Hello, and welcome to the Fastenal 2023 Q3 Earnings Results Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may ask a question at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Taylor Ranta of the Fastenal Company. Please go ahead, Taylor. Welcome to the Fastenal Company 2023 Q3 earnings conference call. This call will be hosted by Dan Florness, our President and Chief Executive Officer, and Holden Lewis, our Chief Financial Officer. The call will last for up to one hour and 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 December 1st 2023, at midnight, Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to note that the company's actual results may differ materially from those anticipated. 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. Daniel Florness. Thank you, Taylor. Good morning, everybody, and thank you for joining our Q3 call. I'll start on the reference the Flip book on page 3. Conditions remain challenging in the Q3 of 2023, reflected in a daily sales growth rate of 4%. Still, regardless of the year, we celebrate milestones when they occur. I remember just over 10 years ago, when we hit $10 billion in daily sales for the first time, we recognized that on this call, as well as internally, to celebrate that milestone. Some years later, we hit $20 billion. Here in the month of September, we broke $30 million in sales per day for the first time in our history, and my congratulations to the Fastenal organization for hitting that milestone. Our sales growth in the quarter translated into EPS growth, or EPS of $0.52, 4.1% growth over the same period last year. Our results reflect the unique profile, product profile of our business. Fasteners still constitute about a third of our sales, and within that subcategory, about 63% is an OEM-oriented fastener. And that business can be very cyclical because of the production needs of each of the customers we're serving. If you look at the rest of the business, it tends to be much more MRO oriented. Our fastener daily sales, as you've seen in our monthly sales release, have decelerated at a faster rate than our non-fastener business as we've gone through the calendar year. The Q3 operating margin hit, was 21%, which matched last year, despite the one less selling day. You know, earlier I spoke about the $30 million we do in a day. The quarter had one less day. Many of our, some of our expenses are tethered to the day, most are not. You know, I'm pleased that the team was able to match the operating margin of 21% from last year, but I believe that understates the reality of the performance. If you looked at it on a same-day basis, we believe we would have increased the operating margin because we'd have had roughly $10 million more, about a third of that $30 million, in operating income, because that... A good chunk of that flows through because of the change in the nature of the expense. The good thing, if I think about the last several years, we had a unique opportunity to serve the marketplace because of our pristine balance sheet. When COVID hit the globe back in 2020, we were able to step forward and secure, purchase, and fund with cash a meaningful increase in inventory, primarily centered on safety supplies, because our customers and society in general needed something to get through that period, and we were proud to be part of the solution. We were able to do that because of our balance sheet. As the global economy reemerged from the pandemic, we saw firsthand, and you saw it in daily news clippings, about the congestion that was going on in supply chains around the planet. Again, as supply chains became more rocky and you couldn't rely on how many days it would take to get product, there's a solution to that: It's stock more product. And we beefed up our balance sheet and our cash flow suffered as a result, but I believe our standing with our customers and in the marketplace never performed better, because the market could rely on the covenant that Fastenal provided to them in being a great supply chain partner. As we moved deeper into 2022 and now into 2023, we've been able to unwind a piece of that. As a result, on a year-to-date basis, we have converted 121% of our net earnings into operating cash flow. That's our highest performance in a decade that's averaged just shy of 100%, about 95%. If I look at it from the standpoint of relative to a year ago, in the quarter, our operating cash grew about 51%. Year to date, our operating cash has grown 69%. Again, part of that's a reflection of the investments we made to serve our marketplace and our ability to unwind that in the current environment and translate that into cash flow for the organization to serve our shareholders and to serve the business as we move into the future. Our onsite and FMI install bases and our digital footprint continue to expand. Earlier this year, we did some restructuring and we announced the elevation of Jeff Watts to Chief Sales Officer in the organization. We did some restructuring of the sales side of our organization because we wanted to double down on the challenge we'd put in place in front of everybody, going back to the 2015 timeframe. That was really stepping into what we saw as an untapped opportunity to grow our business faster, and that was to expand our onsite presence. It was earlier this year that for the first time, the number of Onsites in the organization outnumbered the number of branches in the organization, and that delta continues to expand. We believe that each of our district managers has the potential in their market to land two Onsites per year. It's our job, and part of the purpose of the restructuring of the sales team, was to really just decide: Hey, we believe it, but we haven't done it. Let's do this thing. You know, we've expanded... You know, not too many years ago, we were signing 80 Onsites a year and we laid out the plan to get to 400 a year. We expect to, you know, as you see on the next page, we'll do about 350 this year. But we haven't hit that number, and we've been kind of stuck. Now, COVID threw some challenges our way. It's never an easy time to move in to move in with somebody when they're trying to isolate from the rest of the world. That challenged our ability to grow coming out of COVID. But looking at the opportunity that's out there, I believe we can do that. We need to turn that belief into reality. Flipping to page four. Speaking of Onsites, we did sign 93 in the quarter. So our active sites are 1,778, 13.5% greater than they were at the end of Q3 of 2022. And our daily sales in those Onsites, excluding transferred business when you open an Onsite, is in the low double-digit rate. So we're seeing good growth there. We're just not signing enough. And as I said, we still anticipate signing roughly 350 this year. FMI technology, there we set lofty goals as well. We said, "Can we do 100 a day? Not a hundred a quarter, but a hundred a day, of our weighted device count. We did 5,969 during the quarter, 95 per day versus 81 a year ago. The team's performing really well here. We're not at the hundred. The hundred is a goal, and we will push and push and push till we get there. I'm really proud of what the team is doing, and you see that shine through when you look at our sales by product line and in our monthly and quarterly releases. One thing you do see is our safety business, it grew almost 10% in the month of September, and a lot of that could be attributed to the success we're seeing in FMI. It's our anticipation we'll, we'll sign between 23 and 25 thousand MEUs this year, and that's a combination of FASTBin and FASTVend. E-commerce, we can... You know, it's still in the scheme of things, a relatively small piece of our business. It's just under 25%, but it's up from single digits not too many years ago. And it currently grows... it grew about 41% during the quarter, and that's really a case of the marketplace saying to us, "We'd prefer to purchase from you this way." And our, and our team in the field and our team in technology, building an ever better mousetrap to serve into that market. As I've shared on prior calls, we still have a ways to go on this piece of our business, because a chunk of e-commerce is that unplanned spend, and our goal is to keep making that easier for our, for our team to do in the field. Finally, if you roll up FMI and e-commerce, we, we talk about our digital footprint. How much of our revenue is touching some digital aspect of engagement? We were at 57% in the quarter versus 49.5, a year ago. Our challenge to the team is targeting 60% sometime before we exit this year, and our long-term expectation is still at that 85% we've talked about in the past that we believe will be part of our digital footprint as we move into the future. In addition to our earnings release, there's several 8-Ks that have gone out around the earnings time, and I thought I'd share just some insight on the three. The first one, and I believe it went out yesterday evening after market close, we announced, as we do, typically on a quarterly basis, a dividend. We announced a $0.35 dividend, which is consistent with the dividend we had paid in each of the first three quarters of the year. We also announced a few leadership changes. One is a press release we put out. One of the individuals that's been very influential in our ability to beef up our inventory during COVID and ramp it back down, and overseeing the distribution and transportation teams as well, is Tony Boersma. Tony's been with the organization, roughly 20 years. He's demonstrated, through a career, and we identified that we lay out his career in the press release, the different roles he's had, but he's demonstrated excellence. Yesterday, I asked the board of directors to elevate him to executive vice president over operations. Essentially elevating his role in that his responsibility will be largely unchanged from what he had previously, but it's recognizing his performance and what we see in the future of Tony within the organization. A second filing went out. It's a required filing related to one of our officers who has decided to move on to a new chapter in his career. It's Terry Owen, our Chief Operations Officer. I've known Terry for many years. He's been with the organization. I believe all told, he's been at the organization about 28 years. The official documents say it's 24.5, because he was in the early years, part-time with the organization, but then he came full-time and had a break in service there. But Terry's demonstrated a career of exemplary service to the organization. We'd had some conversation in recent months about some aspirations he had in the... He's looking at the number of years he has left in his career and what he wants to do, as he moves into his next chapter of life. He had discovered an opportunity that he thought was quite compelling, that would serve his desire for the future, as well as his family. Terry had relocated to the East Coast of the U.S. several years ago for family reasons, and all I can say to Terry is, you're a good friend. I wish you best of luck in your next endeavor, and thank you for the team that you developed, Tony being one of them. But thank you for the team you developed. The organization has always prided itself on our ability to build leaders and promote from within. And every time we see a person decide to take a new chapter in life, whether that chapter is retirement or going into a family business or whatever the case might be, we always see another layer of talent right behind that person, ready to step in and discover their, their future and their opportunity. With that, I'll turn it over to Holden. Thank you, Dan. Good morning, everyone. I'm going to start on the slide deck on slide five. Total sales in the Q3 of 2023 were up 2.4%. Adjusting for the fact that we had one fewer selling day in the quarter, our daily sales were up 4%. Frankly, the dynamics of the quarter varied very little from the Q2 of 2023. Macro data points and feedback from the regional leadership continue to point to sluggish demand and a cautious outlook for spending and production. We are certainly encouraged by the improvement in our September daily sales rate to up 5%. However, it seems to have more to do with easing comparisons in certain parts of our business than a clear signal of firming customer demand or brightening outlooks. Dynamics around our products, customers, and end markets have also trended similarly over the past 3 and 6 months. Manufacturing grew 6.4%, despite soft demand, benefiting from further growth in the on-site installed base and initiatives in national accounts in the field that target key account plan spend, which is disproportionately manufacturing-oriented. Non-manufacturing was down 1.3%, though the rate of decline moderated as we began to hit easier comparisons in non-residential construction, reseller, and warehousing customers. From a product standpoint, fasteners are relatively weak, down 2%, due to their more cyclical profile and rapid pricing moderation. In contrast, non-fastener products remained healthy due to further growth in our vending installed base and improved comparisons. As it relates to pricing, it remains positive, but has come back to a range of 0%-2% that we consider to be typical under normal economic conditions. We did experience very modest deflation within our fastener product line. Now to slide six. Operating margin in the Q3 of 2023 was 21%, equaling our margin from the Q3 of 2022. We typically believe that given mid-single digit daily sales growth, we should be able to defend our margin. However, that we were able to do so, despite the headwinds related to the one fewer sales day that Dan described in his prepared remarks, points to what we believe was more effective cost management by the blue team, relative to the Q2 of 2023. Gross margin was 45.9%, flat in the period from the prior year. Freight remained favorable, reflecting modest leverage of our captive fleet expenses, reduced use of external freight providers, lower fuel, and reduced shipping costs. We also benefited from the absence of last year's $3.4 million glove write-down and slightly positive price cost. These favorable variables matched the margin drag related to product and customer mix. The impact of mix was slightly less negative, and the impact of price cost was slightly more positive than anticipated at the Q2 call. We did not take any incremental pricing actions in the period, and the favorable price cost in the current period largely regains the negative price cost we discussed in the Q3 of 2022. We expect price cost to trend neutral in coming quarters. SG&A was 25% of sales, up from 24.8% of sales, mostly due to the one fewer sales day. We experienced modest payroll leverage with lower incentive pay, reflecting slower growth in the Q3 of 2023 versus the Q3 of 2022. This was more than offset by rising information technology spend, an increase in general insurance costs, increased expenses to maintain our selling-related truck fleet, and higher bad debt. Relative to the Q2 of 2023, the organization tightened its management of discretionary expenses, with spending on travel, meals, and supplies being down 0.6% year-to-year, and continued moderation of growth in our FTE count. Putting everything together, we reported Q3 2023 EPS of $0.52, up 4.1% from $0.50 in the Q3 of 2022. Turning to Slide seven. We generated $388 million in operating cash in the Q3 of 2023, or 131% of net income in the period. Cash generation is traditionally strong in Q3s, though conversion in the current quarter was stronger than is historically typical. This reflects reduced need for working capital as demand slows down and improvements in inventory. The resulting strong cash flow means our balance sheet remains conservatively capitalized at the end of the Q3 of 2023, with debt ending at 7% of total capital versus 9.4% in the Q2 of 2023, and 14.9% in the Q3 of 2022. Year-over-year, accounts receivable are up 5.4%, which is a combination of sales growth and the impact of mix due to faster growth from larger customers, which tend to have longer terms. Inventories fell 9.8%. Slower customer demand reduced working capital needs. We are unwinding inventory layers built in late 2021 and early 2022 to manage supply chain constraints, and our field and hub operations have sustainably streamlined inventory processes. Our days on hand fell again to 134.6 days, the lowest since 2002, which reflects improved velocity of inventories through our internal network, a reduction of retail stock in branches, and improvements in stocking processes. We reduced our net capital spending range to $180 million-$190 million, down from $210 million-$230 million. This largely reflects timing and deferrals related to hub automation and expansion projects that we do expect to be included in next year's capital spending plans. The Q3 of 2023 profiled very similarly to the Q2 of 2023. We continued to experience stagnant demand, a cyclical shift favoring non-fasteners, and a secular shift favoring larger manufacturing-oriented customers. Growth driver performance is not quite where we would like it to be, but is at levels that continue to support good growth in our installed base, success in providing differentiated value to our customers, and further cost and asset efficiency. ` margin performance remains stable despite the slow growth, and our capacity to generate cash to reinvest in the business remains strong. We did begin to experience easier comp- comparisons in certain markets, and our management of discretionary expenses improved over the preceding quarter. We continue to believe we are positioned to meaningfully accelerate sales growth when underlying demand improves, while sustaining strong profitability returns. With that, operator, we'll turn it over to begin the Q&A. Certainly. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please, while we pull for questions. Our first question is coming from Nigel Coe from Wolfe Research. Your line is now live. Thanks. Good morning, everyone. Morning. So the price cost, definitely coming in a bit better than what we expected. Is this as simple as thinking about the ocean freight rate normalization, and we're starting to see that now coming through from inventory? So I'm just wondering if, you know, when we obviously talk about the freight benefits, just wondering if that's more ocean-bound freight as opposed to domestic? I think, Nigel, there's a little bit of that that's flowing through, but, you know, we've definitely seen lower costs, you know, related specifically to our fastener line. And, you know, that-- I think that that's, that's largely what, what you're seeing. So yeah, when we think about what caused a lot of the inflation in our business, there was, there was an element of it that was raw material, but there was a fairly significant element of it that was related to transportation. I think you're just seeing some of that, that gradual impact play through. You know, but I, you know, I want to also give a lot of credit to the organization, particularly sort of the field and the national accounts teams and the folks that manage pricing. I mean, I believe five years ago, that we wouldn't as effectively have been able to align our pricing and costing the way we have. The variance that we've had against what's going on in the market has been fairly tame. If you remember, this quarter, last year, we were talking about a 20 basis point deficit, and we felt that that was going to. We felt at the time that we hadn't quite caught up with where costing went with fasteners, and I think our guidance at the time was, we kind of expect that costing to catch up. It has caught up and probably came in a little bit, but I think over coming quarters, you're going to see, you know, the benefit that we saw this quarter, which largely recaptures the deficit we saw a year ago. I think you're going to see that begin to moderate. So, it wasn't what we expected either. As you know, we target neutral. We continue to target neutral. You know, but I don't think that it's a sustained trend either. I think as we go through the next couple of quarters, it's going to trend back to neutral. Okay. Thanks. Thanks, Holden. And then on the CapEx, you know, the push out to the projects, was that an elective push out? Just want to see if that was maybe just, I don't know, supply chain challenges or delays? No. You know, from a supply side, or was that elective? The majority of it was not elective. You know, we had a... There's a piece of property in there, the signing of which just got pushed out from Q4 to Q1. That's just a calendar timing issue. We did have some automation projects where it's just a matter of when the product is going to come in. We always knew it'd be later in the year, and it's just going to sort of cross the calendar line. So, you know, the majority of it relates to projects that we remain committed and excited about. ... and will fall into the 2024, and it was more a function of timing. Now, I will say that earlier in the year, we did say: "Look, take, take a look at your budgets. It's not a great year in terms of demand, and, and tighten some stuff up." So I think there's some elements in there of, of what you're talking about, not just about, you know, enforcing discipline across the organization. But I think the larger portion of it relates to projects that will be coming back into the business in 2024. Got it. Okay, thanks a lot. Thank you. Thank you. Next question is coming from Chris Snyder from UBS. Your line is now live. Thank you. I wanted to follow up on some of the price cost commentary. You know, I understand that price cost was positive from a year-on-year perspective, but I think you said the deficit was largely caught up, which would kind of maybe imply that you're still a bit price cost negative at the moment. So when we think about that trajectory back to neutral, is that, like, incremental price cost positive to get there, or is that incremental price cost give back to get there? Thank you. I mean, I, I guess I'm viewing... I'm viewing the next couple of quarters as being the inverse of the last few. Again, if you remember, in Q3, we talked about fasteners. We, we had a little bit of a deficit in price cost, and, and the guidance at the time was that over the next few quarters, you would see that deficit begin to decline. Was there a fastener deficit in Q4? Yes, there was. Is it possible that we get that fastener deficit from Q4 back in Q4 of this upcoming quarter? Yeah, I think that that's possible, but the deficit Q4 last year was not as wide as the deficit in Q3, and I'm not expecting the benefit in Q4 this year to be at the same level as the benefit we saw in Q3. Really, you know, again, this feels very much like the inverse of what occurred last year. At the end of the day, yeah, we'll probably wind up over the course of both the years, kind of being neutral from a price cost standpoint. But, you know, within that overall trend, yeah, there's been a little bit of a little bit of swinginess. Thank you. I appreciate that. And then, maybe could you just talk a little bit about pricing on the non-fastener side? You know, I think, you know, understand that the fastener is seeing some price pressure, whether it's the metal or the freight, but can you talk about the non-fastener side of the business? Sure. Thank you. Yeah, we don't talk about it a lot because it's behaving largely like we would expect it to. You know, pricing in the non-fastener areas has moderated just like our overall pricing has. But much like our overall pricing levels at this point, it's kind of back in the range that we would normally expect it to be in. It's still positive. It's lower than it was a year ago, but frankly, you know, that area is performing largely as expected. Historically, we have not traditionally seen negative pricing in non-fastener products. You know, I don't expect that that's going to happen, you know, in this cycle either. So we view that the conditions for pricing in those products to be pretty stable here. Thank you. Thank you. Next question is coming from David Manthey from Baird. Your line is now live. Dan Holden. Good morning. Good morning. Morning. First question, could you talk about the feedback and early returns after you reopened the front doors of your stores last month? You know, I don't—there hasn't been a lot of feedback. One, one thing I do every day, and I've done this... quite frankly, I've done this for the last eight years, is I, I end each day in every web feedback that comes in from customers, I try to read. I'm not going to say I, I read 100%, but I try to. And, that tells, that tells you it's a small enough number that I'm able to even try to, when you consider the hundreds of thousands of customers we have. And, Yeah ... you know, over time, you pick up different themes and, obviously, you could—if you go... If I go back to the COVID era, boy, were there themes jumping out. The themes were a society really frustrated, not with us, just with some—just frustrated, scared about what's going on. You know, most of our business is in the US, and so scared about what was going on and things that were going on and chaos around them. And oftentimes I would call—I would, once a week, maybe twice a week, call somebody up, kind of throws them a little off kilter when they get a call from me right after they've put something. But you learn a lot that way. It's largely almost too quick to see. But my predecessor had a phrase he used sometimes, and he used to keep it on his computer screen. "So if you want to grow your business, make it easy to buy." And sometimes if you confuse the market, it's kind of like in today's world, you go out to eat. It's a rare time that I go out to eat that I don't check on, you know, on my phone to see if the place is even open. You know, Mondays and Tuesdays especially, you can't necessarily count on it, especially in a town of 25,000 people. The economics don't work for that business to be open certain nights. The biggest thing we needed to do is be really, really consistent with what we're doing. The market reacts to that by saying, "Okay, this, this makes sense." If you get there and the door is closed and you were expecting it to be open, I don't have a lot of insight for you, Dave, other than to say there's probably fewer comments about, you know, I stopped there at 8:00 A.M. or 10:00 A.M., and your door was closed. What, what, what's going on? On the flip side, it's also empathy is a two-way street. And it's really looking at it and saying, it's finding that spot where the business can meet the road, so the wheel can meet the road, or rubber meets the road, whatever that expression is. But it's good for both parties. And good is that we can provide a high level of service, and it's economically good business for, again, both parties. I believe we can find it. A lot of that business is, you know, has migrated, and we've seen it in our own internal statistics, really, since COVID started, the amount of that business that's migrated to the internet. It's really, in some ways, the market making that transition of, "Boy, it's a lot easier if I pop an order online and then go pick it up." It's easier for the customer. I think that's part of it. It's also reminding our teams locally that our goal in everything we do is always trying to figure out how to make the market opportunity bigger, and find good, productive use of our time to serve the marketplace and serve our customer. I like it from the standpoint, I think it's a better message for our team: "Go out and grow the damn business, and stop spending time about what you're not going to do. And just one, probably the one piece of perspective I might add, Dave, is, you know, for a long time or for several years, we had a lot of different models occurring within the branch, right? There were some branches that did, in fact, close their doors. There were some branches that had very specific will call hours. There were some branches that stayed open. There were branches that flipped their counters, you know, branches that didn't. And I think what you're really seeing and picking up on is after several years of experimentation, which is really what Fastenal does, you know, it came time to say: "You know, let's settle on and align around kind of an agreed approach to it." And, you know, so what you've picked up is essentially us having looked at the various experimentations that were run throughout the organization for a number of years and saying, "Hey, here's the path forward that we're going to take. I appreciate the color, guys. Thank you. Yep. Thank you. Our next question is coming from Jacob Levinson, from Melius Research. Your line is now live. Good morning, Dan, Holden. Morning. Morning. I know you guys sell into lots and lots of different end markets, and maybe it's not always easy to tell exactly where the product's going at the end of the day, but maybe you can just walk us through what you're hearing from the field in terms of some of the positive and negative outliers, you know, on a vertical basis. Yeah, you know, unfortunately, we don't have great granular insight, market by market. You know, the example I often give is, there's a lot of manufacturers out there that are considered manufacturers in our business, but they might have enormous oil and gas exposure, but we don't see that oil and gas exposure. So I wish I could give you more detail, end market by end market. We just don't have it. The data doesn't break out that way. The feedback from the field continues to be fairly uniform. I think aerospace is doing fairly well. I'm not getting a lot of feedback that anything else is really inflecting more favorably. I'm getting the feedback that everything else remains fairly, you know, fairly tepid. You know, and that generally speaking, managers across our business are fairly cautious on where the market is today. But I wish we could give you more granularity, end market by end market. We just don't have the means to measure it that way. The only thing I'll add to it, and my ask of everybody hearing this, don't read too much into it because it's a relatively small piece of our business. But when I'm going through the numbers, the individual that pulls the stuff together, I often wear him out a little bit with questions and just to understand it myself. And the other end markets, you know, which is about 11% of our business, it's a bunch of stuff in there. Hence, the term other. And it peaked up, and one of the components of that is our government business. And our government business has been gaining strength as we've gone through the year, but it didn't gain strength sequentially in September. And sometimes that's just a function of comp. But because generally speaking, it's been gaining because we've been really successful in onsite and government locations that we have in the business. And so I was asking him, I said: "I know government didn't tick up. Why did that tick up?" And a big chunk of that other is transportation, and it's not automotive transportation, it's not in there. It's transportation that we sell into, and that saw a real uptick. I'm not sure what that means, so maybe I created more questions with that answer than an answer with that answer. But that was the one thing that jumped out at me. I'm still scratching my head on it, but at least I know that's what drove the other end markets to grow 12.5%. Okay, that's helpful color. Thanks. Maybe just switching gears quickly on, on, you know, I think maybe in past cycles, you know, Fast would've, would've maybe had trouble holding the margin line and, and revenue growth at, at these lower levels. And I, I guess the question is, structurally, what's really changed in the business? Today versus prior cycles and, and gives you that confidence in maybe being able to have higher incremental margins going forward, even if the growth rates aren't necessarily, in this macro backdrop, at least. Yep. Yeah, higher. Yep. You know, I think there's a few things in there. One is, when we came through the tariff period, that was brutal from the standpoint of our pricing tools being so decentralized, that communicating what was changing almost on a week-by-week basis was incredibly difficult. And there was one quarter where I sat down with our IT, John Soderberg, our leader of IT, and I said, "John, I'm going to ask you something that I told you I'd never ask you to do. We're going to shut down all IT development for whatever time it takes, and we're going to focus 100% of our energy on a better pricing tool for our organization to use, because this is a disaster we're going through right now, and we can't handle these fluctuations 'cause our system isn't built for that." We shut down IT, and we focused on building what we call our price review tool. Then we had other folks in the organization that took that. Our district managers, we have a key person here in Winona, Kevin Fitzgerald, who took that and created a great tool. Our ability to price. Pricing isn't as much about not being too high as it is about not being too low. Sometimes, if your price isn't precise and you're too high, you might actually hurt your margin 'cause you don't sell enough of that. Where if you were three points lower, you would sell more of it, and it'd help your margin. So on the gross margin side, we've gotten better at our ability to price, and in the recent years, our transportation team has gotten really agile at managing the expense side. So that's on the gross margin piece. And there's a bunch of other things, but I don't want to give you a 15-minute answer. On the operating expense side, we focused a lot of energy on people development, on leadership development. You know, I... You know, earlier, when I was talking about the transition with Terry, you know, one of the things that always makes me feel good about transition within Fastenal is the incredible bench of talent we've, we have, that exists throughout the organization. It's from a promotion within culture. Because of all that investment, our leadership team, whether it be in a support area, at the district level, at the regional level, our leadership team has never been better. One thing I'll credit, especially to Casey Miller, who leads our US business, and Jeff Watts, who leads our global business, they both have done an incredible job over the last five, six years of challenging their leaders to be better at managing the expense side. Because in a decentralized organization, there's nothing more difficult than that. You have to be out ahead of stuff. They've just done a wonderful job on that. And then the other piece, not to slight anybody, our distribution team is and their ability to manage expenses through this cycle is second to none. Sometimes I look at the information I see, and I'm, I click my heels, and I'm like: I can't believe how good this team is. And I think we're just better at it. And that's not about one person, that's about an organization that's gotten better over time. Thank you both. That's great color. I'll pass it on. Thanks. Thank you. Our next question is coming from Patrick Bauman from JPMorgan. Your line is now live. Oh, hi, good morning. Thanks for taking my questions. Maybe one for Holden first. Just wanted to follow up on the near-term gross margin expectations. It sounds like the price cost will be favorable year-over-year in the Q4, and then you also have an easy comp, but some... I think you had called that, like, weaker product margins last year. Maybe that's the non-Fastener business. I guess, just given that and your Q3 performance, are you thinking the gross margin in the Q4 is going to be up year-over-year? And then can it also be up maybe from the Q3 as well? No, not up from the Q3. First off, I think you have a number of things from Q3 to Q4. The first is, there is seasonality in play, and I think it's typically, give or take, 30 basis points of seasonality between Q3 and Q4. That's just proven true over time. It relates to the mix of our business in the Q4, et cetera. The de-levering of our trucking network. And the de-levering of our trucking network. So I, I think, first off, you have that, that sequential headwind. Now, in the past, I've argued that it might be slightly more muted in the Q4, but that was also based on a lot of freight advantage. Now, I will tell you, in the Q3, we've begun to see cyclically, sometimes when things get challenging, you know, you can see some of your, your freight revenue piece begin to soften a little bit. And we, we saw some of that during the Q3. And the, the leverage that you get when you grow the freight revenues, reverses when you don't. That was a bit of a challenge in at the end of the Q3, that if that carries into the Q4 because demand is still weak. I think that that goes from something that it was doing fantastically for us in Q2, you know, and becomes perhaps a little bit weaker. So I think that plays out perhaps a little bit softer as well. And then, you know, like I said, I do believe that there'll be some moderation in price cost. So, you know, I think relative to the relative to the Q3. I think you're likely to see the Q4 come down, you know, a little bit greater than normal seasonality in this case. Great. Helpful comment. All right. Really appreciate that. Yeah. And then I got one more in terms of the branch size now. It looks like it's close to that target you laid out in the Q4 around the Q4 conference call. I I think you said 1,450 for US plus Canada. So maybe if you could update us on is that for now? And then a couple things in context of that, like, how should we think about, you know, that sales momentum in the non-res and reseller accounts, which I think has you know been hurt by some of this consolidation? And then also, you know, the occupancy expense account, where I think you've been benefiting from some of that in terms of costs coming out of the business. Yeah. Thanks for any color on that. Appreciate it. Sure. That may be four questions. Yeah. I'll try to unpack that in reverse order, and if I miss something, help me out. But, first off, branch count, 1,450 is our target number. That's not a we're at this number and an edict comes out that says, "Thou shalt not close," or, "Thou shalt not open." That number could... You know, perhaps we should talk in ranges instead of exact points, because, 1,450 was what our internal team identified as a target number, looking at demographics. And I believe it-- I don't have the stat in front of me, so if I'm wrong, I apologize. It would have been in the flip book from the first-- from January. But I believe at 1,450, we were within 30 minutes of 93% of the U.S. manufacturing base. And so it's a theoretical number. Could I see it go down to 1,400? Yes. Could I see it go to 1,500? Yes. The closure piece will become ever quieter as we move into 2024. I know just yesterday I was chatting with Casey and Jeff about some of that and what they're seeing. Because there's still a few closures on the horizon. Part of it's reminding folks that, you know, the openings are okay, too. And so I think we'll be in that 1,400-1,500 range. So, you know, don't read anything into it moving up or down 20. And then just since it wraps into the concept, what you will see is as the rate of closings moderate versus the last several years, you know, you're going to have a little bit less of an incremental, you know, sort of takeout of costs than we've had over the last several years. We still believe occupancy is ultimately leverageable. You know, but you know, you've had inflation at the same time that you've had closures, and those things have tended to offset one another, and that's going to moderate as you go into 2024 and beyond to some degree. So... Yeah. If I look at occupancy in the Q3, we actually didn't leverage it. Mm-hmm. Part of the reason for that is within occupancy, we have two components. We have our branch and Onsite network. We have, obviously, our distribution centers, but we also have our FMI, our vending and FASTBin. The reason we classify that as occupancy, when we started vending 15+ years ago, looked at it and said, a vending machine is basically a shelf. We've taken a shelf out of the branch, we've wrapped it in a metal box, and we put that shelf in a customer's facility, but it's a shelf. And we really challenged our district leaders to think about that as occupancy. On our internal P&L, we classify it as occupancy. Because if a branch grows from 100 to 150, and for simple purposes, let's just say that 50,000 of growth is all vending. I shouldn't need a bigger building, and my occupancy grows because I have the depreciation and I have the expense associated with my vending platform. And it was a way of more holistically thinking about it. Our FMI numbers, as you know, we're signing 95 devices a day. Our FMI grew 6%, our expenses within occupancy, and that was about 55%. So, our occupancy grew just under 4% and about 55% of that related to vending. But even though we closed some branches and we closed some locations, our rent has not gotten cheaper in the last 12 months, and we will continue to be challenged with that. One of the things we've talked about on prior calls is a thing we call Lift. And Lift is about efficiency, of where we're picking the product to replenish FMI, vending today, but FMI more broadly. But it also means if I have 50 vending machines out of a that are serviced out of a branch, and I don't need to stock all of that inventory in the local branch because I'm picking it in an automated distribution center in a highly efficient way. Now, that distribution center isn't free, but I also don't need to expand the footprint of my branch because I freed up 40 feet of shelving that was dedicated to FAST vending in the past. But it's given us some challenges on the fact that occupancy has grown. And as you can imagine, the further you get from the middle of the country- ... the more expensive the space gets, and when you get into some of our businesses in Europe, it's more expensive than it is in Winona, Minnesota. But I feel good about our ability over time to continue to manage that and lever it, as I said, with our FMI. That business is growing quite handsomely, and we grew our expense to 6%, so we levered that nicely. Thanks so much for the color. Best of luck. Thanks. Thank you. Thank you. Next question is coming from Tommy Moll from Stephens. Your line is now live. Morning, and thanks for taking the questions. You bet. I wanted to start on fasteners and ask whether it's possible to parse the down 2% DSR into an MRO versus OEM component. And it's really the OEM side that's the crux of the question. But any context you could give there, and then I'll have one follow-up on OEM. Thanks. Yeah. So what we're seeing in the quarter is, you continue to have MRO fasteners down, and we actually had OEM fasteners that were still rising. The perspective you need to have, though, is we continue to see our OEM fasteners grow as a proportion of the mix because they tend to benefit from the growth that are on site. So today, a lot of our growth is coming through on sites, and therefore, a lot of those new signings, those new implementations, also bring in OEM fasteners. And so, in the past, we've talked about OEM, and I think people have been surprised that OEM hasn't gotten negative given sort of the behavior. But if you go back to, like, mid last year, OEM fasteners were growing mid-20s. If you come to current period, it's growing low single digits. And, you know, so you've seen, you know, significant moderation in OEM fasteners as the production environment has softened over the past 12 months, but it's still growing because of the success we continue to have signing and implementing Onsites. That's helpful. Thanks, Holden. I guess to keep going with the same theme, some of the commentary you've offered today on the OEM side has sounded similar to recent quarters. Recently, you talked about the destocking dynamic at customer locations, particularly for the OEM business. Is there anything you can do to parse real underlying demand there versus shorter product delivery cycles, and maybe customers are just ordering later in their production cycle? Yeah. You know, if you think about what we do, in a perfect world where we're supplying OEM fasteners, the customer isn't ordering it per se, we're supplying it when they need it. And that shouldn't change depending on the cycle. The question is, if you peer downstream from the manufacturing activity to our customer or their supply chain to the end market, how much inventory is there? Because if there shouldn't be a different stage of where you're ordering OEM fasteners. Yeah. The pull-through is what the pull-through is. Now, some of the changes from what Holden talked about a year ago, there was elements of inflation in there, but there was also elements of folks had such an unstable supply chain for everything else. Fortunately, they were partnered with Fastenal, and their supply chain for fasteners was great. And I'm having a little fun with you there, but they might have had other stuff or their end markets, you know, possession is nine-tenths of the law, and so they just ordered it because they were worried about getting it. And so I think you do have cases of downstream from our manufacturer customers. There's some stuff that piled up, but I think that's worked through. I think the pull right now is the pull. I was talking with our leader in continental Europe the other day, and his business had ticked up, and I was just asking him some components about it, and he was talking about some of his transportation customers that had picked up. He said, their business is pulling through what they're selling, but they're being very, very cautious about not getting ahead of anything. So I think there, it's just true demand coming through. Yeah, maybe another anecdote as well. You know, at the end of any given year, particularly years where demand is poor, oftentimes we get suppliers that approach us to say, "Hey, you know, we sold you something for a discount. You know, would you take some of this stuff off our hands so we can normalize our own production rates?" And that's fairly typical. You know, I'll say that it's still early, and we don't know what December's going to look like in many respects, but we haven't seen as much activity from our suppliers inquiring about our willingness to enter into those kind of sort of year-end types of deals. And what that might suggest to you is that, you know, a lot of our, a lot of our suppliers might have inventories that are pretty close to where they need to be. Those are anecdotes. We're not even in November, December yet. But I'm probably feeling somewhat encouraged about where the inventory levels within and throughout our supply chain are getting to. That's all very helpful. Thank you both. Thank you. Next question is coming from Ryan Merkel from William Blair. Your line is now live. Hey, guys. Thanks for fitting me in. I had a couple of questions on gross margin. So usually, gross margin's kind of flat sequentially in 3Q, and obviously, it was up, you know, 40 bits. Can you just unpack what the drivers are there? Just because that was the surprise factor. ... Yep, as I indicated in my preamble, mix wasn't quite the headwind that I expected it was going to be. And price cost was more of a tailwind than I expected it to be relative to the guidance that I gave at the Q2 call. Those are the two pieces. When you say price cost, are you talking on product? Are you talking on freight? Because it sounds like freight was the thing that you mentioned first, driving the gross margin. Yeah, but you know, in many cases, freight rolls into our product cost, right? The biggest reason why there's been inflation and deflation over the past three or four years isn't the cost of steel. There's a bit of that. It It has a lot more to do with what the cost of moving product has been. So our, our- So, price cost in our... When we talk about price cost, in many cases, elements of freight are moved into our product price. Yeah, because we consider that our landed, our landed cost to the shelf, as opposed to when we're moving it around North America or moving it around in our business. Now, there's transportation that does not fall under product cost. Those are our Ram trucks in the field, etc. But when you're talking about the cost of moving things from overseas to domestic, that goes into product cost, as Dan said, as part of landed, and that gets reflected in our price cost dynamics. Got it. Okay, that's helpful. And then sequentially, you think maybe gross margin could come down a little bit more than seasonality. Is that because price cost is going to decline? And the reason there, you're going to lower fastener prices to match the lower product costs, or is it also this idea that maybe charging for freight is getting a little bit harder? No, I mean, there's a few reasons why I think gross margin will come in a bit. One of it is the seasonality you talked about. The second thing I talked about a moment ago is simply, you know, freight revenues have softened a little bit in the face of a weaker cycle. And again, we have a certain degree of leverage around our freight that works great when the freight revenues are at record levels, and it's not quite as good when they're not. That, that's another element of it. And then for the moderation in price cost that I anticipate is, yeah, it's probably it has probably has more to do with the field continuing to make modest adjustments, where they're required by contract or what have you, to do so. And again, we're talking about a relatively small number here. It's not, it's not dramatic. You know, but those are the moving pieces that I see playing out to a slightly, you know, slightly weaker, Q4 gross margin around the third. All right. Thank you. Thanks. Thanks, Ryan. I see it's about two minutes before the hour, and I realize everybody on this call has a busy week of earnings conversations to be engaged in. Thank you for your time. Good luck in the fall, and my thanks to the Fastenal team. Have a good day, everybody. Thank you, everyone. Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.