Q3 2026 Fastenal Co Earnings Call

October 14, 2026

Speaker #1: Greetings. Welcome to Fastenal's 2026 third quarter earnings results conference call. At this time, all participants are enlisted in only mode. The question-and-answer session will follow the formal presentation.

Operator: Greetings. Welcome to Fastenal's 2026 Q3 earnings results conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero from your telephone keypad. Please note that today's conference is being recorded. At this time, I will now turn the conference over to Dre Schreiber. Thank you, Dre. You may begin.

Speaker #1: If anyone today is here to acquire operator assistance, please press star zero from your telephone keypad. Please note that today's conference is being recorded.

Speaker #1: At this time, I'll now turn the conference over to Dre Schreiber. Thank you, Dre. You may begin.

Speaker #2: Welcome to the Fastenal Company 2026 third quarter earnings conference call. This call will be hosted by Jeff Watts, our President and Chief Executive Officer, and Max Tonicliff, our Chief Financial Officer.

Dre Schreiber: Welcome to the Fastenal Company 2026 Q3 earnings conference call. This call will be hosted by Jeff Watts, our President and Chief Executive Officer, and Max Tunnicliff, our Chief Financial Officer. The call will 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 proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until 1 December 2026, at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects.

Dray Schreiber: Welcome to the Fastenal Company 2026 Q3 earnings conference call. This call will be hosted by Jeff Watts, our President and Chief Executive Officer, and Max Tunnicliff, our Chief Financial Officer. The call will 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 proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until 1 December 2026, at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects.

Speaker #2: The call will start with a general overview of our quarterly results and operations, with the remainder of the time open for questions and answers.

Speaker #2: Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent.

Speaker #2: 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 December 1, 2026, at midnight Central Time.

Speaker #2: 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.

Dre Schreiber: These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Jeff Watts.

Dray Schreiber: These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Jeff Watts.

Speaker #2: It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release, in periodic filings with the securities and exchange commission, and we encourage you to review those factors carefully.

Speaker #2: I would now like to turn the call over to Mr. Jeff Watts.

Speaker #3: Thank you, Dre. Good morning, everyone, and welcome to Fastenal's third quarter 2026 earnings call. I'm Jeff Watts, Fastenal's Chief Executive Officer, and I appreciate you joining us today.

Jeff Watts: Thank you, Dre. Good morning, everyone, and welcome to Fastenal's 2026 Q3 earnings call. I am Jeff Watts, Fastenal's Chief Executive Officer, and I appreciate you joining us all today. Also with me this morning is Max Tunnicliffe, our Chief Financial Officer. Before we get into the quarter, I would like to recognize our Blue Team. Every result we report today was earned by people in our branches, our on-sites, our distribution centers, our trucks, and our support teams. They show up every day for our customers. They solve problems, and they keep finding better ways to help our customers run their operations. So to the Blue Team, thank you. This was a very strong quarter and one you should all be very proud of. Now two quick housekeeping items before we get to the numbers. First, our slides look different this quarter.

Speaker #3: Also with me this morning is Max Tonicliff, our Chief Financial Officer. Before we get into the quarter, I would like to recognize our Blue Team.

Speaker #3: Every result we report today was earned by people in our branches, our onsites, our distribution centers, our trucks, and our support teams. They show up every day for our customers.

Speaker #3: They solve problems, and they keep finding better ways to help our customers run their operations. So, to the blue team, thank you. This was a very strong quarter and one you should all be very proud of.

Speaker #3: Now, two quick housekeeping items before we get to the numbers. First, our slides look different this quarter. We've refreshed the format of the investor presentation to make the story easier to follow.

Jeff Watts: We've refreshed the format of the investor presentation to make the story easier to follow. The flow now goes from highlights to our objectives, to what drove sales, financial results, and then there's some key takeaways. I want to be clear about what we didn't change. Our definitions are the same and our historical data is the same. The supporting detail you relied on is all still there. Just some of it is simply moved to the appendix. The first page of the appendix shows exactly what moved and where to find it. Second, we're targeting a 45-minute call today. We expect to keep the Q&A portion broadly consistent, take about the same number of questions as usual. Now on to the quarter, and for me, I think, the headline's pretty simple. Sales grew 15.5%, earnings grew faster than sales.

Speaker #3: The flow now goes from highlights to our objectives, to what drove sales, financial results, and then to some key takeaways. I want to be clear about what we didn't change.

Speaker #3: Our definitions are the same, and our historical data is the same. The supporting detail you relied on is all still there. Just some of it is simply moved to the appendix.

Speaker #3: The first page of the appendix shows exactly what moved and where to find it. And second, we're targeting a 45-minute call today. We expect to keep the Q&A portion broadly consistent, take about the same number of questions as usual.

Speaker #3: Now onto the quarter. And for me, I think the headline is pretty simple. Sales grew 15.5%, earnings grew faster than sales. Our net sales were 2.46 billion, up 330 million from last year.

Jeff Watts: Our net sales were $2.46 billion, up $330 million from last year. Operating margin was 21.5%, up 90 basis points, and our return on invested capital reached 32.5%, up 230 basis points. Operating income increased by $90 million from last year. That's the largest year-over-year increase in a single quarter in Fastenal's history. But I think the three things that really stood out to me, or stand out to me and drove the quarter, first, growth accelerated. Second, we converted that growth into higher operating margin and faster earnings growth, and third, the quarter was driven mainly by market share gains through our key account strategy and new contract wins. Now on to slide 5, and this really brings us back to our three strategic objectives. These are the same pillars we've discussed before, and everything we do ties back to them.

Speaker #3: Operating margin was 21.5, up 90 basis points, and our return on invested capital reached 32.5, up 230 basis points. Operating income increased by 90 million from last year.

Speaker #3: That's the largest year-over-year increase in a single quarter in Fastenal's history. But I think the three things that really stood out to me or stand out to me and drove the quarter: first, growth accelerated.

Speaker #3: Second, we converted that growth into higher operating margin, faster earnings growth. And third, the quarter was driven mainly by market share gains through our key account strategy and new contract wins.

Speaker #3: Now, on slide five, and this really brings us back to our three strategic objectives. These are the same pillars we've discussed before, and everything we do ties back to them.

Speaker #3: Now, first being the increasing sales effectiveness. We're gaining share with larger customers through our key account strategy and new contract wins, and you can see that in our daily sales growth and in the growth of our largest customer sites.

Jeff Watts: First being the increasing sales effectiveness. We're gaining share with larger customers through our key account strategy and new contract wins. You can see that in our daily sales growth and in the growth of our largest customer sites. On the services, we continue to grow our FMI installed base. Our FASTBin and FastVend technology, our digital footprint, these tools improve the customer experience, they strengthen retention, and make both our customers and our own operations much more efficient. Lastly, expanding our TAM. We continue to reach revenue that we serve today through new products, new geographies, new business models, and new services. You can follow our international and non-fastener growth in our monthly sales releases, and really the strategy's consistent. What changes quarter to quarter is the evidence, and this quarter, I believe the evidence was strong.

Speaker #3: On the services, we continue to grow our FMI installed base. Our fast bin and fast bend technology are digital footprint. Now, these tools improve the customer experience.

Speaker #3: They strengthen retention and make both our customers and our own operations much more efficient. And then lastly, expanding our TAM. We continue to reach the revenue that we serve today through new products, new geographies, new business models, and new services.

Speaker #3: You can follow our international and non-fastener growth in our monthly sales releases, and really, the strategy is consistent. What changes quarter to quarter is the evidence, and this quarter, I believe the evidence was strong.

Speaker #3: Now, on the slide six, and what really drove our sales. Now, our customer site data continues to show progress with our large excuse me, our larger customers, both new and existing, all growing with us.

Jeff Watts: Now on to slide 6, and what really drove our sales. Our customer site data continues to show progress with our large, excuse me, our larger customers, both new and existing, all growing with us. Our contract count increased 6.4% from last year, with signings weighted toward multi-site national accounts. The number of sites spending $50K or more per month with us grew almost 19%, from approximately 2,800 to roughly 3,300, and sales from those sites increased roughly 28%. Contract customers now represent over 76% of sales, and their daily sales grew 18.8%. Pricing did contribute to the quarter approximately 2.4% to growth. That's a slower pace than earlier in the year because the year-over-year pricing contribution peaked between Q4 of 2025 and Q1 of 2026. We're now lapping some of the strongest pricing actions taken in 2025.

Speaker #3: Now, our contract count increased 6.4% from last year, with signings weighted toward multi-site national accounts. The number of sites spending $50,000 or more per month with us grew almost 19%, from approximately 2,800 to roughly 3,300, and sales from those sites increased roughly 28%.

Speaker #3: Contract customers now represent over 76% of sales, and their daily sales grew 18.8%. Pricing did contribute for the quarter approximately 2.4% to growth. That's a slower pace than earlier in the year because the year-over-year pricing contribution peaked between fourth quarter of '25 and first quarter of '26.

Speaker #3: We're now lapping some of the strongest pricing actions taken in '25. Market conditions did improve in the first half, and that improvement continued in the third quarter.

Jeff Watts: Market conditions did improve in H1 and that improvement continued in Q3, but our growth exceeded the growth rates in the industrial markets that we serve. To me, that's the clearest signal that we're taking share. Now on to slide seven. Our digital footprint was 61.4% of sales, and digital sales grew approximately 16% on a daily basis, faster than the company overall. When customers transact digitally, orders are more accurate, there's less manual work on both sides, and the relationship becomes much more integrated. We signed approximately 7,500 weighted FMI devices in the quarter, or about 117 per day, compared with 110 per day last year. Our installed base passed 143,000 units, up 7%, and sales through FASTBin and FastVend grew approximately 18%. We continue to expect 27,000 to 29,000 weighted device signings for the full year.

Speaker #3: But our growth exceeded the growth rates in the industrial markets that we serve. To me, that's the clearest signal that we're taking share. Now, on the slide seven, our digital footprint was 61.4% of sales, and digital sales grew approximately 16% on a daily basis.

Speaker #3: Faster than the company overall. Now, when customers transact digitally, orders are more accurate. There's less manual work on both sides, and the relationship becomes much more integrated.

Speaker #3: We signed approximately 7,500 weighted FMI devices in the quarter, or about 117 per day, compared with 110 per day last year. Our installed base passed 143,000 units, up 7%. Sales through FAST Bin and FAST Bend grew approximately 18%.

Speaker #3: We continue to expect 27,000 to 29,000 weighted device signings for the full year. We really believe that that opportunity for us is clear. We need to keep moving customers toward technology-enabled replenishment because it improves service; it it strengthens the relationship, and it creates efficiency for both sides.

Jeff Watts: We really believe that opportunity for us is clear. We need to keep moving customers toward technology-enabled replenishment because it improves service, it strengthens the relationship, and it creates efficiency for both sides. Now on to slide eight, and this is a little different from the past, but from time to time, we'll show you a real example of how we win, because I think it tells our story better than any statistic ever could. Today I want to take a couple of minutes to highlight our customer strategy in action and show how we identify a customer challenge and bring our supply chain capabilities to life. In this example, we had a new customer that was experiencing direct material stockouts, supply chain shortages, and limited control over product consumption. As their business grew, those challenges became even more significant.

Speaker #3: Now, on the slide eight, and this is a little different from past from the past, but from time to time, we'll show you a real example of how we win.

Speaker #3: Because I think it tells our story better than any statistic ever could. So today, I want to take a couple of minutes to highlight our customer strategy and action, and show how we identify a customer challenge and bring our supply chain capabilities to life.

Speaker #3: In this example, we had a new customer that was experiencing direct materials stockouts, supply chain shortages, and limited control over product consumption. As their business grew, those challenges became even more significant.

Speaker #3: So after we signed the contract, we got to work. Our lean six sigma specialists, they mapped the process, identified the root cause, which was a manual inconsistent system with limited automation, limited digital visibility, and physical organization.

Jeff Watts: After we signed the contract, we got to work. Our Lean Six Sigma specialists, they mapped the process, identified the root cause, which was a manual inconsistent system with limited automation, limited digital visibility, and physical organization. From there, we continued. We developed a roadmap to modernize their supply chain, and once approved, our team moved quickly. As you can see on slide nine, we reorganized their crib and storage areas for the direct materials. We installed clearly labeled bar-coded bins, deployed our FMI technology, established planograms, and connected the customer to FAST360° to really provide greater visibility across their facility. We also established KPIs to measure ongoing performance. The results are significant. Digital visibility increased from 0% to 99%. Replenishment is now automated, stockouts have been eliminated, inventory's been reduced, and employees spend less time searching and walking for product.

Speaker #3: From there, we continued we developed a roadmap to modernize their supply chain. And once approved, our team moved quickly. As you can see on slide nine, we reorganized their crib and storage areas for the direct materials.

Speaker #3: We installed clearly labeled, barcoded bins, deployed our FMI technology, established planograms, and connected the customer to fast 360 to really provide greater visibility across their facility.

Speaker #3: We also established KPIs to measure ongoing performance. And the results, the results are significant. Digital visibility increased from 0% to 99%. Replenishment is now automated, stockouts have been eliminated, inventory has been reduced, and employees spend less time searching and walking for product.

Speaker #3: Over time, we expect the solution to generate anywhere between 25% to 30% in overall cost savings. But I do want to emphasize that this is only the beginning.

Jeff Watts: Over time, we expect this solution to generate anywhere between 25% to 30% in overall cost savings. But I do want to emphasize that this is only the beginning, and as we learn more about their operation and deepen the relationship, our local teams and industry specialists are going to continue to bring new products, new technology, new systems, and saving opportunities to the customer. That's the power of our model. The initial investment creates value. That value builds trust, and that trust creates opportunities to expand the relationship. Over time, those benefits compound for not only the customer, but for Fastenal as well. With that, I'll turn over to Max to walk through the financial results.

Speaker #3: And we as we learn more about their operation and deepen the relationship, our local teams and industry specialists are going to continue to bring new products, new technology, new systems, and saving opportunities to the customer.

Speaker #3: Now, that's the power of our model. The initial investment creates value. That value builds trust, and that trust creates opportunities to expand the relationship.

Speaker #3: Over time, those benefits compound for not only the customer but for Fastenal as well. With that, I'll turn over to Max to walk through the financial results.

Speaker #2: Thank you, Jeff. And good morning, everyone. Overall, this was a very strong quarter. Demand improved, we continued to gain share, and management of our expenses helped us turn that growth into higher operating margins and earnings.

Max Tunnicliff: Thank you, Jeff, and good morning, everyone. Overall, this was a very strong quarter. Demand improved. We continued to gain share, and management of our expenses helped us turn that growth into higher operating margins and earnings. Sales grew 15.5%, while operating earnings and earnings per share grew roughly 20%. I will start with the business and market trends on slide 10. Industrial conditions improved further in Q3. US manufacturing PMI averaged nearly 55, and industrial production for our key end markets remained positive. This is consistent with the gradual improvement we have seen since late last year, although momentum remains stronger in select industrial markets than in the traditional manufacturing and automotive area. Our daily sales improved to 15.5% from 14.7% in Q2. The improvement was driven primarily by new customer wins, greater share of spending with existing customers, and improving industrial activity.

Speaker #2: Sales grew 15.5% while operating earnings and earnings per share grew roughly 20%. I'll start with the business and market trends on slide 10. Industrial conditions improved further in the third quarter.

Speaker #2: US manufacturing PMI averaged nearly 55. Then industrial production for our key end markets remained positive. This is consistent with the gradual improvement we've seen since late last year.

Speaker #2: Although momentum remains stronger, in select industrial markets, than in the traditional manufacturing and automotive area, our daily sales grew, improving to 15.5% from 14.7% in the second quarter.

Speaker #2: The improvement was driven primarily by new customer wins, greater share of spending with existing customers, and improving industrial activity. Customer demand remained healthy overall.

Max Tunnicliff: Customer demand remained healthy overall. What we heard from the field was consistent with our results. Growth opportunities were strongest in data centers and other high-demand markets, while softness remained concentrated in a smaller number of areas. The slide shows how broad the improvement was. Heavy manufacturing led the way again. It represented approximately 45% of sales, and daily sales grew approximately 20%. Growth was strongest in key accounts, machined products, aerospace, and industrial equipment. Other manufacturing grew approximately 13%, showing that the improvement extended beyond the largest accounts and strongest verticals. Construction and other non-manufacturing markets also contributed. Non-residential construction continued to grow, supported by infrastructure, electrical, and utility activity, while transportation and reseller customers also posted solid gains. By material type, direct materials increased approximately 19%, compared with approximately 14% in indirect materials. This reflected stronger customer production activity, large customer signings, improved product availability, and pricing actions.

Speaker #2: What we heard from the field was consistent with our results. Growth, opportunities were strongest, and data centers and other high-demand markets while softness remained concentrated in a smaller number of areas.

Speaker #2: The slide shows how broad the improvement was. Heavy manufacturing led the way again. It represented approximately 45% of sales. And daily sales grew approximately 20%.

Speaker #2: Growth was strongest in key accounts: machined products, aerospace, and industrial equipment. Other manufacturing grew approximately 13%, showing that the improvement extended beyond the largest accounts and strongest verticals.

Speaker #2: Construction and other non-manufacturing markets also contributed. Non-residential construction continued to grow. Supported by infrastructure, electrical, and utility activity, while transportation and reseller customers also posted solid gains.

Speaker #2: By material type, direct materials increased approximately 19%. Compare with approximately 14% in indirect materials. This reflected stronger customer production activity, large customer signings, improved product availability, and pricing actions.

Speaker #2: Several higher growth product categories also outpaced the company overall, particularly electrical, tools, and other industrial products. To summarize, industrial activity improved during the quarter, but our growth continued to significantly outpace the market.

Max Tunnicliff: Several higher growth product categories also outpaced the company overall, particularly electrical, tools, and other industrial products. To summarize, industrial activity improved during the quarter, but our growth continued to significantly outpace the market. The common thread was our continued progress with larger customers, reflecting ongoing share gains from our key account strategy, new contract wins, and embedded supply solutions. Turning to the financial results on slide 11, the key message is that we converted strong sales growth into higher operating margin and earnings. Operating margin increased 90 basis points to 21.5%. SG&A leverage of 130 basis points more than offset a 40 bps decline in gross margin. Gross margin was approximately 45%, down 40 basis points from last year, but 20 basis points above Q2. Customer mix remained the primary year-over-year headwind, consistent with our strategy.

Speaker #2: The common thread was our continued progress with larger customers. Reflecting ongoing share gains from our key account strategy, new contract wins, and embedded supply solutions.

Speaker #2: Turning to the financial results on slide 11, the key message is that we converted strong sales growth into higher operating margin and earnings. Operating margin increased 90 basis points to 21.5%.

Speaker #2: As 130 basis points of SG&A leverage, more than offset, of 40 BIP declined in gross margin. Gross margin was approximately 45%, down 40 basis points from last year, but 20 basis points above second quarter.

Speaker #2: Customer mix remained the primary year-over-year headwind, consistent with our strategy. Beyond mix, two items weren't discussed this quarter: price-cost, which we will continue to address until we return to neutrality, and favorable items that benefited the quarter but may not continue at the same level in the underlying rate.

Max Tunnicliff: Beyond mix, two items were not discussed in this quarter: price cost, which we will continue to address until we return to neutrality, and favorable items that benefited the quarter, but may not continue at the same level in the underlying rate. First, customer mix is approximately a 50 basis point headwind, reflecting growth with large customers and continued execution of our strategy. This mix pressure reflects the continued success of our larger customer strategy. These customers generally carry lower gross margins, but their higher volumes and more efficient service models support attractive operating margins and incremental operating profit. Price cost was approximately a 30 basis point headwind, improving approximately 10 basis points from Q2, marking another quarter of sequential improvement. The year-over-year pricing contribution is slowing after peaking between Q4 2025 and Q1 2026.

Speaker #2: First, customer mix. It was approximately a 50-basis-point headwind, reflecting growth with large customers and continued execution of our strategy. This mix pressure reflects the continued success of our larger customer strategy.

Speaker #2: These customers generally carry lower gross margins, but their higher volumes and more efficient service models support attractive operating margins and incremental operating profit. Price cost was approximately a 30 basis point headwind, improving approximately 10 basis points from the second quarter, marking another quarter of sequential improvement.

Speaker #2: The year-over-year pricing contribution is slowing, after peaking between the fourth quarter of '25 and the first quarter of '26. We will continue to report on price cost while it remains a headwind.

Max Tunnicliff: We will continue to report on price cost while it remains a headwind, and we remain focused on disciplined pricing in returning to neutrality. Favorable items added approximately 40 basis points to gross margin, including direct sourcing savings, supplier rebates, and tariff refunds. About 20 basis points of this 40 reflect timing across these items and should not be assumed to continue in the underlying gross margin run rate. SG&A provided 130 basis points of leverage, reflecting expense growth well below sales growth. Employee costs improved by 90 basis points as a percentage of sales, while total full-time equivalent headcount increased less than 1%. This reflects productivity, role specialization, and the benefits of technology and automation. Occupancy costs improved by approximately 50 basis points as higher sales were spread across our existing branch, on-site, and distribution network.

Speaker #2: And we remain focused on disciplined pricing in returning to neutrality. Favorable items added approximately 40 basis points to gross margin, including direct sourcing savings, supplier rebates, and tariff refunds.

Speaker #2: About 20 basis points of this 40 reflect timing across these items and should not be assumed to continue in the underlying gross margin run rate.

Speaker #2: SG&A provided 130 basis points of leverage, reflecting expense growth well below sales growth. Employee costs improved by 90 basis points as a percentage of sales, while total full-time equivalent headcount increased less than 1%.

Speaker #2: This reflects productivity, role specialization, and the benefits of technology and automation. Occupancy costs improved by approximately 50 basis points, as higher sales were spread across our existing branch, onsite, and distribution network.

Speaker #2: All other SG&A increased slightly as a percent of sales, reflecting continued investment in tech analytics, supply chain, and sales support. In total, SG&A leverage expanded operating margin by 90 basis points to 21.5%.

Max Tunnicliff: All other SG&A increased slightly as a percent of sales, reflecting continued investment in tech, analytics, supply chain, and sales support. In total, SG&A leverage expanded operating margin by 90 basis points to 21.5%. This demonstrates how we are executing our strategy using our infrastructure, tech, and digital capabilities to scale effectively and efficiently while continuing to invest for growth. Return on invested capital increased 230 basis points to 32.5% on a trailing 12-month basis, comparing that with a 10-year average of approximately 28%. The improvement reflects stronger operating earnings and continued discipline in working capital and capital spending. Overall, the quarter demonstrates that we can grow with larger and more complex customers while continuing to invest in the business and improve operating margins and returns. Turning to cash flow and capital discipline on slide 12, operating cash flow was approximately $422 million, or 105% of net income.

Speaker #2: This demonstrates how we are executing our strategy using our infrastructure, tech, and digital capabilities to scale effectively and efficiently while continuing to invest for growth.

Speaker #2: Return on invested capital increased 230 basis points to 32.5 on a trailing 12-month basis. Comparing that with a 10-year average of approximately 28%. The improvement reflects stronger operating earnings and continued discipline in working capital, and capital spending.

Speaker #2: Overall, the quarter demonstrates that we can grow with larger and more complex customers, while continuing to invest in the business and improve operating margins and returns.

Speaker #2: Turning to cash flow and capital discipline on slide 12, operating cash flow was approximately 422 million, or 105% of net income. The year-over-year conversion was lower primarily because receivables increased with strong sales growth.

Max Tunnicliff: The year-over-year conversion was lower, primarily because receivables increased with strong sales growth, particularly with larger customers who generally carry longer payment terms. Inventory increased approximately 3% over the past year, well above the growth in sales, while product availability remained high. That performance reflects more disciplined inventory positioning and better use of the inventory already in our network. Accounts payable increased as purchasing rose to support growth. Free cash flow is approximately $350 million, or 87% of net income, providing capacity to fund growth investments and return capital to shareholders. Q3 capital spending was approximately $72 million, or 2.9% of sales. Spending was directed primarily toward hub and facility capacity, automation, FMI equipment, information technology, and transportation assets. For full year 2026, we continue to expect net capital spending of $310 million to $330 million.

Speaker #2: Particularly with larger customers who generally carry longer payment terms. Inventory increased approximately 3% over the past year, well above the growth in sales. While product availability remained high.

Speaker #2: That performance reflects more disciplined inventory positioning and better use of the inventory already in our network. Accounts payable increased as purchasing rose to support growth.

Speaker #2: Free cash flow is approximately 350 million, or 87% of net income. Providing capacity to fund growth investments, and return capital to shareholders. Third quarter capital spending was approximately 72 million, or 2.9% of sales.

Speaker #2: Spending was directed primarily toward hub and facility capacity, automation, FMI equipment, information technology, and transportation assets. For full year '26, we continued to expect net capital spending of 310 to 330 million.

Speaker #2: The program includes hub network capacity, FMI, and automation equipment, information technology projects, and transportation assets. We returned 328 million to shareholders during the quarter, 298 of which was through dividends and 30 million through share rate purchases.

Max Tunnicliff: The program includes hub network capacity, FMI and automation equipment, information technology projects, and transportation assets. We returned $328 million to shareholders during the quarter, $298 million of which was through dividends and $30 million through share repurchases. Together, that represented nearly 82% of net income. Over the trailing 12 months, we returned approximately $1.2 billion after funding our operating and capital needs. Our approach to capital is unchanged. We invest in the business where we see strong returns, return excess cash to shareholders, and keep a conservative balance sheet. Overall, we delivered strong growth, expanded margins, and generated healthy cash flow while continuing to invest for the future. The quarter reflects disciplined execution across the business. With that, I'll turn it back to Jeff for the key takeaways.

Speaker #2: Together, that represented nearly 82% of net income. Over the trailing 12 months, we returned approximately 1.2 billion, after funding our operating and capital needs.

Speaker #2: Our approach to capitals unchanged. We invest in the business, where we see strong returns, return excess cash to shareholders, and keep a conservative balance sheet.

Speaker #2: So overall, we delivered strong growth, expanded margins, and generated healthy cash flow while continuing to invest for the future. The quarter reflects disciplined execution across the business.

Speaker #2: With that, I'll turn it back to Jeff for the key takeaways.

Speaker #1: Thanks, Max. Before we open the line, I just want to leave everyone with three points. First, our growth was broad-based, reflecting share gains across large accounts and embedded supply solutions.

Jeff Watts: Thanks, Max. Before we open the line, I think I just want to leave everyone with three points. The first, our growth was broad-based, reflecting share gains across large accounts and embedded supply solutions. Second, we converted that growth into higher operating margin and earnings, while price cost improved sequentially for the second consecutive quarter. Third, our model is compounding. New customer wins create embedded spend, technology deepens those relationships, and our scale allows us to grow profitably while continuing to invest. This quarter demonstrates the strength of our strategy. We gained share, expanded margins, generated strong cash flow, and improved returns. I think I will close where I started, with our people. This business has always been built one customer and one relationship at a time by a Blue Team that takes ownership, and I am very excited about where we are headed.

Speaker #1: Second, we converted that growth into higher operating margin and earnings, while price cost improved sequentially for the second consecutive quarter. And third, our model is compounding.

Speaker #1: New customer wins create embedded spend, technology deepens those relationships, and our scale allows us to grow profitably while continuing to invest. Now, this quarter demonstrates the strength of our strategy.

Speaker #1: We gained share, expanded margins, generated strong cash flow, and improved returns. And I think I'll close where I started, with our people. This business is it's always been built one customer and one relationship at a time.

Speaker #1: And by a blue team that takes ownership. And I'm very excited about where we're headed. With that, operator, I think we're ready for questions.

Jeff Watts: With that, operator, I think we are ready for questions.

Speaker #2: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question at this time, please press *1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question today comes from the line of David Manthey with Baird. Please proceed with your questions.

Speaker #2: You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #2: Thank you. And our first question today comes from the line of David Manthi with Baird. Please receive their questions.

Speaker #3: Yeah. Hi. Good morning. A two-part question on growth margins. First off, number one, the 20 basis points of timing benefits. Could you give us your definition of timing?

David Manthey: Yeah. Hi, good morning. A two-part question on gross margins. First off, number one, the 20 basis points of timing benefits, could you give us your definition of timing? I mean, is that catching up for past accruals, or is it pulling benefits from Q4 back into Q3? Then second, if fuel prices stay at current levels, is it possible that the 30 basis point price cost gap actually gets larger in Q4? Those two questions, please.

Speaker #3: I mean, is that catching up for past accruals, or is it pulling benefits from fourth quarter back into the third quarter? And then, second, if fuel prices stay at current levels, is it possible that the 30 basis point price-cost gap actually gets larger in the fourth quarter?

Speaker #3: Those two questions, please.

Speaker #2: Please, gentlemen. Please stand by. We're experiencing technical difficulties. We'll resume momentarily. Thank you.

Operator: Ladies and gentlemen, please stand by. We are experiencing technical difficulties. We will resume momentarily. Thank you.

Max Tunnicliff: Dave, you there? Hi, ladies and gentlemen. Thank you for standing by. Please go ahead, sir. Sorry about that, Dave and company. Jeff told me I got to take accountability because it was me. I hit the wrong button trying to unmute ourselves. So I apologize. It was not a question. Not trying to burn time. Okay, Dave, two-part question. First of all, you asked about the bips of timing. Yeah, let me define that. Just candidly, part of that, and roughly half of that was tariff refunds. Very immaterial, but we do not see that coming through in any material level in Q4. So first of all, the amount of 10 bips in that regard is quite small.

Max Tunnicliff: Dave, you there?

Speaker #1: Dave, Dave, you there?

Speaker #2: Hi, ladies and gentlemen. Thank you for standing by. Please go ahead, sir.

Operator: Hi, ladies and gentlemen. Thank you for standing by. Please go ahead, sir.

Speaker #1: Sorry about that, Dave and company. Hi, Jeff told me I got to take accountability because it was me. I hit the wrong button trying to unmute ourselves.

Max Tunnicliff: Sorry about that, Dave and company. Jeff told me I got to take accountability because it was me. I hit the wrong button trying to unmute ourselves. So I apologize. It was not a question. Not trying to burn time. Okay, Dave, two-part question. First of all, you asked about the bips of timing. Yeah, let me define that. Just candidly, part of that, and roughly half of that was tariff refunds. Very immaterial, but we do not see that coming through in any material level in Q4. So first of all, the amount of 10 bips in that regard is quite small.

Speaker #1: So I apologize.

Speaker #3: It was not a question.

Speaker #1: Not trying to burn time. Okay, Dave, two-part question. First of all, you asked about the bips of timing. Yeah, let me define that. Part, just candidly, part of that in roughly half of that was tariff refunds.

Speaker #1: It's very immaterial, but we don't see that coming through at any material level in Q4. So, first of all, the amount of 10 basis points in that regard is quite small.

Speaker #1: And second, just because of the phasing and the type of IEPA tariffs we paid and the sequence of receiving those, that's going to be probably somewhere in the early part of next year, before we see that back in our run rate.

Max Tunnicliff: Second, just because of the phasing and the type of IEEPA tariffs we paid and the sequence of receiving those, that is going to be probably somewhere in the early part of next year before we see that back in our run rate. The other half is a bit more of a timing element in regards to primarily volume rebates with suppliers. So we did have to do a little bit of a catch-up on that benefit, knowing that we were going to start to trip into various tiers in the quarter. So that would be that, and that is why we want to talk about a trend that would exclude that from Q4. Fuel levels. Yeah, this one is an extremely interesting one.

Speaker #1: The other half is a bit more of a timing element in regards to primarily volume rebates with suppliers and so we did have to do a little bit of a catch-up on that benefit.

Speaker #1: Knowing that we were going to start to trip into various tiers in the quarter. So that would be that. And that's why we want to talk about a trend that would exclude that from Q4.

Speaker #1: Fuel levels, yeah, this one's an extremely interesting one. And the reason I say that is, first of all, you know our business in that we do a pretty good job offsetting that inflation in our business.

Max Tunnicliff: The reason I say that is, first of all, you know our business in that we do a pretty good job offsetting that inflation in our business. It is not generally possible to offset all of it. But the impact on our business is it is real. I would say in Q3, very flat-ish to what the impact was in Q2. But versus the first quarter versus last year, it is fairly significant. Now, to your point, we see enough traction in our price execution, enough traction in that space. We see enough traction in the way that we handle fuel costs to feel comfortable that we are not going to be in a situation in Q4 where the price cost widens the gap, to answer your question directly. We had a pretty nice exit rate out of Q3, particular to net price cost, which we expect to continue.

Speaker #1: It's not generally possible to offset all of it. But the impact on our business is real. I'd say, in Q3, it's very flat-ish compared to what the impact was in Q2.

Speaker #1: But versus the first quarter and versus last year, it's fairly significant. Now, to your point, we see enough traction in our price execution enough traction in that space.

Speaker #1: We see enough traction in the way that we handle fuel costs to feel comfortable that we're not going to be in a situation in Q4 where the price cost becomes widens the gap, to answer your question directly.

Speaker #1: We had a pretty nice exit rate out of Q3, particular to net price cost, which we expect to continue. But I can't make a confident statement like that without suggesting that we all know that these types of elements inflation direct or indirect regarding fuel diesel can have a pretty big consequence on our business.

Max Tunnicliff: But I can't make a confidence statement like that without suggesting that we all know that these types of elements, inflation, direct or indirect, regarding fuel, diesel, can have a pretty big consequence on our business. I'll take a moment, too, just to answer and make one more point around fuel that I think is more structural to Fastenal. Why don't we have to refer to diesel costs and fuel costs as a major impact on our business? A lot of it just has to do with our captive fleet. We choose our own routes. We're able to put a lot of product that otherwise would need to be small parcel on our own vehicles. We're able to structurally mitigate a lot of the impacts of some of this inflation, albeit it still sits in our P&L to some extent. All right. That's perfect.

Speaker #1: And I'll take a moment, too, just to answer and make one more point around fuel that I think is it's more structural to Fastenal.

Speaker #1: So why don't we have to refer to diesel costs and fuel costs as a major impact on our business? And a lot of it just has to do with our captive fleet.

Speaker #1: We choose our own routes. We were able to put a lot of product that otherwise would need to be small parcel on our own vehicles.

Speaker #1: And so we're able to structurally mitigate a lot of the impacts of some of this inflation. I'll be at it still sits in our P&L to some extent.

Speaker #3: All right. That's perfect. Thanks, guys. I'll pass it on.

David Manthey: Thanks, guys. I'll pass it on. Thank you. The next question is from the line of Steve Volkmann with Jefferies. Please proceed with your question.

David Manthey: Thanks, guys. I'll pass it on.

Speaker #2: Thank you. The next question, turn the line of Steve Volkman with Jefferies. Please receive their questions.

Operator: Thank you. The next question is from the line of Steve Volkmann with Jefferies. Please proceed with your question.

Speaker #4: Great. Thank you, guys. I'm going to switch to the growth side of this. And your helpful slide 21, it's just interesting. To me, that the September sequential change sort of underperformed normal seasonality based on your chart here.

Steve Volkmann: Great. Thank you, guys. I'm going to switch to the growth side of this, and your helpful slide 21. It's just interesting to me that the September sequential change sort of underperformed normal seasonality based on your chart here, and that's the first time we've seen that for a number of months here. I'm just curious. I think, Max, you might even have mentioned there was some very limited areas where you saw some weakness or something. I don't want to put words in your mouth, but anything to call out relative to how the quarter progressed and maybe why September was a little bit lower than seasonality?

Speaker #4: And that's the first time we've seen that for a number of months here. So I'm just curious, I think Max you might even have mentioned there was some very limited areas where you saw some weakness or something.

Speaker #4: I don't want to put words in your mouth, but anything to call out relative to sort of how the quarter progressed and maybe why September was a little bit lower than seasonality?

Speaker #1: No. I'll take that, Max. September still was a strong month at 14.4, but it was below July and August. And we're starting to lapse some pricing, but I think I'm more focused on the two-year growth, the 27%, and more importantly, the January 2, September sequential growth.

Jeff Watts: Well, I'll take that, Max. September still was a strong month at 14.4%, but it was below July and August. We're starting to lap some pricing, but I think I'm more focused on the 2-year growth of 27%, and more importantly, the January to September sequential growth. That's over 18%, which is well above our historic trend. Really, I think the most important number as we move into Q4 and more importantly into Q1. I think what also, when I look at those numbers, especially in September, what gives me a lot of confidence is really what's underneath that headline number. Contract sales grew at 19%. Our large customer sites continued to grow well. We continue to gain share. I think I would describe September as more of a moderation from very strong levels, not so much a change from the strategy or customer activity behind it.

Speaker #1: And that's over 18%, which is well above our historic trend. And really, I think the most important numbers we move into Q4 and more importantly into Q1, I think would also when I look at those numbers, especially in September, what gives me a lot of confidence is really what's underneath that headline number.

Speaker #1: Contract sales grew at 19%. Our large customer sites continue to grow well. We continue to gain share. I don't think I described September. I think I would describe September as more of a moderation from very strong levels, not so much a change from the strategy or customer activity behind it.

Jeff Watts: Our large customer sites continued to grow well. We continue to gain share. I think I would describe September as more of a moderation from very strong levels, not so much a change from the strategy or customer activity behind it. I don't know if you want to add anything to that.

Speaker #1: I don't know if you want to add anything to that.

Max Tunnicliff: I don't know if you want to add anything to that. Steve, I'll add on just the point around where in our end markets are we seeing a bit more of a slower pace. Even some of our, what we would call "weakest areas," albeit whether it's resellers, a little bit on the government side is still our end markets. We're still performing in the low double digits. A couple notable areas of weakness that we're just sensing more in the economy is more around ag and food. We don't feel that. That's clearly, to us, not an underperformance on our side, it's just part of the economy and what's happening there. As Jeff said, in September and looking ahead, we don't see any change in our underlying share gains, the way that we calculate our impact or what we've called in the past self-help.

Speaker #3: Steve, I'll add on just the point around where in our end markets are we seeing a bit more of a slower pace? And so even some of our what we would call in quotes weakest areas albeit whether it's resellers, a little bit on the government side is still our end markets.

Max Tunnicliff: Steve, I'll add on just the point around where in our end markets are we seeing a bit more of a slower pace. Even some of our, what we would call "weakest areas," albeit whether it's resellers, a little bit on the government side is still our end markets. We're still performing in the low double digits. A couple notable areas of weakness that we're just sensing more in the economy is more around ag and food. We don't feel that. That's clearly, to us, not an underperformance on our side, it's just part of the economy and what's happening there. As Jeff said, in September and looking ahead, we don't see any change in our underlying share gains, the way that we calculate our impact or what we've called in the past self-help.

Speaker #3: We're still performing in the low double digits. A couple notable areas of weakness that we're just sensing more in the economy is more around ag and food.

Speaker #3: But we don't feel that that's clearly to us not an underperformance on our side. It's just part of the economy and what's happening there.

Speaker #3: Yeah. So as Jeff said, in September and looking ahead, we don't see any change in our underlying share gains. The way that we calculate our impact or what we've called in the past self-help, we also don't see anything yet that would concern us from a macroeconomy perspective.

Max Tunnicliff: We also don't see anything yet that would concern us from a macroeconomy perspective that we haven't already seen in the past couple of quarters. So, a little below our sequential trends, but nothing that causes us to change our future perspective on our business.

Speaker #3: That we haven't already seen in the past couple of quarters. So yeah, a little below our sequential trends, but nothing that causes us to change our future perspective on our business.

Speaker #4: Super. Thank you. Very helpful. I'll pass it on.

Steve Volkmann: Super. Thank you. Very helpful. I'll pass it on.

Speaker #2: The next question, turn the line to Tommy Malt. What's Steven's? Please receive their questions.

Operator: The next question's from the line of Tommy Moll with Stephens. Please proceed with your questions.

Speaker #4: Good morning, and thank you for taking my question.

Tommy Moll: Good morning, and thank you for taking my question.

Speaker #1: Good morning.

Max Tunnicliff: Morning.

Speaker #3: Morning, Tommy.

Jeff Watts: Morning, Tommy.

Speaker #4: I wanted to start, maybe to tie out the conversation on gross margin, and then pivot to a strategic question as a follow-up. But on gross margin, in Q3, 40 basis points lower year over year; if we take away the 20 basis points of timing help, that gets us to down 60 basis points.

Tommy Moll: I wanted to start maybe to tie out the conversation on gross margin and then pivot to a strategic question as a follow-up. On gross margin, in Q3, 40 bps lower year over year. If we take away the 20 bps of timing help, that gets us to down 60. Is that the baseline assumption we should work with for Q4, or are there any other crosscurrents that you want to call out for us? Thanks.

Speaker #4: Is that the baseline assumption we should work with for Q4, or are there any other cross-currents that you want to call out for us?

Speaker #4: Thanks.

Speaker #3: Yeah. Yeah, Tommy. So you know our business well in that based on our strategy, one of the elements that comes from that strategy is just a consistent mix negative impact on margin.

Max Tunnicliff: Yeah Tommy, you know our business well, and that based on our strategy, one of the elements that comes from that strategy is just a consistent mix negative impact on margin, and that's both big customer growth focused, which shows up in leverage, and it's also just where we grow geographically, especially internationally. Yes, the around 60 bps is a good underlying point on a year-over-year basis to consider. Your question was, beyond that known item, what else might we want to consider for Q4? You can look at it a couple different ways. One is if you just take the sequential, the mix question doesn't impact, and we have a normal sequential pattern.

Speaker #3: And that's both big customer growth focused, which shows up in leverage, and it's also just where we grow geographically, especially internationally. And so yes, the round 60 bips is a good underlying point on a year-over-year basis to consider.

Speaker #3: So your question was beyond that known item, what else might we want to consider for Q4? And you can look at it a couple of different ways.

Speaker #3: One is, if you just take the sequential, the mixed question doesn't impact it, and we have a normal sequential pattern. Now, we don't provide guidance on a quarterly or annual basis, as you well know, but we do want to—and do—point out when there's something significant in our run rate.

Max Tunnicliff: Now, we don't provide guidance on a quarterly or annual basis, as you well know, but we do want to and do point out when there's something significant in our run rate. Aside from the, if you take a sequential pattern, aside from the 20 bps that I mentioned, there's nothing significant. We've talked about our goal of price to cost neutrality. Of course, delivering that goal would be a sequential benefit. If you flip to a year-over-year basis, same comment. If there's something really big, we would call it out. If you recall from Q4 of last year, we did talk about a significant amount of timing in our gross margin, and it was a negative 50 basis points the way we described it last year. If you're doing a year-over-year comp, you want to take that into account along with the mix.

Speaker #3: And so aside from the if you take a sequential pattern, aside from the 20 bips that I mentioned, there's nothing significant. We've talked about our goal of price-to-cost neutrality.

Speaker #3: Of course, delivering that goal would be a sequential benefit. If you flip to a year-over-year basis, same comment. If there's something really big we would call it out.

Speaker #3: If you recall from Q4 of last year, we did talk about a significant amount of timing in our gross margin. And it was a negative 50 basis points the way we described it last year.

Speaker #3: So if you're doing a year-over-year comp, you want to take that into account along with the mix. So we'll have a positive tailwind coming from the timing elements from last assuming no timing elements in Q4 this year.

Max Tunnicliff: We'll have a positive tailwind coming from the timing elements from last, assuming no timing elements in Q4 this year. Then you'll have the offset mix component. As you read through our results and looked at our Q3 deeper and deeper, you'll notice also that we have a little bit of benefits in the run rate. Again, it's the 40 bps that we mentioned as a benefit offsetting mix and offsetting price cost. Around half of that was timing. That means 20 bps remain. That's the way I'm thinking about both from a sequential perspective and a year-over-year perspective on gross margin. Now, again, I don't want to escape that answer without saying, we don't have the crystal ball everyone wishes everyone had. Some of these elements, a lot of our mix is dynamic.

Speaker #3: And then you'll have the offset mixed component and then as you read through our results and looked at our Q3 deeper and deeper, you'll notice also that we have a little bit of benefits in the run rate.

Speaker #3: Again, it's the 40 bits that we mentioned as a benefit offsetting mix and offsetting price cost and around half of that was timing. That means 20 bits remain.

Speaker #3: And so that's the way I'm thinking about both from a sequential perspective and a year-over-year perspective on gross margin. Now, I can't. Again, I don't want to escape that answer without saying we don't have a we don't have the crystal ball everyone wishes.

Speaker #3: Everyone had. And some of these elements a lot of our mix is dynamic. The inflation is dynamic and our pricing conversations are dynamic.

Max Tunnicliff: The inflation is dynamic, and our pricing conversations are dynamic.

Speaker #4: Yep. Understood. And appreciate it. And as a follow-up question, I wanted to ask about some press mentions recently of an AI-related acquisition. I don't think it was mentioned in the materials today.

Tommy Moll: Yep. Understood and appreciated. As a follow-up question, I wanted to ask about some press mentions recently of an AI-related acquisition. I don't think it was mentioned in the materials today, and my guess is this is pretty small, but could you just give us any details there and maybe explain how it ties into your broader strategy? Thank you.

Speaker #4: And my guess is this is pretty small, but could you just give us any details there and how it and maybe explain how it ties into your broader strategy?

Speaker #4: Thank you.

Speaker #3: Yeah. I'll talk maybe just scope it as size and why it wasn't mentioned publicly, and then I'll give it to Jeff. But first of all, just broadly, when we think about M&A for Fastenal in the near term, we're not we don't see a need for anything large but and we've made that clear in the past.

Max Tunnicliff: Yeah, I'll talk maybe just scope it as size and why it wasn't mentioned publicly, then I'll give it to Jeff. First of all, just broadly, when we think about M&A for Fastenal in the near term, we don't see a need for anything large. We've made that clear in the past. At the same time, we find opportunities and we look for opportunities to improve our capabilities. Oftentimes, those are not going to be large enough to even be disclosable and sometimes not large enough to even speak to on the call. We look at the ROI on those as being, in some cases, a little bit, in a way, limitless. So these are investments, and this is an example of one, and I'll turn it over to Jeff.

Speaker #3: But at the same time, we find opportunities, and we look for opportunities to improve our capabilities. And oftentimes, those are not going to be large enough to even be disclosable.

Speaker #3: And sometimes not large enough to even speak to on the call, but we look at the ROI on those as being, in some cases, a little bit, in a way, limitless.

Speaker #3: So these are investments and this is an example of one, and I'll turn it over to Jeff. But yeah, small, but we don't we wouldn't waste our time with something small that we didn't think has a positive coming in the future.

Jeff Watts: Yeah, small, but we wouldn't waste our time with something small that we didn't think has a positive coming in the future.

Max Tunnicliff: Yeah, small, but we wouldn't waste our time with something small that we didn't think has a positive coming in the future.

Speaker #5: Yeah. I think on this acquisition, I mean, we've known this company for quite some time. What they kind of brought us was some orchestration that we needed around our AI and our technology as we move forward.

Jeff Watts: Yeah, I think on this acquisition, we've known this company for quite some time. What they kind of brought to us was some orchestration that we needed around our AI and our technology as we move forward. It was an opportunity that, again, Max was. It's not maybe as material, or even more immaterial, but for us as a company, when we see an opportunity like this, obviously we jumped on it, and it's going to help us grow a lot faster on the tech side.

Speaker #5: And it was an opportunity that, again, Max was—it's not maybe as material, or maybe more immaterial—but for us as a company, when we see an opportunity like this, obviously, we jumped on it, and it's going to help us grow a lot faster on the tech side.

Speaker #4: Thank you both. I'll turn it back.

Tommy Moll: Thank you both. I'll turn it back.

Speaker #2: The next question, turn the line over to Ryan Merkel with William Blair. Please proceed with your questions.

Operator: The next question is in the line of Ryan Merkel with William Blair. Please proceed with your questions.

Speaker #6: Hey, everyone. Thanks for the question. And nice job on the new slide deck.

Ryan Merkel: Hey, everyone. Thanks for the question and nice job on the new slide deck.

Speaker #3: Thank you, Ryan.

Jeff Watts: Thank you, Ryan.

Speaker #6: I wanted to ask first on data centers. You mentioned that was a strong market. So I'll leave it kind of open-ended. Just curious how you see that impacting demand and in your answer, maybe talk about the data center pods.

Ryan Merkel: Wanted to ask first on data centers. You mentioned that was a strong market, so I will leave it kind of open-ended. Just curious how you see that impacting demand, and in your answer, maybe talk about the data center pods. I think you are having a lot of success there.

Speaker #6: I think you're having a lot of success there.

Speaker #5: I mean, overall, obviously, the data centers are meaningful contributor to our sale. Right now, internally, we look at about four to five percent of our four to five percentage points of our growth.

Jeff Watts: Overall, obviously, the data centers are a meaningful contributor to our sale. Right now, internally, we look at about 4 to 5 percentage points of our growth. The work really spans. The data center that we're seeing, the impact we see comes from the construction contractors and manufacturers supplying the build-out. Excuse me. We really serve that through existing customer relationships. It is difficult to really get a grasp between how much of the data centers is coming out. We should give you a stronger number for part of our growth. On the pod side, I'll turn that over to Max. He can talk a little bit about that.

Speaker #5: The work really spans the data center, and we're seeing the impact come from the construction contractors and the manufacturers supplying the build-out.

Speaker #5: Excuse me. I mean, we really serve that through existing customer relationships, but it is difficult to really get a grasp on how much of the data centers is coming out.

Speaker #5: We should give you a stronger number as part of our growth. But on the pod side, I'll turn that over to Max. He can talk a little bit about that.

Speaker #3: Yeah, just to reiterate what Jeff said: we want to calculate the impact better than we can, but as you know, the fingers are all over the place on data centers.

Max Tunnicliff: Yeah. Just to reiterate what Jeff said, we want to calculate the impact better than we can. It's just, as you know, the fingers are all over the place on data centers, and it's a bit of a tough one to call on the impact. It's big enough to call out. Yeah, the pods are more of a, if I get your question, just more of an approach on how we're innovating on thinking about how to service data centers. In a way, I guess I think of it this way, and I haven't heard this internally, so hopefully I'm not off, but it's more like it's setting up shop almost like an on-site and being as close to the customer as possible, which is always our strategy. It's our winning strategy we've had.

Speaker #3: And it's a bit of a tough one to call on the impact. But it's big enough to call out. Yeah. The pods are more of a if I get your question, just more of an approach on how we're innovating on thinking about how to service data centers.

Speaker #3: And, in a way, I guess I think of it this way—and I haven't heard this internally, so I could hopefully I'm not off—but it's more like it's setting up shop, almost like being on-site and being as close to the customer as possible, which is always our strategy.

Speaker #3: It's our winning strategy we've had, and so the teams innovated and found a way to service these growing customers in the best possible way.

Max Tunnicliff: The teams innovated and found a way to service these growing customers in the best possible way.

Speaker #5: I think for us, it's a way to try to keep up with the demand, because it's coming so fast that having that pod on-site is just helping us keep up with the day-to-day demand—which is sometimes pretty overwhelming, given the speed at which they need the product.

Jeff Watts: I think for us, it's a way to try to keep up with the demand, because it's coming so fast that having that on-site, that pod on-site, it's just helping us keep up with the day-to-day demand, which is sometimes pretty overwhelming on the speed in which they need the product.

Speaker #3: Yeah.

Max Tunnicliff: Yeah.

Speaker #6: Got it. All right, that's helpful. And then, second question is just on price cost. Just curious what you think that looks like in Q4.

Ryan Merkel: Got it. All right. No, that's helpful. Second question is just on price cost. Just curious, what you think that looks like in Q4. I think I heard you say the exit rate was better coming out of Q3, and do you expect to be back to neutral in maybe Q1 of 2027? I know it's a bit of a moving target. Maybe suppliers are raising prices, but just what are your thoughts?

Speaker #6: I think I heard you say the exit rate was better coming out of 3Q. And do you expect to be back to neutral and maybe 1Q of 27?

Speaker #6: I know it's a bit of a moving target, maybe suppliers are raising prices, but just what are your thoughts?

Speaker #3: Yeah. You're exactly right. It's a moving target. But I wouldn't dispute our goal is quickly as possible as it always has been and fortunately, we are making progress.

Max Tunnicliff: Yeah, you're exactly right. It's a moving target. I wouldn't dispute. Our goal is as quickly as possible, as it always has been, and fortunately, we are making progress. I think the way you articulated it, Ryan, feels very reasonable to me.

Speaker #3: But I think the way you articulate it, Ryan, feels very reasonable to me. On timing.

Ryan Merkel: Okay.

Max Tunnicliff: All right.

Ryan Merkel: On timing. Thanks.

Speaker #6: Thanks.

Speaker #2: Our next question, in the line of Christine Yao with Morgan Stanley. Just see if your questions.

Operator: Our next question is in the line of Christine Yao with Morgan Stanley. Please proceed with your question.

Speaker #7: Thank you. One thing that stood out in the September print was the divergence between I guess heavy manufacturing, which continues to grow north of 20% on average, for 3Q.

Christine Yao: Thank you. One thing that stood out in the September print was the divergence between, I guess, heavy manufacturing, which continues to grow north of 20% on average for Q3, and non-resi construction, which slowed quarter-over-quarter. Can you help us unpack what is driving that divergence? For example, is there something specific to certain projects or customer types, or are you seeing a broader change in activity?

Speaker #7: And non-residue construction, which slowed quarter over quarter. Can you help us unpack what's driving that divergence? For example, is there something specific through certain projects or customer types?

Speaker #7: Or are you seeing a broader change in activity?

Speaker #5: Yeah. I wouldn't say that there was a big slowdown in construction by any means. And construction, it can move around with project timing. Growth did slow from very strong Q2, but it still remained healthy.

Jeff Watts: Yeah. I would not say that there is a big slowdown in construction by any means. Construction, it can move around with project timing. Growth did slow from a very strong Q2, but it still remained healthy. Year to date, our construction fastener growth remained extremely healthy. We are watching it, but I do not know if we are seeing anything that changes our broader view on the construction side. The manufacturing side, yeah, continues to do very well. Very strong demand there. On the construction, I do not think we have anything that would change our broader view.

Speaker #5: And year-to-date, our construction fastener growth remained extremely healthy. And we're watching it, but I don't know if we're seeing anything that changes our broader view on the construction side.

Speaker #5: The manufacturing side, yeah, continues to do very well. Very strong demand there. So yeah, on the construction, I don't think we have anything that would change our broader view.

Speaker #7: Got it. That's very helpful. And September came in below typical seasonality. And I wonder, was there anything unusual in customer ordering patterns during the quarter that helps explain the softer exit rates?

Christine Yao: Got it. That is very helpful. September came in below typical seasonality. I wonder, was there anything unusual in customer ordering patterns during the quarter that helped explain the softer exit rates?

Speaker #5: No, kind of like what I said earlier. I mean, if you really look at the numbers, the last five months previous to September, we outgrew our historic rate.

Jeff Watts: No. Kind of like what I said earlier. If you really look at the numbers, the last five months previous to September, we outgrew our historic rate. Partially, we are lapping some pricing from last year. We do not really see anything out of the ordinary as far as demand goes, especially on the manufacturing side. I just think, we have a very good sequential trend January through September. I would not read too much into it.

Speaker #5: I personally we're lapping some pricing from last year. We don't really see anything out of the ordinary as far as demand goes, especially on the manufacturing side.

Speaker #5: I just think we have a very good sequential trend, January through September, and I wouldn't read too much into it.

Speaker #7: Okay. Got it. Thank you.

Christine Yao: Okay. Got it. Thank you.

Speaker #2: The next question is from Ken Newman with KeyBank Capital Markets. Please proceed with your questions.

Operator: The next question is in the line of Ken Newman with KeyBanc Capital Markets. Please proceed with your question.

Speaker #4: Hey, good morning, guys. This is Zach on for Ken. Thanks for taking the question. Just two quick ones. So the comps get tougher heading into next year.

[Analyst] (KeyBanc Capital Markets): Hey, good morning, guys. This is Zach on for Ken. Thanks for taking the question.

Zach Sherman: Hey, good morning, guys. This is Zach on for Ken. Thanks for taking the question. Just two quick ones. The comps get tougher heading into next year. First, is it fair to assume like a mid to high single digit growth? If that is a fair scenario, what should incrementals look like for Fastenal?

Jeff Watts: Sure.

[Analyst] (KeyBanc Capital Markets): Just two quick ones. The comps get tougher heading into next year. First, is it fair to assume like a mid to high single digit growth? If that is a fair scenario, what should incrementals look like for Fastenal?

Speaker #4: First, is it fair to assume a mid- to high single-digit growth? And then, if that is a fair scenario, what should incrementals look like for Fast?

Speaker #3: Yeah. Zach, I'll take the start on this and then Jeff can add in if you'd like. It's a bit of a it's a forecasting kind of guidance question.

Max Tunnicliff: Yeah, Zach, I will take the start on this and then Jeff can add in if you would like. It is a bit of a forecasting kind of guidance question, and I will give a couple points of color. One that you will want to keep in mind is just that we are, as we approach next year, the pricing tailwind, if you will, of course, will slow a little bit in the way that we look at our business as we focus a lot of our gauge of our success on the share gains. Just as we responded to September, we monitor that. We see a consistent share gain pattern ahead of us based on our potential and what we are driving. The rest is and we would assume less pricing, and the market dictates the rest of our performance.

Speaker #3: And I'll just give a couple of points of color. One that you'll want to keep in mind is that as we approach next year, the pricing tailwind, if you will, will of course slow a little bit.

Speaker #3: The way that we look at our business is that we focus a lot of our gauge of success on share gains. So, just as we responded to September, we monitor that.

Speaker #3: And so we see a consistent share gain pattern ahead of us based on our potential and what we're driving. And so then the rest is and we would assume less pricing.

Speaker #3: And so then the market dictates the rest of our performance. And so, without giving you the figures, yeah, that's probably going to—I mean, we expect our success, we think, in any environment should be a 10 percentage point top-line improvement each and every year.

Max Tunnicliff: Without giving you the figures, yeah, that is probably going to Our success, we think in any environment, should be 10 percentage point top-line improvement each and every year. That is what we hold ourselves accountable for internally. That is not a forecast or guidance either. Hopefully that helps put a little context there. You asked about incrementals, I think. On the incremental operating margin level, we continue to believe that our business, when we are growing double digits, should be in the mid-20s, if not higher. That is what we goal ourselves to achieve. That, if you will, not guidance, but what we have said consistently in the past holds, and I think it is proving itself out this quarter. Even if you take out the one-time events, we are in that mid-20 range, and that is where we expect to be.

Speaker #3: That's what we hold ourselves accountable for internally, but that's not forecaster guidance either. So hopefully that helps put a little context there. And then you asked about incrementals, I think.

Speaker #3: So on the incremental operating margin level, we continue to believe that our business, when we're growing double digits, should be in the mid-20s if not higher.

Speaker #3: And that's what we go ourselves to achieve. And so that, if you will, not guidance, but if that what we've said consistently in the past holds, and I think it's proving itself out this quarter, even if you take out the one-time events, we're in that mid-20 range.

Speaker #3: And that's where we expect to be. That's the healthy point of our growing of our fast-growing business is to be in the mid-20s.

Max Tunnicliff: That is the healthy point of our fast-growing business is to be in the mid-20s.

Speaker #5: Yeah. I would just add this pricing rule is over. What really replaces it for us is it's volume and share. I mean, price I mean, it did help this quarter, but I think the bigger story for us is our contract growth, our customer site expansion, a lot of the newer wins and deeper penetration.

Jeff Watts: Yeah. I would just add, as pricing rolls over, what really replaces it for us is volume and share. Price did help this quarter, but I think the bigger story for us is our contract growth, our customer site expansion, a lot of the newer wins and deeper penetration. As we anniversary maybe some of that pricing, our reported growth is going to grow naturally less help, I guess, from price. I guess that's math, but it doesn't really change the underlying customer activity that we see.

Speaker #5: As we anniversary, maybe some of that pricing, our reported growth is going to grow naturally. Less help, I guess, from price. And I guess that's math.

Speaker #5: But it doesn't really change the underlying customer activity that we see. So yeah.

Speaker #3: And he even said it just to illustrate what Jeff just said, if we just used pricing as a barometer looking ahead through the year we're walking through, there would be an expectation that we would have slowed down and so we have picked that up with share gains.

Max Tunnicliff: Yeah, and even said it, just to illustrate what Jeff just said, if we just used pricing as a barometer looking ahead through the year we're walking through, there would be an expectation that we would've slowed down, so we have picked that up with share gains. Of course, the market has helped. Not significant, but it's helped, even sequentially. So hard to tell on the future on that piece, but we're going to keep driving for the largest growth, obviously percentage that we can do and with the right incremental margins.

Speaker #3: And of course, the market has helped, not significant, but it's helped. Even sequentially. So hard to tell on the future on that piece, but we're going to keep driving for the largest growth, obviously percentage that we can do.

Speaker #3: And with the right incremental margins.

Speaker #5: Our sequentials are strong.

Jeff Watts: Our sequentials are strong.

Speaker #4: Got it. Thanks. I'll turn it back.

[Analyst] (KeyBanc Capital Markets): Got it. Thanks. I'll turn it back.

Zach Sherman: Got it. Thanks. I'll turn it back.

Speaker #2: Yep. Our next question's in the line of Chris Dankert with DA Davidson. Please just see through your questions.

Max Tunnicliff: Yep.

Operator: Our next question is in the line of Chris Dankert with D.A. Davidson. Please proceed with your questions.

Speaker #6: Hey, good morning, guys. I hope we could focus in a little bit here on SG&A. Impressive leverage in the quarter. I guess it's hard not to notice that Salesforce headcount is down over 400 heads versus where we were in June.

Chris Dankert: Hey, morning, guys. Hopefully we could focus in a little bit here on SG&A. Impressive leverage in the quarter. I guess, hard not to notice that sales force headcount is down over 400 heads versus where we were in June. Can you just kind of put that in context. Are there additional cuts planned. Is this just kind of a good hygiene reset. Maybe just give us an update on heads there.

Speaker #6: Can you just kind of put that in context? Is this are there additional cuts planned? Is this just kind of a good hygiene reset?

Speaker #6: Maybe just kind of give us an update on heads there.

Speaker #3: Yeah. Chris, I'll take that to start. First, I wouldn't I definitely wouldn't use the term cut because our business is a growth business. And we are there's no CFO or CEO sitting here putting a headcount cap on areas that are important to our business.

Max Tunnicliff: Yeah, Chris, I will take that to start. First, I definitely would not use the term cut because our business is a growth business, and there is no CFO or CEO sitting here putting a headcount cap on areas that are important to our business. This is really the output of a lot of the work that the teams have done, not just in months or quarters, but years, getting role specialization, putting the work in the right place, automating, using AI, and the focus on large customers. All of those lead to significant efficiencies. I would not even call it a reset, but this is our ability to grow this business without growing headcount nearly as fast using the tools that are at our disposal.

Speaker #3: And so this is a really the output of a lot of the work that the teams have done not just in months or quarters, but years getting role specialization putting the work in the right place, automating, using AI, and the focus on large customers.

Speaker #3: And so all of those lead to significant efficiencies. And so I wouldn't even call it a reset, but this is our ability to grow this business with outgrowing headcount nearly as fast using the tools that are at our disposal.

Speaker #5: Yeah. I would add that we're not going to starve the business to create a better margin quarter, but just to add into what Max was saying, a lot of the decisions in the field, they're being made in the field.

Jeff Watts: Yeah. I would add that we are not going to starve the business to create a better margin quarter. Just to add into what Max was saying, a lot of the decisions in the field, they are being made in the field. Instead of maybe in the past before we were kind of getting all the digital tools and all the different things out to the field, that natural reaction would be, "Hey, we landed this account, I need to add two or three heads." Now that those same managers, they are calling in saying, "Hey, we do not need the two or three heads, we need this tool. Now that we have this tool, we can do it with half." That is really what it is becoming. There is definitely no headcount or restriction on adding labor.

Speaker #5: And instead of maybe in the past, before we were kind of getting all the digital tools and all the different things out to the field, that natural reaction would be, "Hey, we landed this account.

Speaker #5: I need to add two or three heads." Now that those same managers, they're calling in saying, "Hey, we don't need the two or three heads.

Speaker #5: We need this tool. Now that we have this tool, we can do it with half. And that's really what it's become. And there's definitely no headcount or restriction on adding labor.

Speaker #5: We're going to add labor to help wherever we need it to continue to grow our business.

Jeff Watts: We're going to add labor to help wherever we need it to continue to grow our business.

Chris Dankert: That's really helpful, guys. I guess my surprise is just, I guess historically, you sign on-sites, you add contracts, you require just more labor energy. This seems like a material change. I guess, is there a specific tool in particular that's helped you guys lever? Because it's a marked departure it feels like.

Speaker #6: That's really, really helpful, guys. And I guess my surprise is just, I guess, historically, you sign onsites, you add contracts, you require just more labor energy.

Speaker #6: This seems like a material change. I guess, is there a specific tool in particular that's helped you guys lever? Because it's a marked departure, it feels like.

Speaker #5: I mean, I can I mean, there's a number of tools, but a few years back when I was traveling to branches, I was looking at how we were quoting business.

Jeff Watts: There's a number of tools, but a few years back when I was traveling to branches and I was looking at how we were quoting business, and it upset me because honestly, it was the same way I quoted business 30 years ago when I was in a branch, and it was, at the time, 2024. That can't exist. A lot of the new tools we've got in, instead of taking maybe 5, 6 days of sourcing and quoting, that same tool now using AI and some of our internal technology, it may take 15 minutes. That time savings alone, that's just one example, but we really looked at the branch efficiencies first when we were developing the tools, and then we went from there up. It's having a real impact on the field and on our headcount.

Speaker #5: And it upset me because honestly, it was the same way I quoted business 30 years ago when I was in a branch. And it was 20 at the time, 2024.

Speaker #5: That can't exist. So a lot of the new tools we've got in, instead of taking maybe five, six days of sourcing and quoting, that same tool now using AI and some of our internal technology, it may take 15 minutes.

Speaker #5: I mean, that time savings alone, that's just one example. But we really looked at the branch efficiencies first when we're developing the tools. And then we kind of went from there up.

Max Tunnicliff: That time savings alone, that's just one example, but we really looked at the branch efficiencies first when we were developing the tools, and then we went from there up. It's having a real impact on the field and on our headcount.

Speaker #8: And it's, it's having a real impact in the field and on our headcount.

Speaker #9: Got it. Well, thanks so much for the color, guys. I appreciate it.

Chris Dankert: Well, thanks so much for the color, guys. Appreciate it.

Speaker #8: Thank you. I know we started a little late, so we'll add one more question. I think we have time for one more question. Sure.

Jeff Watts: Thank you. I know we started a little late, so we will add one more question. I think we have time for one more question.

Operator: The question will be coming from the line of Guy Hardwick with Barclays. Please proceed with your questions.

Speaker #8: The question will be coming from the line of Guy Hardwick with Barclays.

Operator: The question will be coming from the line of Guy Hardwick with Barclays. Please proceed with your questions.

Speaker #10: Please proceed with your questions.

Speaker #8: Hi, good morning. Sorry to go back to the gross margin, but if we think about it on a year-on-year basis, should we assume that Q4 and perhaps into next year, you still have the mixed headwinds of large customers growing faster than small and mid-sized customers?

Guy Hardwick: Hi. Good morning. Sorry to go back to the gross margin, but if we think about it on a year-on-year basis, should we assume that Q4 and perhaps into next year, you still have the mixed headwind of large customers growing faster than small or mid-size customers, though offset perhaps better price cost and some other tailwinds that you referenced in the Q3 press release?

Speaker #8: Though offset perhaps better price-cost and some other tailwinds that you referenced in the Q3 press release? Yeah, Guy, I'll state the way I'm looking at it.

Max Tunnicliff: Yeah, Guy, I'll state the way I'm looking at it. We do expect to always. Always is hard to define. We expect over the coming years, as we continue to deploy our strategy of really winning with the biggest customers, not ignoring the mid-size, but focusing on the big ones, focusing on the customers that are mid-size that can be big customers. That's a very deliberate strategy that will usually result in a year-over-year impact of around 60 basis points, 50 basis points in that ballpark. The other mixed components of our business are largely not material, whether it be product mix and things like that. Now we'll have some geographic mix as we grow faster, as I said earlier. Yes, you would on a year-over-year basis typically expect a starting point of a 50 to 60 basis point headwind on our gross margin.

Speaker #8: So we will continue, we do expect to always, not always is hard to define. We expect over the coming years as we continue to deploy our strategy of really winning with the biggest customers, not ignoring the midsize, but focusing on the big ones, focusing on the customers that are midsize that can be big customers.

Speaker #8: That's a very deliberate strategy. That will usually result in a year-over-year impact of around 60 basis points, 50 basis points, in that ballpark. The other mixed components of our business, are largely not material, whether it be product mix and things like that.

Speaker #8: Now we'll have some geographic mix as we grow faster, as I said earlier. So yes, you would on a year-over-year basis typically expect a starting point of a 50 or 60 basis point headwind on our gross margin.

Speaker #8: As you look at Q4, and if you look back at our materials from Q4, you would factor in what we described as 50 basis points of timing that we encountered in Q4 of 2025, and that would largely offset, if not wash it completely away, that mix impact.

Max Tunnicliff: As you look at Q4, and if you look back at our materials from Q4, you would factor in what we described as 50 basis points of timing that we encountered in Q4 of 2025, and that would largely offset, if not wash it completely away, that mix impact in the quarter. Then, of course, we're always looking for opportunities in margin, whether it's sourcing, of course, the pricing work, all those other things. But I give you just the mix component as a baseline starting point with our margin profile.

Speaker #8: In the quarter. And then of course, we're always looking for opportunities, whether in margin, whether it's sourcing, of course, the pricing work, all those other things.

Speaker #8: But I give you just the mix component as a baseline starting point with our margin. profile. Thank you, Max. And Guy, if you had a second question, that's perfectly fine too.

Guy Hardwick: Thank you, Max.

Max Tunnicliff: Guy, if you had a second question, that's perfectly fine, too. As Jeff said, I hung up on you all, so we don't want to end too early, but if there was a follow-up question, feel free. Otherwise, we'll move into the close.

Speaker #8: We, as Jeff said, I hung up on you all, so we don't want to end too early. But if there was a follow-up question, feel free.

Speaker #8: Otherwise, we'll move into the close. Yeah. Also, in the quarter, you did a really— there was very good spread between gross profit growth up 14% and OpEx up about 9.5%.

Guy Hardwick: Yeah. Also in the quarter, you did a really. There was very good spread between gross profit growth up 14% and OpEx up about 9.5%. I know you kind of answered it on the incrementals question, but to what extent was that less than double-digit growth in OpEx? I think it was improved versus the previous quarter, helped by the headcount reduction or the natural reduction in headcount. Is that sort of a trend going forward, how we should think about headcount, total OpEx growth, and maybe headcount growth as well, if you have any thoughts on that?

Speaker #8: I know you kind of answered it on the incrementals question, but To what extent was that less than double-digit growth in OpEx— I think it was improved versus the previous quarter— helped by the headcount reduction or the natural reduction in headcount?

Speaker #8: And is that sort of a trend going forward, how we should think about headcount, total OpEx growth, and maybe headcount growth as well, if you have any thoughts on that?

Speaker #8: Yeah, the largest driver, you're right, was headcount. Second was occupancy expenses. And so We're not providing guidance on these elements is the thing, but this is not like— as you can tell from our comments around what's driving this, there is a structural benefit to our headcount and, in fact, direct/indirect impact on our occupancy that we see going forward.

Max Tunnicliff: Yeah. The largest driver, you are right, was headcount. Second was occupancy expenses. We are not providing guidance on these elements is the thing, but this is not like. As you can tell from our comments around what is driving this, there is a structural benefit to our headcount and in fact, direct/indirect impact on our occupancy that we see going forward. We have a little more runway on getting better usage of tools, putting work in the right place, call it optimizing our footprint. Of course, we are going to keep adding hubs and doing those things, and some of that could be footprint changes from the branch side. We are going to constantly pursue cost opportunities and efficiency opportunities while focusing on, number one, growing the business. Yeah, I just want to reiterate, this is not a blip, like a one-time blip.

Speaker #8: And so, we've got a little more runway on the getting better usage of tools, putting work in the right place. call it optimizing our footprint.

Speaker #8: Of course, we're going to keep adding hubs and doing those things, and some of that could be footprint changes. from the branch side. So we're going to constantly pursue cost opportunities and efficiency opportunities while focusing on, number one, growing the business.

Speaker #8: And so, yeah, I just want to reiterate, it's not a This is not a blip, like a one-time blip. It's more of a structural improvement in way of working within our sales force.

Max Tunnicliff: It is more of a structural improvement and way of working within our sales force primarily, and I should not exclude it just to sales force. It is our labor. Okay. Thank you.

Speaker #8: Primarily, and I shouldn't exclude it just to Salesforce, it's our labor.

Speaker #10: Okay, thank you. Thank you very much. Thank you. So it looks like we've come to the end of our time. I'll just kind of close it out with this, you know, my thanks again to the Blue Team.

Guy Hardwick: Thank you very much.

Jeff Watts: Thank you. It looks like we've come to the end of our time. I'll just close it out with this. My thanks again to the Blue Team. Q3 was strong, and it was led by share gains. Earnings grew faster than sales. Operating margin expanded, and returns on capital remained excellent. We still have some work to do, I think, on the price cost and maybe some of our execution, but the strategy's working, and the Blue Team is executing. We're staying very disciplined, and I just want to thank you all for your time today, and hope you have a great rest of your week. Thank you.

Speaker #10: Q3 was strong and it was led by share gains. Earnings grew faster than sales, operating margin expanded, and returns on capital remained excellent. Now, we still have some work to do, I think, on the price cost and maybe some of our execution, but the strategy is working and the Blue Team is executing.

Speaker #10: So we're staying very disciplined, and I just want to thank you all for your time today and hope you have a great rest of your week.

Speaker #10: Thank you. Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.