin uses in those call in those videos. And I, I think he's produced 13 or 14 to date. Um, it seems like about every other Friday. There's a new video coming up. Maybe it's more frequently than that.

Speaker Change: but uh what we do here is try to simplify it for the field but also for the folks in supply chain

Speaker Change: Fourth column where it says, is it eligible for Duty drawback? That's a really important distinction because we bring product into North America,

For North America.

And if all of a sudden, there's a 25, or a 10, or a 15, or whatever percent tariff,

Speaker Change: Being applied on product and you bring it into the us and then you subsequently move it into Canada or Mexico.

Speaker Change: You've created an inefficient supply chain.

Daniel Florness: for your customer, even if it is the most efficient way to move the product. So as we move through 2025, we've been redirecting more and more product to come directly into Canada, where the economics justify it. And this is primarily on the fast and the same thing in New Mexico. The downside is it is a more expensive supply chain. because you do spend, when you're breaking down shipments and you're sending them into multiple ports. It is more expensive to go into the West Coast of Canada with a with a with a import for just Canada than it would be to bring them into the US.

Speaker Change: For your customer even if it is the most efficient way to move the product.

So, as we move to 2025, we've been redirecting more and more product to come directly into Canada, where the economic justify it, and this is primarily on the faster side.

Speaker Change: And the same thing in the Mexico.

Speaker Change: The downside is, it is a more expensive supply chain.

Because you do spend when when you're breaking down shipments and you're sending them into multiple ports.

Daniel Florness: but it's a but it's less than 25 45 or 50%. And so you make that decision, but you convey that to your customer what we're doing, because our covenant is to manage your supplies.

It is more expensive to go into the west coast of Canada with a with a, with a import for just Canada than it would be to bring them in through the US.

Speaker Change: But it's a but it's less than 25.

Speaker Change: 45, 455 or 50%.

Speaker Change: And so you make that decision, but you convey that to your customer what what we're doing.

Daniel Florness: So hopefully this brings some clarity to what what we approach with with tariffs and how we convey it. Our goal isn't to be the best organization. at adjusting price. Our goal is to be the best organization. managing supply chain for our and being agile to benefit them. and their ultimate customers downstream.

Speaker Change: Because our covenant is to manage your supply chain.

Speaker Change: So hopefully this brings some clarity to what what we approach with uh, with tariffs and how we convey it. Our goal isn't to be the best organization.

At adjusting pricing.

Speaker Change: Our goal is to be the best organization.

Speaker Change: At managing supply chain for our customer.

Speaker Change: And being agile to benefit them.

Cheryl Lasowski: on the most efficient supply chain to get them what they need when they need With that, I'll turn it over to Carol.

Speaker Change: And their ultimate customers Downstream.

Speaker Change: On the most efficient supply chain to get them, what they need when they need it.

Cheryl Lasowski: Thanks, Dan.

Cheryl Lasowski: And good morning, everyone. Turning to slide eight. Sales in the second quarter of 2025 were up 8.6%. That's our strongest daily sales rate since the first quarter of 2023. And as Jeff mentioned, it's also our first quarter above $2 billion in sales. Feedback from the regional leadership continues to reflect sluggish and market demand despite generally favorable outlook. Trade Policy continues to create some caution. Notwithstanding this uncertainty, we did not detect any meaningful pre-buying ahead of tariff.

With that, I'll turn it. I'll turn it over to Cheryl.

Cheryl Lasowski: Thanks Dan and good morning everyone.

Cheryl Lasowski: Turning to slide 8.

Cheryl Lasowski: Sales in the second quarter of 2025, we're up 8.6%. That's our strongest daily sales rate since the first quarter of 2023. And as Jeff mentioned, it's also our first quarter above 2 billion in sales

Feedback from the regional, leadership continues to reflect sluggish and market demand. Despite generally favorable outlooks.

Cheryl Lasowski: In the absence of much external help, the improvement in our sales reflects two other variables. First, even as the market has stabilized, our comparisons have gotten easier, particularly in the cyclical parts of our business. This factor helped produce our second quarter of growth for fasteners since the first quarter of 2023, and acceleration in manufacturing and marketing. Second, contributions from our strong contract signings over the past six quarters continues to build. We continue to experience a healthy pace and mix of signings in the second quarter of 2025 and our total national, regional and government contracts has grown at a double digit rate for 15 consecutive months.

Trade policy continues to create some caution. Notwithstanding this uncertainty, we did not detect any meaningful pre-b. Buying ahead of tariffs,

Cheryl Lasowski: in the absence of much external, help the improvement in our sales, reflects 2, other variables,

First even as the market has stabilized, our comparisons have gotten easier, particularly in the cyclical parts of our business.

Cheryl Lasowski: This factor helped produce our second quarter of growth. And for Fasteners, since the first quarter of 2023 and acceleration in manufacturing and markets,

second contributions from our strong contract signings over the past 6, quarters continues to build.

Cheryl Lasowski: The quarterly sales growth rate is a fair representation of our performance, and we did see acceleration through the period.

Cheryl Lasowski: We continue to experience a healthy pace and mix of signings in the second quarter of 2025 and our total National Regional and government. Contracts has grown at a double digit rate for 15 consecutive months.

Cheryl Lasowski: It was a solid self-help driven result in a soft market.

Cheryl Lasowski: The pricing outlook also warrants some discussion. Year-to-date, significant tariffs have been applied to products from China as well as steel, including steel-derived products like fasteners on a global basis. We continue our long-term trend on diversifying our supply chain where possible to the size and timing of our suppliers' pricing actions, and we added some inventory to our own balance sheet. That said, supply chains have gotten more expensive, and a part of our response over time will be incremental pricing. We have been proactively engaging with our customers for several months. During the second quarter, we implemented three separate pricing actions, which aim to contribute three to four percent of price by the end of the second quarter of 2025.

The quarterly sales growth rate is a fair representation of our performance and we did see acceleration through the period. It was a solid self-help driven result in a soft Market.

The pricing Outlook also warns some discussion year to date. Significant tariffs have been applied to products from China, as well as steel including steel, der derived products, like Fasteners on a global basis.

Cheryl Lasowski: We continue our long-term trend on diversifying our supply chain, where possible to the size and timing of our suppliers pricing actions and we added some inventory to our own balance sheets.

Cheryl Lasowski: That said, Supply, chains have gotten more expensive and a part of our response over time will be incremental pricing.

We have been proactively engaging with our customers for several months.

Cheryl Lasowski: The phased approach to this rollout resulted in 140 to 170 basis points of additional impact in the second quarter, with momentum building as we ended the quarter. Additional pricing actions will be necessary in the second half of 2025 with the potential to double the impact of pricing, depending upon where the deferred tariffs ultimately settle and the pace and execution of our action. We are encouraged by the easier comparisons, the improved sentiments and particularly our internal momentum. That said, we have limited visibility and share our customers uncertainty over how current trade policy may impact demand over the course of 2025.

Cheryl Lasowski: During the second quarter, we implemented 3, separate pricing actions, which aim to contribute 3 to 4% of price, by the end of the second quarter of 2025.

Cheryl Lasowski: The phased approach to this rollout, resulted in 140 to 170 basis points of additional impact in the second quarter with momentum building as we ended the quarter.

Additional pricing actions will be necessary in the second half of 2025, with the potential, to double the impact of pricing, depending upon where the Deferred tariffs ultimately settle. And the pace and execution of our actions.

We are encouraged by the easier comparisons the improved sentiment and particularly our internal momentum.

Cheryl Lasowski: However, Fastenal has historically been able to win market share during periods of disruption on the strength of our nimble sales, our frugal and adaptive culture and the weight of the technologies and global supply chain resources we can apply to finding solutions to customer challenges. This is our expectation in the current environment.

Cheryl Lasowski: That said we have limited visibility and share, our customers uncertainty over how current trade policy may impact demand over the course of 2025.

Cheryl Lasowski: Moving on to slide nine. Operating margin in the second quarter of 2025 was 21%, up 80 basis points year over year. Growth margin in the second quarter of 2025 was 45.3, up 20 basis points from the year ago period. The improvement was driven by price cost being slightly favorable, margin on fastener sales improving due to the fastener expansion project, and improvements related to other supplier focused initiatives. These improvements were partially offset by customer and product mix dilution, higher import duty fees, and higher fleet and third party transportation costs. Customer and supplier incentives were also a slight drag.

Cheryl Lasowski: To finding solutions to customer challenges. This is our expectation in the current environment.

Cheryl Lasowski: Moving on to slide 9, operating margin in the second quarter of 2025 was 21% up. 80 basis points year-over-year

Cheryl Lasowski: Growth margin in the second quarter of 2025 with 45.3 up 20 basis points from the year ago period.

Cheryl Lasowski: The Improvement was driven by Price cost being slightly favorable margin on Fastener sales. Improving due to the Fastener Expansion Project and improvements related to other supplier focused initiatives

Cheryl Lasowski: These improvements were partially offset by customer and product mix dilution, higher import Duty fees and higher Fleet and third-party Transportation costs.

Cheryl Lasowski: We anticipate our gross margin for 2025 will be relatively flat with 2024. This will be dependent upon our effectiveness and managing price costs. And the degree of macro improvement will also include influence this scenario. SG&A was 24.4% of sales in the second quarter of 2025, down from 24.9% from the year-ago period. Employee-related expenses increased faster than the rate of growth in sales, largely due to the reset of bonus and commission programs due to improved financial performance. This increase was partially offset by leverage achieved and all other SG&A costs.

Cheryl Lasowski: Customer and supplier incentives were also a slight drag.

We anticipate our gross margin for 2025 will be relatively flat with 2024.

This will be dependent upon our Effectiveness and managing price costs.

Cheryl Lasowski: And the degree of macro Improvement, will also include influence the scenario.

Cheryl Lasowski: Sgna was 24.4% of sales in the second quarter of 2025 down from 24.9, from the year ago, period.

Cheryl Lasowski: Employee related expenses increased faster than the rate of growth in sales largely due to the reset of bonus and commission programs.

Cheryl Lasowski: We continue to invest in key areas of our business to support growth while managing other costs more tightly to reflect the sluggish business conditions.

Cheryl Lasowski: Putting it all together, we reported first quarter 2025 EPS of 29 cents up from 25 cents in the second quarter of 2024. Reminder, we executed a two for one stock split in May of 2025. The prior year EPS has been adjusted for this change. Now turning to slide 10, we generated $279 million in operating cash in the second quarter of 2025, or 84.4% of net income. Despite our investment in inventory, cash generation was above traditional second quarter levels. The five-year average from 2020 to 2024 was 83.7%. We remain comfortable with the cash generation of our model and continue to carry a conservatively capitalized balance sheet with quarter-end debt being 5.7% of total capital.

Cheryl Lasowski: Due to improved financial performance, this increase was partially offset by leverage achieved in all other sgna costs. We continue to invest in key areas of our business to support growth. While managing other costs, more tightly to reflect the sluggish B business conditions, putting it all together. We reported first quarter, 2025, EPS of 29 cents up from 25 cents in the second quarter of 2024.

Cheryl Lasowski: Reminder, we executed a 2 for 1 stock split in May of 2025. The prior year EPS has been adjusted for this change.

Cheryl Lasowski: Now, turning to slide 10 we generated 270 279 million in operating cash in the second quarter of 2025 or 84.4% of net income. The spider investment in inventory, cash generation was above traditional second quarter levels.

The 5-year average from 2020 to 2024 was 83.7%.

Cheryl Lasowski: Accounts receivable were up 9.9%, reflecting sales growth, relatively faster growth to larger customers that tend to carry longer terms, and an uptake in quarter-end deferred payments from our customers. Inventories were up 14.7% similar to the preceding quarter. We have increased inventory as part of our effort to improve product availability in our selling locations and improve picking efficiencies in our hubs. We have added stock to support customer growth and we accelerated some inventory schedule for future delivery into current periods ahead of potential tariffs. Inventory growth may remain elevated in 2025 as we continue to navigate tariffs and as more inflation builds in.

We remain comfortable with the cash generation of our model and continue to carry a conservatively capitalized, balance sheet with quarter and debt, being 5.7% of total capital.

accounts receivable were up 9.9% reflecting sales growth relatively faster growth to larger customers, that tend to carry longer terms,

And an uptake in quarter end, deferred payments from our customers.

Cheryl Lasowski: Inventories were up 14.7% similar to the preceding quarter. We have increased inventory as part of our effort to improve product, availability in our selling locations and improved picking efficiencies in our hubs.

We have added stock to support customer growth and we accelerated some inventory schedules for future delivery into current periods. Ahead of potential tariffs.

Cheryl Lasowski: Accounts payable were up 9.1%, reflecting the increase in inventories. Net capital spending in the second quarter of 2025 was $64.3 million, up from $52.6 million in the second quarter of 2024. This increase is consistent with our expectations for the full year, where we anticipate capital spending in a range of $250 million to $270 million, up from $214 million in 2024. This increase is from higher FMI device spending, higher IT spending, which includes projects aimed at developing additional digital capabilities and distribution center outlays to reflect spending on our Utah and Atlanta hubs and automated picking additions across our hub network.

Cheryl Lasowski: inventory growth May remain elevated in 2025 as we continue to navigate tariffs and as more inflation builds in

Cheryl Lasowski: Accounts payable we're up 9.1% reflecting the increase in inventories.

Cheryl Lasowski: Net, capital funding is the second in the second quarter of 2025 with 64.3 million up from 52.6 million in the second quarter of 2024. This increase is consistent with our expectations for the full year, where we anticipate Capital spending in a range of 250 million to 270 million up from 214 million in 2024.

Cheryl Lasowski: This increases from higher FMI device, spending higher it spending which includes projects aimed at developing additional digital capabilities.

Operator: With that operator, we'll turn it over to begin the Q&A. Thank you. We're now conducting a question and answer session.

And distribution center outlays to reflect spending on our Utah and Atlanta, hubs, and automated picking additions across our Hub Network.

Speaker Change: With that operator, we'll turn it over to begin the Q&A.

Operator: If you'd like to be placed in the question queue, please press star one on your telephone keypad. As a reminder, we ask you please ask one question, one follow up, then return to the queue.

David Manthey: Our first question today is coming from David Manthey from Barridge, Rhine is now live. Thank you. Good morning, everyone. My first question, I'm hoping to better understand contribution margins with the 10,000 plus per month customers over time. Could you discuss the evolution of profitability as those relationships mature and grow? Dave, if you think about the onsite business that we've talked about in the past, That's really a good proxy for the contribution margins from the 50k plus. If you if you if you take that down a step and you go to the 10k plus it, it, you know, it aligns actually a lot closer with the historical context.

Speaker Change: Thank you. Without the conducting a question and answer session. If you'd like, to be placed into the question queue, please press star 1 on your telephone keypad. As a reminder, we ask you, please ask 1 question 1 follow-up. The return to the queue

Our first question today is coming from David manty from beard. Your line is now live.

Speaker Change: Uh thank you. Yeah, good morning everyone. Um my first question I'm hoping to better understand contribution margins with the 10,000 plus per month customers over time could you discuss the evolution of profitability as those relationships mature and grow?

Dave, if you think about, um, the on-site business that we've talked about in the past,

Speaker Change: That's really a good uh, proxy for the contribution margins from the 50k. Plus

Speaker Change: if you, if you, if you take that down a step and you go to the 10K, Plus

Jeff Watts: and and because because what's different there is the gross margin is not that it is Can you challenge the company number a little bit? Not too much, but a little bit. But the SG&A leverage is much better. Because one of the things that you've seen over the last, you know, five, six years, actually over the last decade, as we rationalized our branch network. and more of a lot of business, both the onsite and also the large customers served out of a branch, because we're indifferent to where to how it gets served. We wanted the local team to make the best decision.

Speaker Change: It, you know, it it aligns actually a lot closer with the historical company.

and uh and uh because because what's different, there is the gross margin is not the is

Speaker Change: Um, can challenge the the company number a little bit.

Not too much, but a little bit.

Speaker Change: But the sgna Leverage is much better.

Speaker Change: Because 1 of the things that that you've seen over the last, you know, 5, 6 years actually over the last decade, as we rationalized our Branch Network.

Speaker Change: And more of a lot of business, both the on-site. And also, with the large customers served over Branch, because we're indifferent to where to how it gets served.

Jeff Watts: But what you saw was an incredible leaning down of our operating expense. in the in the biggest two drivers of that People Centered, and Occupancy Centered were the two biggest drivers that were that were variable. So contribution margin actually for a lot of the a lot of the 10k plus customers It looks a lot like the company. And intuitively, the best way to prove that out is, you know, that 10k plus group It's almost 80% of sales. So it really shines through a lot of the underlying.

Speaker Change: Um we wanted the the local team to make the best decision, but what you saw was an incredible leaning down of our operating expenses.

Speaker Change: In the in the biggest 2 drivers of that.

Where people centered and OCC. In occupancy, centered were the 2. Biggest drivers that were that were variable. So contribution margin actually for

a lot of the, a lot of the 10K plus customers,

Speaker Change: Um, it looks a lot like the company and intuitively the best way to prove that out. Is, you know, that 10K plus group.

Daniel Florness: Hope that answers your question. Yeah, yeah, thank you. That does. And then second, when you discuss the inventory investment, you say you expect that to pay off in the back half. Does that imply that you're expecting a higher mix of fasteners or, or maybe you just help clarify that statement? If I would read that a little bit differently. And if we weren't crisp with our with our press release that's on me. It's been paying off in the first It's been it's been very attractive from the standpoint, the revenue and the gross profit dollars in in and of itself is really attractive.

Speaker Change: It's almost 80% of sales. So it it really shines through a lot of the underlying organization. Hope that answers your question.

Speaker Change: Yeah, yeah. Thank you that does. Um and then second when you discuss the inventory investment, you say, you expect that to pay off in the back half, um, does that imply that you're expecting a higher mix of Fasteners or, or maybe you could just help clarify that statement?

If if um I I would read that a little bit differently and if we weren't crisp with our with our press release, that's on me. Um,

It it's been paying off in the first half.

Daniel Florness: The nice piece that's harder to measure is what does that freed up time mean? I think a lot of it shines through, and Jeff touched on that when he looked at that page of the customer categories and the success we're seeing. If if I have more hours in the day, more hours in the week to engage with my customer, there's a there's always more ways we can help. It just sometimes you don't have time to get to that third thing or fourth thing. And and freeing up that cutting appeals really help. So it's been it's providing an attractive return.

Speaker Change: It's been, it's been very attractive from the standpoint, the revenue and the gross profit dollars in in and of itself is really attractive. The, the, the, the the, the nice piece that's harder to measure.

Speaker Change: Is what is that freed up, time mean?

As far as what our our teams can do. I think, I think a lot of it shines through and Jeff touched on that when he looked at that page of of the customer categories and the success we're seeing it.

Daniel Florness: right out of the What what happens as we move into into the latter half of this year into 2025 There is some rationalization we can do. Because by putting by deepening that inventory in our distribution network The one challenge we always put in front of our supply chain team is Because they're aligned with our distribution centers, some historically they could sometimes get caught in that trap of they would look at Our hub inventory, our hub supply chain, and feel really good on what our fulfillment is out of distribution, and how many days of inventory we have on hand.

Speaker Change: If if if, if I have more hours in the day, more hours in the week to engage with my customer, there's a, there's always more ways we can help it. Just sometimes you don't have time to get to that, that third thing, or fourth thing, and, and bringing up that cutting appeal is really helped. So, it's been, it's been riding an attractive return.

Right out of the chute.

Speaker Change: What, what happens as we move into, uh, into the latter half of this year and into 2025.

Speaker Change: There is some rationalization we can do because by putting

Speaker Change: by deepening that inventory in our distribution Network.

Speaker Change: the 1 challenge, we always put in front of our supply chain team is

Um, because there are aligned with our distribution centers. Some historically, they could sometimes get caught in that trap of they, they they, they would look at

Speaker Change: Our Hub inventory.

Daniel Florness: But but a great supply chain leader looks at it from the standpoint What do we have in inventory? all the way from our supplier to the customer, and all the all the stopping points in between. And so if we take $10 million out of inventory, and it means we end up with $10 million in the branch network, or 15 million in the branch network, and we're cutting a lot of POs, that's not a smart decision. And so as we go through the second half of 2025 and in 2026, some of that inventory we've added, we're slowly raking that out of distribution.

Speaker Change: Our Hub supply chain and feel really good on what our fulfillment is out of distribution. And how much, how many days of inventory? We have half, we have on hand.

Speaker Change: But but a great supply chain leader, looks at it from the standpoint.

What do we have in in inventory?

Speaker Change: All the way from our supplier to the customer and all the all the stopping points in between. And so if if if we take 10 million dollars out of inventory and it means we end up with 10 million dollars in the branch Network or 15 million in the branch Network and we're cutting a lot of pose.

That's not a smart decision.

Daniel Florness: And so we believe the returns will improve. But on that piece, so when we talk about the latter half of 25 and 26, we're more referring to that, but we're getting the return on that inventory right That's great.

Speaker Change: And so as as we go through the second half of 20, 25 and in 2026. Some of that inventory we've added, we're slowly raking that out of distribution.

Speaker Change: And so we believe the returns will improve but uh, on on that piece. So when we talk about the latter half of 25 and the 26, we're more referring to that but we're getting the return on that inventory right now.

Daniel Florness: Thanks a lot, Dan. Thanks, Dave. Thank you.

Dan Flores: That's great. Thanks a lot, Dan

Ryan Merkel: Next question is coming from Ryan Merkel from William Blair. Your line is now live. Hey, everyone.

Speaker Change: Thank you. Next question, is coming from Ryan, Merkel from Williams. Their, your line is now live.

Ryan Merkel: Congrats on the quarter. I'll take the last part of that, but then I'll ask Cheryl to answer the first part of that. Yeah, as I mentioned in my commentary, we are expecting our margin for 2025 to remain essentially flat with 2020. The If you think of that faster expansion it The bigger part of it isn't the fact that we're buying it better. Although we probably are in 80% of the cases. And the reason I say that 80%, I qualified at all, is the fact that we went really deep in our analysis and we looked at some small levels of sales from a dollar standpoint and from the number of branches actually selling it in a 12 month period perspective.

Ryan Merkel: Hey everyone. Congrats on the quarter.

Thanks Ron.

Ryan Merkel: To get better and that's what helps the margins.

I'll take the last part of that but then I'll ask Sarah to answer the first part of that. Yeah. And as I mentioned in my commentary, we are expecting our margin for 2025 to remain essentially flat with 2024

the the, uh,

Ryan Merkel: um,

Ryan Merkel: if if you think of that faster expansion,

Ryan Merkel: It, it it. Um,

The bigger part of it.

Ryan Merkel: Isn't the fact that we're buying it better?

although we probably are in in 80% of the cases,

Cheryl Lasowski: So we went really deep and wide, excuse me, we went really wide. The what it does do, though, is there's a lot more MRO faster business in that Because the stuff that we're buying on a regular basis, whether we're buying that, sourcing that through our distribution and supply chain group, or locally at the branch or on site, that's a that's a that's a known spend. And our stocking level on Plan Span didn't change so It was unplanned spent. And so that actually has two benefits to it when you have it on the shelf. One is, you know, your cost quickly.

Ryan Merkel: um, and the reason I say that in 80, the 80% are qualified at all, is the fact that we went really deep in our analysis, and we looked at some small levels of sales from a dollar standpoint and from the number of branches, actually selling it in a 12-month period perspective. So, we went really deep and why, what, excuse me? We went really wide.

Ryan Merkel: The uh, what it does do though is there's a lot more mro faster business in that mix.

Because the stuff that we're buying on a regular basis, whether we're buying that sourcing that through our distribution and supply chain group or locally at the branch, or on site. That's a, that's a, that's a known spend and our stocking level.

Ryan Merkel: On plan span didn't change so much. It was, unplanned spent. And so that that actually, um, has 2 2 benefits to it when you have it on the Shelf,

Ryan Merkel: 1 is

You know your cost.

Daniel Florness: you can you can convey a sale price to your customer quickly. And so part of the win is a little extra revenue. of that type of product. And that product in love itself carries a better gross margin profile, because it's a spot by versus a plan by. And, and the reason that needs a little bit better gross margin profile It's just a lot of work. And so it takes a lot of labor. Now, if we can put a little bit of that product on the shelf, and leverage the labor up a little bit and get a little bit more those sales, the mix helps us, right?

Ryan Merkel: Quickly.

Ryan Merkel: You can you can convey a sale price to your customer quickly. And so part of the win is a little extra Revenue.

Ryan Merkel: of that type of product, and that product in and of itself, carries a better growth margin profile because it's a spot by

Ryan Merkel: Versus a plan by.

Ryan Merkel: And and the and the reason that needs a little bit better, growth bars and profile.

Ryan Merkel: Is it's a lot of work.

Ryan Merkel: And so it takes a lot of labor. Now if we can put a little bit of that product on the shelf and leverage the labor up a little bit and get a little bit more. Those sales, the mix helps us write.

Ryan Merkel: Okay, that makes sense.

Daniel Florness: And then my second question is just on the sales outlook. The contract signings were really impressive. I guess my question is, Dan or even Jeff, what's your confidence level in achieving double-digit sales growth in the second half of 25? Because it seems like the pipeline is there and then Cheryl talked about more price. Yeah, I think that when I look through it, and I look at our pipeline today, there's no reason for me to say that we won't be in that category of double digit moving forward for the rest of the year. Everything is becoming very strong across our every category we have, especially in our pipeline of contracts.

Okay, that makes sense. Um, and then my second question is just on sales Outlook. Uh, the contract signings were really impressive. I guess my question is Dan or, or even Jeff? What's your confidence level in? Achieving double digits, sales growth in the second half of 25, because it seems like the pipeline is there. And then Cheryl talked about more pricing.

Operator: So confident with that level of All right, thanks. Pass it on. Thank you. As a reminder, that's star one to be placed into the question key.

Speaker Change: Yeah, I I think the um, when I looked through it and I look at our pipeline today, um, there's no reason for me to say that we won't be in that category of double digit. Moving forward for the rest of the year. Everything is becoming very strong across our uh, every category. We have especially in our pipeline of contracts. So confident with that level at this point.

All right, thanks, that's it on.

Operator: Our next question is coming from Stephen Volkmann from Jeopardy! Shoreline is now live.

Thank you as a reminder that star 1 to be placed into question Q. Our next question is coming from Steven vulkar from Jeopardy. Sure Line is now live

Operator: No. Perhaps your phone is on mute.

Speaker Change: Hello.

Speaker Change: Steve of raptor. Phone is on mute.

Tommy Moll: Our next question is coming from Tommy Moll from Stevens. Your line is now live. Good morning, and thank you for taking my questions. Morning. Dan, I believe it was in your prepared remarks, you mentioned some enhancements for the Fastenal.com channels that are coming. And in part, those are an attempt to improve capture of the spot by purchases. Maybe just give us a little more insight there. And if there's any way to quantify how big an opportunity you think that is to capture more of those spot by needs from existing customers, that'd be helpful, too. Thank you.

Speaker Change: Our next question is coming from Tommy Mall from Stevens. Your line is now live.

Tommy Mall: Good morning, and thank you for taking my questions.

Speaker Change: Morning.

Dan, I believe it was in your prepared remarks. You mentioned some enhancements for the f.com channels that are coming and that in part. Those are an attempt to improve capture of the spot by purchases.

Daniel Florness: Yeah. In my answer to this question.

Maybe just give us a little more insight there. And if there's any way to quantify how big an opportunity, you think that is to capture more of those spot by needs from existing customers. That'd be helpful, too. Thank you. Yeah. Um,

Daniel Florness: This is Dan's opinion, and my opinion and $3 will buy you a cup of coffee. But here's what I believe based on conversations with a lot of customers over the years. and with a lot of Fastenal employees. We when when when we talk internally about the e commerce The we look at the customer site categories. And in a lot of it, and one thing you'll notice is, and this has been true. And if you looked at our data that we shared in March, for a decade, as we were closing, consolidating locations, excuse me, and and rationalizing our network.

Speaker Change: In my answer to this question.

This is Dan's opinion and and my opinion and $3 will buy you a cup of coffee.

Speaker Change: Um, um, but but here's what I believe based on the conversations with a lot of customers over the years.

Speaker Change: and with a lot of fast to employees over the years,

Speaker Change: We um, when when, when we talked internally about the e-commerce piece, the we we we we look at the, the, the customer site categories and, you know, and a lot of it. And 1 thing you'll notice is and this has been true in. If you looked at our data that we shared in March,

Daniel Florness: That customer, that smallest customer, you saw a dramatic fall off in that customer. And that and that customer was disproportionately tied to non res construction. But you saw a lot of fall off in that customer group. And at the same time, the things that we'd have been investing in for years, our national accounts team, and as time progressed, our government sales team, our regional sales F, you know, initially vending, but FMI initiatives, what we were really doing is creating great resources. to grow our large compass and and And it was a really successful strategy. And like in in within strategy, you have priorities.

For a decade as we were closing, consolidating locations. Excuse me, and and rationalizing, our Network.

And that and that customer was disproportionately tied to non-res construction, but you saw a lot of fall-off in that customer group.

Speaker Change: and at the same time, the things that we'd had been investing in for years,

our national accounts team and and as time progressed, our government sales team, our regional sales team,

Speaker Change: um, our uh,

Speaker Change: You know initially vending but FMI initiatives. What we were really doing is creating great resources to grow our large account business.

and uh, and uh,

and it was a really successful strategy.

Daniel Florness: And priorities mean trade offs. And you look at what you're going to what you can invest in today, and what you invest in over time. And one of the things that had to be invested in over time was the e-commerce side, because frankly, we were bad at it. And today, we're not great at it. But 30% of our revenue was e commerce in the second quarter. So doesn't mean we're not successful at it. I just would say we're good. We get those numbers, because we're really, really good with key accounts. and but in every key account I visit.

Speaker Change: And and like, in in, in within strategy you have priorities and priorities mean trade-offs. And you look at what you're going to what you can invest in today.

Speaker Change: And what you invest in over time.

Speaker Change: And 1 of the things that had to be invested in over time was the e-commerce side because frankly, we were bad at it.

And today we're not great at it.

Speaker Change: But 30% of our Revenue was e-commerce.

Speaker Change: In the second quarter. So,

Speaker Change: Doesn't mean we're not successful at it. I, I just would say we're good. We get those numbers because we're really, really good with key accounts.

Daniel Florness: If I walk through the receiving area. I'll see boxes that don't say fastenal And that tells me there's elements of their supply chain needs spot by. that are that are that we're not providing now it might be products that we don't sell It might be products we sell every day, but the buyer in the engineering department doesn't know us the way the buyer in the production area knows us. And they and we're all creatures of habit. And so they go and hop online and they buy it. And some of that became even more pronounced during COVID.

Speaker Change: and uh, but in every key account, I visit

Speaker Change: if I walk through the receiving area,

I'll see boxes that don't say fasten on them.

Speaker Change: And that tells me there's elements of their supply chain needs, spot buys.

That are that are that were not providing. Now, it might be products that we don't sell.

Speaker Change: it might be products, we sell every day, but the buyer in the engineering department,

Speaker Change: doesn't know us the way the buyer in the production area, knows us.

Daniel Florness: Because when they looked at sending people home, it wasn't the person on the production line that was going home, it was the person that was in a, it was in more of an office setting role to get them out of the building to make it safer for everybody else. When I look at our existing customers, I believe with our our 10k plus customers for every dollar they spend. there's 20 cents they I could be full of it. on that AM. But I know it's not 0%. And so I believe there's a huge win there for Fastenal in the years to come.

And they, and we're all creatures of habit. And so they go and hop online and they buy it and some of that became even more pronounced during Co. Because when they looked at sending people home,

Speaker Change: It wasn't the person on the production line that was going home. It was the person that was in a, that was in more of an office setting role to get them out of the building to make it safer for everybody else.

and,

Speaker Change: um,

When I look at our existing customers, I believe with our our 10K plus customers.

for every dollar they spend with us,

Speaker Change: There's 20 cents, they don't.

Speaker Change: I could be full of it.

On that answer.

But I know it's not 0%.

Speaker Change: And so I believe there's a huge win there for Fastenal in the years to come.

Daniel Florness: In the categories of customers that have been dropping off the under under 5000, the under 1000, the under 500, the hundred dollar Um, what would be great if we had an e commerce solution. where that customer could hop on and easily order from us. And, and we'd pick up business there. And I believe when we go into 2026, when we go into 2027, that the drop off we've seen in the less than $5,000 customer, which is really coming from the under 500 and under 100 other customer groups. stabilizes, and I believe it has the potential to grow, not because we're throwing labor at it.

Speaker Change: in the categories of customers that have been dropping off the, the under, under 5,000, the, under a thousand, the under 500, the hundred dollar customer

Speaker Change: um,

Speaker Change: what would be great if we had an eCommerce solution?

Speaker Change: Where that customer could hop on and easily order from us.

Speaker Change: and, uh, and we'd pick up business there and I believe, when we go into 2026, when we go into 2027,

That the drop off we've seen in the less than 5 thousand dollar customer, which is really coming from the under 500 and under 100 other customer groups.

Daniel Florness: But because we have this great supply chain going across North America, and more people can tap into it, because it's now available in the way they want to And some of that is, and we've rolled out enhancements to our checkout process, to our search functionality, incorporating some AI aspects in our search functionality to make it work better, and also having a really crisp strategy on what is it we offer in our e-commerce window. That might be a subset of what we offer to a customer when we're onsite, where you can take more Herculean steps for a customer that spends $50,000 a month with you, than a customer that buys from you twice a year, because you understand their needs better and you can communicate expectations.

Speaker Change: Stabilizes. And I believe it has the potential to grow not because we're throwing labor at it, but because we have this great supply chain going across North America. And more people can tap into it because it's now available in the way they want to buy.

Speaker Change: and and some of that is, and we've rolled out enhancements to our checkout, process to our search functionality, incorporating some AI aspects in our search functionality, to make it work better and also having a really crisp strategy on

What is it? We offer in our e-commerce window.

Speaker Change: That might be a subset of what we offer to a customer where we're on site, where you can, you can take more Herculean steps for a customer that spends.

Daniel Florness: But long, long answer there. I hope that actually answered your question. But I believe the potential is meaningful. with our existing 5 and 10k plus customers. and I believe it can expand our under five. Thank you, Dan.

Speaker Change: 50,000 a month with you with you than a customer that buys from you twice a year because you understand their needs better. And you can communicate expectations better?

Speaker Change: But uh, long long answer there. I I I hope that actually answered your question, but but I believe the potential is Meaningful.

Speaker Change: With our existing.

Um, 5 and 10K plus customers.

Speaker Change: And I believe it can expand our under 5K customers.

Daniel Florness: I appreciate the insight.

Jeff Watts: Jeff, I had a follow up question for you. Your vision on running the sales organization is increasingly clear and backed up by some quantitative evidence. I mean, the contract count is a beautiful chart of blue bars up into the right. And so my question is. Now that you've inflicted a pretty good amount of pain on others in the marketplace, how are you seeing others try to defend their share or When do you expect to see that? I mean, this Fastenal market share story has been gathering momentum, you know, maybe this is round one, I would expect that at some point, you'll see a round two, and there will be a collective response.

Thank you Dan. I appreciate the Insight. Jeff, I had a follow-up question.

Speaker Change: For you. Uh, your vision on running the sales organization is increasingly clear and backed up by

Speaker Change: some quantitative evidence, I mean the, the contract count

Speaker Change: and so my question is,

Speaker Change: Now, that you've inflicted a pretty good amount of pain on others in the marketplace.

Speaker Change: How are you seeing?

Speaker Change: Others try to defend their share.

Speaker Change: Or when do you expect to see that? I mean this this Fastenal market share, um, story has been Gathering momentum.

Jeff Watts: What do you see in there? Yeah, I mean, I look at it a couple different ways. First way I look at it is This may sound a little odd, but especially when times are tough, we have to go through tariffs or, you know, the 2009 timeframe, you know, we obviously do a lot better than because customers need some security. They look at Fastenal right now today as, hey, you know, they have very good supply chain. They have great solutions for us. And I mean, part of the reason our pipeline is so strong right now, I believe, is because of the uncertainty with the tariffs and customers are looking for some safety and security.

Speaker Change: You know, maybe this is round 1. I I would expect that at some point, you'll see around 2 and there will be a collective response.

Speaker Change: What are you seeing there?

Jeff Watts: I don't see. One thing about us is we have such a large footprint globally, that it's hard sometimes to keep compete with us on a global scale. So if you have a site in Chicago, you have a site in Italy, you have a site in Shanghai, we're gonna be able to offer you the exact same services in Chicago or Shanghai or any of our sites. That's tough to compete with these days, especially when we're talking about a supply chain on a global scale. Right now, we're seeing nothing but positives in our pipeline when it comes I don't know if you want to add anything.

Speaker Change: Yeah, I mean, I I look at it a couple different ways the first way I look at it is and this may sound a little odd but um especially when times are tough. We have to go through tariffs or, you know, the 2009 time frame, you know, we obviously do a lot better than because customers need some security. They look at fast now, right now today is hey, you know, they have a very good supply chain, they have great solutions for us. And I mean, part of the reason our pipeline is so strong right now, I believe is because of the uncertainty with the tariffs and and customers are looking for some Safety and Security.

I don't see. Um, 1 thing about us is we have such a large footprint globally that it's hard. Sometimes to keep compete with us on a global scale. So if you have a site in Chicago you have a site in Italy you have a site in Shanghai. We're going to be able to offer you the exact same services in Chicago or Shanghai or uh or any of our sites. That's tough to compete with these days especially when we're talking about a supply chain on a global scale.

Speaker Change: Um, right now we're seeing nothing but positives on our pipeline when it comes to that.

Speaker Change: So if you want to I think that Dan nope.

Jeff Watts: Thank you, Jeff. I'll turn it back.

Thank you, Jeff. I'll turn it back.

Chris Denkert: next question is coming from Chris Denkert from Loop Capital Markets. Your line is now live. Hey, morning, I guess I would just echo the congratulations on a really nice quarter here.

Thank you. Next question is coming from Chris danker from loop capital markets. Your line is now live.

Jeff Watts: And maybe this one is also also for Jeff to start off. I mean, quick update, perhaps on the success of the Customer Solution Consultant Program. That's teams still near 170. How are they doing versus your plan? Maybe just a quick update there would be great. Oh, yeah, I mean, we're still, we're still looking at increasing those numbers. But the reason is, is that team has been extremely successful for the districts for the regions as a whole. And they're really out there trying to build the contract success and that maybe not the large global sites, but the more regional sites.

Hey morning, I guess I would just Echo. Uh, the congratulations on on a really nice quarter here.

Chris Danker: Um, and maybe this 1 has also also for for Jeff to start off. I mean

Speaker Change: Quick update. Perhaps on the you know the E6 of the customer solution consultant program. I is that team still near 170? How are they doing versus your plan? Maybe just a quick update, there would be great.

Jeff Watts: If you look through a lot of our customer site analysis, a lot of the success we're seeing in the 10k plus categories come from the CSE program. So we're still looking to expand that. Obviously, it's not just in the United States, it's every in every country we're in now. But I think we're getting closer to our number. The nice thing is I have a lot of districts now looking for to add multiple CSEs to their once they can afford it, they want more and more. And there's a reason for it's been a very successful program for so far.

Uh yeah. I mean we're still uh we're still looking at increasing those numbers but the reason is is that team has been extremely successful for the districts um for the regions as a whole and they're really out there trying to build the the contract success and that the maybe not the large Global sites, but the more Regional sites if you look through a lot of our, um,

Speaker Change: our customer site analysis, A lot of the success we're seeing in the 10K, plus categories, come from the CSC program. So we're still looking to expand that. Obviously, it's, um, not just in the United States. It's every in every country, we're in now. Um, but I think we're getting close to our number. The nice thing is I have a lot of districts now looking for the add multiple uh, csc's to their area. Once they can afford it, they they want more and more and there's a reason for it. It's been a very successful program for us so far.

Jeff Watts: Got it.

Jeff Watts: And I guess maybe just as a follow up, are there additional opportunities around role specialization? I know we spent a lot of time, you know, diving deep there at the analyst day. I mean, is it really more about maintenance tweaks at this point? Or there's still some fairly large scale shifts in blue team roles that are available here? I don't think there's a lot of large shifts still to do. I think maybe some maintenance, like you said, certain areas of the country, certain areas of the globe still has some work to do on getting that clearer, more clear in certain areas.

Got it, and then, I guess, maybe just as a follow-up. Um, are there additional opportunities around role? Specialization, I know we spend a lot of time, you know, diving deep there at the analyst day. I mean, is it really more about maintenance weeks at this point? Or there's still some fairly large scale shifts in in blue team roles that are available here.

Speaker Change: I don't think there's a lot of uh large shifts still to do, I think maybe some maintenance, like you said um certain areas of the comp uh country certain areas of the globe, still has some work to do on. Um,

Jeff Watts: But for the most part, I don't think I've seen any major shifts coming with role clarification. You? I would say we, there's always things you discover, because in a decentralized organization, you have a We have a great aligned plan, but you still have great district and regional leaders, you have great net Contract customer leaders, our national accounts team, as an example, government sales team, as an example, that try try nuances to it, because of because of discussions with customers. And all of a sudden, you see some success occurring in our in one of our regional business units or with a group of customers, you start asking questions.

Speaker Change: Getting that Clarity or more clear in certain areas. But for the most part I don't think maybe see any major shifts coming with this role clarification of you. I would say, we, um, there's always things you discover because in a defense organization, you have a

we, we have a, a great aligned plan, but you still have great district and Regional leaders, you have great, um,

Jeff Watts: And so that some of that will lead to refining as we go forward. But right now, I can't think of anything offhand that jumps out. and really success.

Speaker Change: contract customer leaders on national accounts team as an example of government sales team, as an example, that try try nuances to it because of because of discussions with customers and all of a sudden, you see some success occurring in a in a 1 of our regional business units or with a group of customers, you start asking questions.

And so that some of that will lead to refining as we go forward. But right now, I can't think of anything off hand that jumps out.

Speaker Change: Really successful.

Christopher Snyder: Question today is coming from Chris Snyder from Morgan Stanley. Your line is now live. Thank you. I wanted to ask about price. On the last conference call, you guys talked to three to four points of price here in Q2. It came in, you know, closer to one and a half percent. Is that just a different definition in that, you know, when you guys were saying three to four, that was the exit number, not the quarterly average?

Thank you. Next question, today, is coming from Chris lighter from Morgan. Stale, your line is now live.

Christopher Snyder: And then, I guess, what should we expect on price cadence here into the back half of the year?

Daniel Florness: I'm going to answer the first half of that. And I'll give between Kevin Fitzgerald, who's in the room or Cheryl's in the room, it's an opportunity to time in on the second part. You know, when we had our call in April. The only thing that was certain at that point in time This is chaotic as hell. And, and you weren't really sure, you know, what was going to happen, you know, and, you know, from day to day, you have a tariff, you, you hear about something going to a crazy level tariff, you know, when you start talking 150% tariff on something, you just kind of look at yourself and don't know even even how to respond to it.

Should we expect on price Cadence here into the back half of the Year. Thank you.

Speaker Change: Can I answer the first half of that and I'll give, uh, uh, between Uh, Kevin Peter who's in the room or Cheryl's in the room. Maybe it's opportunity to time chime in on the second part. You know, when when we had our call in April.

Speaker Change: The only thing that was certain at that point in time.

Was this, this is chaotic as hell.

Daniel Florness: But, but, you know, there was, there was the pause that kicked in, there was different starts and stops, starts and stops. And so When we answer a question, we look at it based on what we know today. Here's what we think. What, as I mentioned earlier, our goal isn't to be the greatest pricing company in the world. Our goal is to be the best supply chain organization in the world and to give great visibility to our customers so they have the ability to make decisions when their supply chain becomes more expensive or more chaotic. And, and so we frankly didn't know but we here's what we thought as it played out some of those pauses kicked in And it changed the timing of things we are we are doing.

Speaker Change: And uh, and you weren't really sure. Uh, you know what was going to happen, you know? And, you know, from day to day you have a a tariff. You, you hear about something going to a, a, a crazy level tariff, you know, we start talking about 150% tariffs on something. You you, you, you, you, you just kind of look at yourself and don't know, even even how to respond to it.

But, uh, but you know, there, there was, um, there was the pause that kicked in

There was different starts and stops starts and stops. And so,

Speaker Change: When we answer a question, we look at it based on what we know today, here's what we think.

Speaker Change: What it, um, as I mentioned earlier, our goal isn't to be

Speaker Change: the the greatest pricing company in the world.

Speaker Change: Our goal is to be the best supply chain organization in the world and to give great visibility to our customers. So, they have the ability to make decisions when their supply chain becomes more expensive or more chaotic.

Speaker Change: And uh and so we we frankly didn't know, but we here's what we thought.

Speaker Change: As it played out some of those pauses kicked in.

Kevin Fitzgerald: And as it turned out, it was more of that's how we exited the quarter. Not how we you know, we thought we'd be there by May one, not exit the quarter at that level. Even when we look out to the second half of the year.

Speaker Change: And it changed the timing of things we were we are doing and and as it turned out, it was more of that's how we exited the quarter.

Not how we, you know, we thought we'd be there by May 1 not exit Quarters at that level. Even when we look out to the second half of the year,

um, we have thoughts on on steps. We're taking things that we've communicated.

And some of those are still up in the air. Based on what happens you know you you see it in the news every day. A headline says we're doing doing this with this trading partner or that with another trading partner

Speaker Change: And, and it changes. And and what we really try to do is understand what are we seeing in our costs?

Daniel Florness: How do you communicate that to the customer? And, and so it in our in our goal here is to defend our margin, not to enhance it. Our margin improved in the quarter because of the faster initiative. That's what really drove and and and that had nothing to do with Tara And so, and so it turned out we exited the quarter that way.

And how do you communicate that to the customer?

And uh, and and so it it in our, in our goal here is to defend

Our margin not to enhance it. Our margin improved in the quarter because of the faster initiative. That's what really drove it.

Speaker Change: And uh and and that had nothing to do with terrorism.

Cheryl Lasowski: But Kevin, I don't know if you want to chime in or Cheryl? Yeah, no. To Dan's point, we did we exited the quarter closer to that three range. guided, you know, on the q1 call for q2. We'll continue to see that ramp up, though, as we sit here in Q3. We'll continue to probably see in that three to five range. And then kind of to Dan's point, you know, there's a lot of things changing all the time. I do think we can get into that five to eight range by the end of the year, but some of it's just going to be dependent on what happens on August 1st, what happens with Section 232 tariffs.

And so uh and and so uh it turned out we exited the quarter that way but Kevin I don't know if you want to chime in or Cheryl. Yeah no um to Dan's point we did we exited the quarter closer to that 3 range as we guided you know on the q1 call for Q2

Speaker Change: Um we'll continue to see that ramp up though. As we sit here in Q3 we'll continue to probably see in that 3 to 5 range.

Speaker Change: Um, and then kind of to Dan's point, you know, there's a lot of things changing all the time. Um,

Cheryl Lasowski: So a lot's still unknown, but we're still moving forward with what we do know, and those ranges seem to be .

I I I do think we can get into that 5 to 8 range by the end of the year, but, um, but some of it is just going to be dependent on what happens on August 1st. What happens with, uh, uh, section 232 tariffs. So a lot still unknown, but but we're still moving forward with what we do know.

Daniel Florness: I'll close with a thought on that, and that is I believe our team is really good. communicating with our Our customer trusts the information we we provide because we're very transparent. And we've one one feedback I've received from customers when I travel and I travel quite a bit. And in a month ago, I was down in Illinois. We had a 40 year employee that Bill Drazkowski and I went down to celebrate with that individual. And we visited some customers. And there was a few customers that I visited where their head of operations not only greeted us, but sat in on a discussion.

Speaker Change: And and those ranges seem to be uh seem to be accurate. I'll I'll close with a thought on that and that is

I believe our team is really good.

Speaker Change: At communicating, with our customer.

Daniel Florness: and caught me afterwards and was very complimentary of our team from the standpoint of not only what they communicated on our supply chain into their business, but the insight we're able to give them on their other supply chains, whether it's direct or through other companies that come into their business, because we work to really simplify the information. And in long story short, I think that means We can be effective. communicating. And that translates into into results, because we're not raising prices. Our prices reflect the cost of the supply chain coming into Thank you, Dan.

Our customer trusts the information. We we provide because we're very transparent and we've 1 1 feedback. I received from a customer's when I travel and I travel quite a bit, and in a month ago, I was down in Illinois, uh, we had a 40-year employee that bill dross, Kelsey. And I went down to to celebrate with that individual and we visited some customers. And there was a few customers that I visited, where their head of operations. Not only greeted us, but sat in, on a discussion.

Speaker Change: And caught me afterwards and was very complimentary of our team.

from the standpoint of not only what they communicated on our supply chain into their business, but the Insight we're able to give them on their

Speaker Change: Other Supply chains, whether it's direct or through other companies that come into their business because we worked to really simplify the information.

Speaker Change: And and and long story short, I think that means

we can be effective.

At communicating and that translates into into results because we're not raising prices.

Speaker Change: Cost of the supply chain coming into our customer.

Christopher Snyder: I really appreciate all that color and transparency.

Christopher Snyder: If I could just follow up with a quick one. I think three months ago, you kind of said that, you know, the conversation with customers was really about don't shut us down, you know, less about maybe price. Is that still the nature of the conversations today? I think today is more about price. You know, I think there's, I think there's some fatigue going on. And, and, and that fatigue is not just with customers that fatigues with our folks that fatigue is with our, our, our suppliers, our folks that work with customs. So I think it's more price than it is shut down the line.

Thank you Dan. I really appreciate all that color and transparency. If I could just follow up with a quick 1. I think 3 months ago you kind of said the you know the conversation with customers was really about don't shut us down um you know, less about maybe price. Um is that is that still the nature of the conversations today? Thank you.

Speaker Change: Um, I think today. It's more about price.

You know, I, I think there's, I think there's some fatigue going on and, uh, and and that fatigue is not just with customers that fatigue, with our folks, that fatigue is what our our, our suppliers, our folks, that work with Customs. Um,

Patrick Baumann: Thank you. I appreciate it.

Um, so uh I I think it's more price than it is shut down the line today.

Speaker Change: Thank you, I appreciate that.

Cheryl Lasowski: I see we're at we're at we're at about four minutes four minutes to the hour if we could have a question that we can answer in a minute or two I'd appreciate Our next question is coming from Patrick Baumann from J.P. Morgan. Your line is now live. Yeah, this will be a quick one. The gross margin expectation for the year, how does price cost look in that, you know, relative to the way you're thinking about it? And are there any unusual drivers besides that we should think about as we think about modeling the gross margin, you know, beyond this year?

Speaker Change: I see where we're at. We're at about 4, 4 minutes to the hour. If we could have a, a question that we can answer in a minute or 2, I'd appreciate it.

Speaker Change: Sure, our next question is coming from Patrick from JP Morgan. Your line is now live.

Cheryl Lasowski: Thank you. I think the price cost becomes challenging in the second half of the year. We're a little bit ahead of it. Our goal would be to stay with that. And I don't know if that means we were, you know, we're 10 or 15 basis points ahead of it, or five or 10 basis points behind it, I guess time will tell. But that gets more challenging as we get deeper into it. And we have more and more of that higher cost inventory coming.

Speaker Change: Um yeah, this this will be a quick 1. Um the the gross margin expectation for the year. How does price cost look in that you know, relative to the way you're thinking about it? And are there any unusual drivers besides that we should think about as as we think about modeling the gross margin, you know, beyond this year? Thank you. I I think I think the price cost becomes challenging in the second half of the year.

Speaker Change: Um, we're a little bit ahead of it. Our goal would be to to stay with it.

Speaker Change: And I don't know if that means we, we're, you know, we're 10 or 15 basis points ahead of it or 5 or 10 basis points behind it. I guess time will tell but, uh, that that, that gets more challenging as we get deeper into it and we have more and more of that higher cost inventory coming through.

Daniel Florness: Very good. I'll turn it back over for any further closing comments. Would you like to take another question? No, I think I think we're good. We like to start on the finish on the hour.

Speaker Change: Very good.

Speaker Change: Um, turn it back over for any further. Closing, comments, or would you like to take another question, sir?

Daniel Florness: And I would just throw out We've made several leadership changes during the quarter. Essentially, the last two years have been about investing in debt. We moved Jeff into the role he's in over the last couple of years. We backfilled on the international side with with some with deep bench talent that we have. We're blessed in that we're promoted from within organization, and we have deep talent in the organization. It doesn't make decisions easier, but it makes the probability of decision stronger for success. And during the quarter, Casey Miller and Bill Drazkowski, who had taken a lot on their shoulders over the last two years after Jeff asked them to.

Speaker Change: No, I think I think we're good. We like to start on the, uh, finish on the hour and, uh, um, I would just throw out, uh,

Speaker Change: Um, we made a a several leadership changes during the quarter.

Speaker Change: essentially, the last 2 years have been about investing in depth,

Speaker Change: Um, we we moved Jeff into into the role. He's in over the last couple years.

Speaker Change: We um, backfilled on the international side, with, with some ex with deep bench talent that we have we're we're we're blessed and that we're from within organization. And we have deep talent in the organization. It, it doesn't make decisions easier.

Speaker Change: But it makes the probability of decision stronger for success.

Speaker Change: and uh, during um, during the quarter,

Daniel Florness: We modified their structure within their team, elevated two individuals within Casey Miller's group to split the U.S. into two business units again. And I'm pleased to say that the two individuals that stepped in Kevin Davis and Bob Hopper 26 years of experience on average. Kevin's at 24 and Bob's at 28. Bill Drazkowski elevated two individuals on the team. And essentially the elevation was really about their team and giving them the opportunity to step into more roles and to give Bill and Casey some breathing room because they were they were really stretched thin and that's Scott Bailey and Bill Reichenbacher and those guys are both 30 plus years so incredible talent that's getting elevated and I'm excited what that means for those business units and the teams under brought to spread their wings a bit.

Casey Miller and Bill dowski who had taken a lot on their shoulders over the last 2 years. After Jeff asked them to

Um, um, we we, we, we modified their structure within their team. Um, elevated 2 individuals, uh, um, under well, within Casey Miller's group, the split the US and 2 business units. Again,

Speaker Change: and I'm pleased to say that, uh, the 2 individuals that stepped in Kevin Davis and Bob Hopper

Speaker Change: Have 26 years of experience.

On average, um, Kevin's at 24 and Bob's at 28th.

Uh, Bill dowski elevated, 2 individuals on the team. And essentially, the elevation was really about

their team and and giving them the opportunity to step into more roles and to give

Speaker Change: Bill and Casey some breathing room because they were, they were really stretched thin. And that's Scott Bailey and Bill Rickenbacker. And those guys are both 30 plus years.

Speaker Change: So uh, incredible Talent that's getting elevated and I'm excited. What? That means for those business units

And the teams under them.

Operator: With that, thank you and everybody have a good balance of the day.

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

Speaker Change: To brought to spread their wings a bit with that. Thank you and everybody have a good bounce of the day.

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 for your participation today.