What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-18 compared with 2021-10-15 · 168 added, 235 removed, 107 unchanged (79% of the section changed)

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Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies.

We distribute these supplies through a network of over 3,200 in-market locations.

We distribute these supplies through a network of approximately 3,200 in-market locations.

Most of our customers are in the manufacturing and non-residential construction markets.

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We believe this close-to-the-customer, high touch partnership approach is differentiated in the marketplace and allows us to gain market share in what remains a fragmented industrial distribution market.

Impact of COVID-19 on Our Business

Evaluating the company's financial performance in the third quarter of 2021 requires an appreciation for the variables which impacted financial results in the year earlier period.

In the second quarter of 2020, the COVID-19 pandemic dramatically impacted our business in two respects.

First, local and national actions taken to mitigate the spread of the virus reduced business activity sharply, which produced a significant decline in the sale of products, such as fasteners, to our traditional manufacturing and construction customers.

Second, social actions taken to mitigate the effects of the pandemic produced significant demand for personal protection equipment (PPE) and sanitation products, generating significant sales of such products to traditional customers, state and local government entities, and front line responders.

This effect was illustrated by a significant increase in sales for our safety products.

During that period, improved sales of PPE and sanitation products more than offset the general economic weakness.

During this period of time, consistent with broader social trends and in accordance with applicable local and federal regulations, we took steps to safeguard the health of our employees and customers.

Such steps included:

closing branch and corporate facilities to outside personnel, adjusting work schedules to maximize social distance, creating space between work areas, providing ample PPE and cleaning supplies, creating formal policies for mitigation in the event of cases of illness, utilizing technologies where work duties allowed to enable work from home capabilities, and utilizing technologies such as vending and mobility to create social distancing.

These precautions allowed our operations to function effectively.

The pandemic continued to impact our business in the third and fourth quarters of 2020, when the marketplace broadly, and Fastenal specifically, continued to operate with certain modifications to balance re-opening with employee and customer safety.

However, most of the markets in which we operate began to normalize in the second half of 2020.

In the first half of 2021, the re-opening and recovery of the manufacturing and construction marketplace continued and accelerated, operating restrictions eased, and our ability to engage directly with customers, while not at pre-pandemic levels, improved.

This resulted in improving performance in our traditional branch and Onsite business and normalization of our product and customer mix.

In general, industrial and construction businesses have learned to navigate COVID-19 while maintaining operations.

In the third quarter of 2021, the COVID-19 pandemic has likely influenced various trends that the company is currently experiencing.

These include supply chain disruptions and labor shortages, the presence of certain pandemic-specific personal protective equipment (PPE) in our inventory (although certain categories such as 3-ply masks are depleting quickly), and a modest shift in our mix to include more safety products and government customers.

However, in contrast to preceding periods, we are currently seeing less of an impact on our business related directly to the pandemic, as economic activity has recovered, customer access is normalizing, and customer and product mix has reverted back to close to pre-pandemic levels.

We believe current financial results are more reflective of traditional economic and marketplace dynamics than of pandemic-related issues such as facility restrictions, labor force illness, and PPE demand.

The primary exception to this normalization trend is in the signings of our Onsite and Fastenal Managed Inventory (FMI), which have yet to recover to pre-pandemic levels.

To the extent that COVID infections increase, as they did through the third quarter of 2021, this can, and is, either directly impacting or

indirectly influencing access to customer facilities and decision-makers and lengthens the sales cycle for certain of our solutions.

Our financial controls over financial reporting functioned effectively throughout the pandemic and continue to do so.

It is possible the COVID-19 pandemic could further impact our operations and the operations of our suppliers and vendors, particularly in light of the potential of variant strains of the virus to cause a resumption of high levels of infection and hospitalization.

Should that occur, factors that could negatively impact sales and gross margin in the future include, but are not limited to:

limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments;

limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home;

limitations on the ability of carriers to deliver our products to customers;

limitations on the ability of our customers to conduct their business and purchase our products and services;

and limitations on the ability of our customers to pay us on a timely basis.

The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be reasonably predicted at this time.

However, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, and shareholders.

While we are unable to determine or predict the nature, duration, or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity, or capital resources, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing, and how our operations and financial condition may change as the fight against COVID-19 progresses.

Executive Overview

Net sales increased $140.9, or 10.0%, in the third quarter of 2021 when compared to the third quarter of 2020.

The number of business days were the same in both periods.

Our gross profit increased $79.6, or 12.4%, in the third quarter of 2021 relative to the third quarter of 2020, and as a percentage of net sales increased to 46.3% in the third quarter of 2021 from 45.3% in the third quarter of 2020.

Our operating income increased $28.3, or 9.8%, in the third quarter of 2021 relative to the third quarter of 2020, and as a percentage of net sales was unchanged at 20.5% in th e third quarter of 2021 from 20.5% in the third quarter of 2020.

Our net earnings during the third quarter of 2021 were $243.5, an increase of 9.9% compared to the third quarter of 2020.

Our diluted net earnings per share were $0.42 during the third quarter of 2021, which increased from $0.38 du ring the third quarter of 2020.

The table below summarizes our total an d FTE (based on 40 hours per week) employee headcount, our investments in in-market locations (defined as the sum of the total number of public branch locations and the total number of active Onsite locations), and weighted FMI devices at the end of the periods presented and the percentage change compared to the end of the prior periods.

Net sales increased $287.0, or 20.3%, in the first quarter of 2022 when compared to the first quarter of 2021.

There was one more selling day in the quarter relative to the year earlier period, and taking this into consideration our net daily sales increased 18.4% in the first quarter of 2022 when compared to the first quarter of 2021.

This increase is due to improved unit sales across most products to our traditional manufacturing and construction customers, resulting from continued improvement in business activity.

Our net daily sales growth also benefited by roughly 100 basis points from the absence of last year's adverse weather.

Our gross profit increased $149.9, or 23.3%, in the first quarter of 2022 relative to the first quarter of 2021, and as a percentage of net sales increased to 46.6% in the first quarter of 2022 from 45.4% in the first quarter of 2021.

Our operating income increased $77.7, or 27.7%, in the first quarter of 2022 relative to the first quarter of 2021, and as a percentage of net sales increased to 21.0% in the first quarter of 2022 from 19.8% in the first quarter of 2021.

Our net earnings during the first quarter of 2022 were $269.6, an increase of 28.0% compared to the first quarter of 2021.

Our diluted net earnings per share were $0.47 during the first quarter of 2022, which increased from $0.37 during th e first quarter of 2021.

The table below summarizes our total and FTE (based on 40 hours per week) employee headcount, our investments related to in-market locations (defined as the sum of the total number of branch locations and the total number of active Onsite locations), and weighted Fastenal Managed Inventory (FMI) devices at the end of the periods presented and the percentage change compared to the end of the prior periods.

In-market locations - absolute employee headcount

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Total FTE employee headcount 18,958 18,370 3.2 % 18,094 4.8 %

Number of public branch locations 1,859 1,921 -3.2 % 2,003 -7.2 % 2,033 -8.6 %

Number of branch locations 1,760 1,793 -1.8 % 1,959 -10.2 %

Number of active Onsite locations 1,440 1,416 1.7 % 1,285 12.1 %

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(1) This number excludes approximately 10,000 non-weighted devic es that are part of our locker lease program.

During the last twelve months, we reduced our total FTE employee headcount by two.

This reflects a decline in our in-market and non-in-market selling FTE employee headcount of 44.

We continue to see growth in non-in-market selling FTE headcount to support sales initiatives targeting customer acquisition.

Our in-market FTE headcount is down, however, reflecting both a challenging hiring environment and deliberate efforts to improve the productivity of our current in-market sales force.

We have experienced a decrease in our distribution center FTE employee headcount of 78 reflecting the challenging hiring environment.

We had an increase in our remaining FTE employee headcount of 120 that relates primarily to personnel investments in information technology and operational support, such as purchasing and product development.

We opened one branch in the third quarter of 2021 and closed 63 branches, net of conversions.

We activated 67 Onsite locations in the third quarter of 2021 and closed 23, net of conversions.

In any period, the number of closings tend to ref lect both normal churn in our business, whether due to redefining or exiting customer relationships, the shutting or relocation of customer facilities that host our locations, or a customer decision, as well as our ongoing review of underperforming locations.

During the last twelve months, we increased our total FTE employee headcount by 864.

This reflects an increase in our in-market and non-in-market selling FTE employee headcount of 541 to support growth in the marketplace and sales initiatives

targeting customer acquisition.

We had an increase in our distribution center FTE employee headcount of 161 to support increasing product throughput at our facilities and to expand our local inventory fulfillment terminals (LIFTs).

We had an increase in our remaining FTE employee headcount of 162 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development.

Much of the increase in our FTE count noted above has occurred in the first quarter of 2022 specifically as the market for hiring has improved.

Of the 864 increase in total FTE, approximately 72% were added in the first quarter of 2022.

Of the 541 increase in in-market and non-in-market FTE, approximately 79% were added in the first quarter of 2022.

Of the 161 increase in distribution center FTE, approximately 72% were added in the first quarter of 2022.

Of the 162 increase in remaining FTE, approximately 49% were added in the first quarter of 2022.

We opened six branches in the first quarter of 2022 and closed 39 branches, net of conversions.

We activated 57 Onsite locations in the first quarter of 2022 and closed 33, net of conversions.

In any period, the number of closings tend to reflect both normal churn in our business, whether due to redefinin g or exiting customer relationships, the shutting or relocation of customer facilities that host our locations, or a customer decision, as well as our ongoing review of underperforming locations.

Our in-market n etwork forms the foundation of our business strategy, and we will continue to open or close locations as is deemed necessary to sustain and improve our network, support our growth drivers, and manage our operating expenses.

Results of Operations

The following sets forth condensed consolidated statement of earnings information (as a percentage of net sales) for the periods ended September 30:

Nine-month Period Three-month Period

2021 2020 2021 2020

The following sets forth condensed consolidated statement of earnings information (as a percentage of net sales) for the periods ended March 31:

Three-month Period

Net sales 100.0 % 100.0 %

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Note – Amounts may not foot due to rounding difference.

The table below sets forth net sales and daily sales for the periods ended September 30, and changes in such sales from the prior period to the more recent period:

Nine-month Period Three-month Period

2021 2020 2021 2020

The table below sets forth net sales and daily sales for the periods ended March 31, and changes in such sales from the prior period to the more recent period:

Three-month Period

Net sales $ 1,704.1 1,417.0

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Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the United States) in the period.

In the first nine months of 2021, our net sales of $4,479.0 increased $189.7, or 4.4%.

Adju sted for one fewer sellin g day in the first quarter of 2021, our daily sales rate increased 5.0% .

Net sales increased $287.0, or 20.3%, in the first quarter of 2022 when compared to the first quarter of 2021.

This increase is due to improved unit sales across most products to our traditional manufacturing and construction customers, resulting from continued improvement in business activity.

This is partly offset by two factors.

First, we had lower unit sales of pandemic-related PPE and sanitation products to traditional, state and local government, and health care customers relative to what we experienced in the first nine months of 2020.

Second, certain of our North American regions were affected by severe weather in February 2021, which we believe reduced net and daily sales growth by 10 to 30 basis points in the first nine months of 2021 compared to the first nine months of 2020.

Reported growth for the first nine months of 2021 underrepresents the underlying market strength our business is experiencing.

In the second and third quarters of 2020, we realized significant sales of "surge"-related PPE and sanitizer sales to critical businesses, state and local governments, and healthcare companies, and these more than offset the severe economic weakness experienced by our traditional manufacturing and construction customers.

While we have retained incremental sales from some customers that bought from us for the first time in the second quarter of 2021, when the effects of the pandemic first began to impact the marketplace, we have always viewed our surge sales as being specific to that period and unlikely to recur in future periods.

With the worst effects of the pandemic on our marketplace having largely receded as we entered 2021, these sales did not recur, and their absence meaningfully reduced our growth in the first nine months of 2021.

This had the effect of masking otherwise very strong growth from our traditional manufacturing and construction customers.

Indeed, we believe the best way to understand underlying economic trends is through the performance of our fastener product line, which reflects the economic trends, but not the surge buying that was brought on by the pandemic.

Daily sales growth of our fastener product line in the first nine months and the third quarter of 2021 was 17.1% and 20.2%, respectively, whic h we believe is more reflective of the strong underlying market environment we experienced through the period.

The overall impact of product pricing on net sales was 120 to 150 basis points during the first nine months of 2021 and 230 to 260 basis points during the third quarter of 2021.

This increase reflects actions we have taken in the first nine months and third quarter of 2021 in response to inflationary pressures that we experienced in costs of products, particularly fasteners, and transportation services, particularly overseas shipping, through both periods.

These pressures persist in the marketplace and are likely to require further organizational pricing actions in the fourth quarter of 2021 in an effort to offset this impact.

From a product sta ndpoint, fastener daily sales increased 17.1% in the first nine months of 2021 from the first nine months of 2020 and accounted for 33.2% of total sal e s, from 29.7 % of sales in the first nine months of 2 020 and 34.3% of sale s in the first nine months of 2019.

S afet y daily sales, which inc ludes PPE, fell 15.0% in the first nine months of 2021 from the first nine months of 2020 and accoun ted for 21.2% of total sales, from 26.1% of sales in the first nine months of 2020 and 17.6% of sales in the first nine months of 2019.

Daily sales of other products, which includes sanitizer, increased 8.1% in the first nine months of 2021 from the first nine months of 2020 and accounted for 45.6% of total sales, from 44.2% of sales in the first nine months of 2020 and 48.1% of sale s in the first nine months of 2019.

From a customer standpoint, daily sales to our manufacturing customers increased 16.7% in th e first nine months of 2021 from the first nine months of 2020.

Daily sales to our non-residential construction custo mers increased 2.9% in the first nine months of 2021 from the first nine months of 2020.

Sales trends for our traditional manufacturing and construction customers reflected improvement in underlying economic trends against a relatively easy comparison in the first nine months of 2020, as well as favorable product pricing.

Sales to government customers, which includes health care provid ers, decreased 39.6% and was 4.9% of sa les in the first nine months of 2021, down f ro m 8.5% of sales in the first nine months of 2020.

Government customers represented 3.7% of our sa les mix prior to the pandemic in 2019, below the level in the first nine months of 2021 which reflects that we have retained certain customers that bought from us for the first time during the pandemic.

At the same time, government customers were significant buyers of surge PPE in the second and third quarters of 2020, and the absence of those purchases in the second and third quarters of 2021 produced the significant decline in sales experienced with these customers in the first nine months of 2021.

In the first nine months of 2020, the pandemic caused many of our customers to enact policies that limited access of outside personnel to their facilities and key decision-makers.

This made it difficult to engage with customers directly in a way that most effectively allows us to promote growth drivers such as FMI (Fastenal Managed Inventory) and Onsites (defined as dedicated sales and service provided from within, or in close proximity to, the customer's facility), or implement agreements that have been signed.

In the first nine months of 2021, the direct impact of the pandemic receded, but pressures around supply chain constraints and labor availability, which are likely being exacerbated by spikes in COVID infections in the third quarter of 2021, emerged.

These variables have continued to impact customer access and have kept decision-makers focused on crisis management rather than strategic planning.

The net effect of these issues is that while access has generally been better in the first nine months of 2021 than it was in the first nine months of 2020, it has not returned to pre-pandemic levels, which has continued to adversely affect our growth driver performance.

• During the first nine months of 2021, we signed 230 ne w Onsite locations .

This included 68 signings in the first quarter of 2021, 87 in the second quarter of 2021, and 75 signings in the third quarter of 2021.

We had 1,367 active sites on September 30, 2021, which represented an increase of 10.6% from September 30, 2020.

Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew at a better than 20% rate in the third quarter of 2021 over the third q uarter of 2020.

Our net daily sales growth also benefited by roughly 100 basis points from the absence of last year's adverse weather.

The overall impact of product pricing on net sales was 580 to 610 basis points during the first qu arter of 2022.

This increase reflects pricing actions taken during 2021, particularly in the second half, and the first quarter of 2022.

These actions were taken as part of our strategy to mitigate the impact of marketplace inflation for our products, particularly fasteners, and transportation services.

During the first quarter of 2022 , costs for fuel and transportation services accelerated in their

inflationary impact.

We will continue to take actions aimed a t mitigating the impact of product and transportation cost inflation as the need arises in 2022.

The impact of product pricing on net sales in the first quarter of 2021 was 60 to 90 ba sis points.

From a product standpoint, we have three categories:

fasteners, safety products, and other products, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools.

Fastener daily sales increased 24.6% over the first quarter of 2021, and represented 34.3% of our net sales in the first quarter of 2022;

fasteners represented 32.5% of net sales in the first quarter of 2021.

S afet y daily sales, which inc ludes personal protective equipment (PPE), increased 15.3% over the first quarter of 2021 and represented 21.0% of our net sales in the first quarter of 2022;

safety products represented 21.5% of net sales in the first quarter of 2021.

Daily sales of other products increased 14.8% over the first quarter of 2021 and represented 44.7% of our net sales in the first quarter of 2022;

other products represented 46.0% of net sales in the first quarter of 2021.

From an end market standpoint, daily sales to our manufacturing customers increased 23.9% in the first qu arter of 2022 from the first quarter of 2021.

Daily sales to our non-residential construction customers increased 14.1% in the first quarter of 2022 from the first quarter of 2021.

Sales trends for our traditional manufacturing and construction customers reflected sustained strength in underlying economic activity as well as favorable product pricing.

Sales to government customers, which includes health care providers, decreased 6.2% and was 4.3% of sa les in the first quarter of 2022, down from 5.4% in the first quarter of 2021 .

We report our customers in two categories:

national accounts, which are customers with a multi-site contract, and non-national accounts, which include large regional customers, small local customers, and government customers .

Daily sales to our national account customers increased 22.8% in the first quarter of 2022 over the first quarter of 2021.

Most of our national account customers grew in the first quarter of 2022 over the year earlier period, as our sales grew at 92 of our Top 100 national account customers.

Revenues attributable to national account customers represented 57.1% of our total revenues in the period.

Daily sales to our non-national account customers, which includes government customers, increased 13.0% in the first quarter of 2022 from the first quarter of 2021.

Revenues attributable to non-national account customers represented 42.9% of our total revenues in the period.

Our growth driver signings have been challenged over recent quarters.

At various times over the last several years, the COVID-19 pandemic, severe constraints on supply chains and labor availability, and/or significant inflation have created issues with access to facilities and key decision-makers or diverted energy from conversations about our growth drivers.

However, as the primary effects of the pandemic have receded and as supply chain, labor and marketplace challenges have stabilized, the outlook for signings activity going forward is improved.

• During the first quarter of 2022, we signed 106 new Onsite locations (defined as dedicated sales and service provided from within, or in close proximi ty to, the customer's facility).

We had 1,440 active sites on March 31, 2022, which represented an increase of 12.1% from March 31, 2021.

Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew at a better than 20% rate in the first quarter of 2022 over the first quarter of 2021.

This growth is due to improved business activity from our Onsite customers and, to a lesser degree, contributions from the increase in the number of Onsites we operate.

Our Onsite signings in the third quarter of 2021 were below the second quarter of 2021 level and the long-term rate of 375 to 400 annual signings we believe the market will support, as market conditions and access to customer facil ities and decision-makers norm alize.

Based on the year-to-date signings and tendency for signings in fourth quarters to be seasonally lower, we anticipate signing betwe en 285 and 325 Onsite locations in 2021, down from our prior expectation of 300 to 350 locations.

• Fastenal Managed Inventory (FMI) is comprised of our FASTVend (vending devices), FASTBin (infrared, RFID, and scaled bins), and FASTStock (scanned stocking locations) offering.

FASTVend and FASTBin incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies, whereas FASTStock's fulfillment processing technology is not embedded, but is relatively inexpensive and highly flexible in application.

It is not unusual for Onsite signings to be relatively strong in first quarters of calendar years.

The signings in the first quarter of 2022 represent a record number for any quarter and a substantial improvement on first quarter signings over the prior two years.

We believe this reflects normalization of the business environ ment which is improving access to facilities and decision-makers while reviving customers' strategic planning around supply chain solutions.

We continue to believe the market will support a long-term rate of 375 to 400 annual signings, and this remains our goal for Onsite signings in 2022.

• FMI Technology is comprised of our FASTStock ℠ (scanned stocking locations), FASTBin ℠ (infrared, RFID, and scaled bins), and FASTVend ℠ (vending devices) offering.

FASTStock's fulfillment processing technology is not embedded, is relatively less expensive and highly flexible in application, and delivered using our proprietary mobility technology.

FASTBin and FASTVend incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies.

Prior to 2021, we reported exclusively on the signings, installations, and sales of FASTVend.

Beginning in the first quarter of 2021, and as detailed previously in our 2020 Form 10-K filing, we began disclosing certain statistics around our FMI offering.

The first statistic is a weighted FMI measure which combines the signings and installations of FASTVend and FASTBin in a standardized machine equivalent unit (MEU) based on the expected output of each type of device.

Beginning in the first quarter of 2021, we began disclosing certain statistics around our FMI offering.

The first statistic is a weighted FMI ® measure which combines the signings and installations of FASTBin and FASTVend in a standardized machine equivalent unit (MEU) based on the expected output of each type of device.

We do not include FASTStock in this measurement because scanned stocking locations can take many forms, such as bins, shelves, cabinets, pallets, etc., that cannot be converted into a standardized MEU.

The second statistic is revenue through FMI devices which combines the net sales through FASTVend, FASTBin, and FASTStock.

A portion of the growth in net sales experienced by FMI, particularly FASTBin and FASTStock, reflects the migration of products from less efficient non-digital stocking locations

to more efficient, digital stocking locations.

Figures prior to 2021 may differ slightly from those provided in our 2020 Form 10-K filing based on minor changes we made to the conversion of absolute devices to weighted devices.

The second statistic is revenue through FMI Technology which combines the net sales through FASTStock, FASTBin, and FASTVend.

A portion of the growth in net sales experienced by FMI, particularly FASTStock and FASTBin, reflects the migration of products from less efficient non-digital stocking locations to more efficient, digital stocking locations.

The table below summarizes the signings and installations of, and sales through, our FMI devices.

Nine-month Period Three-month Period

2021 2020 Change 2021 2020 Change

Weighted FASTVend/FASTBin signings (MEUs) 15,339 12,955 18.4 % 4,813 4,791 0.5 %

Three-month Period

2022 2021 Change

Weighted FASTBin/FASTVend signings (MEUs) 5,329 4,683 13.8 %

Signings per day 83 74

Weighted FASTVend/FASTBin installations (MEUs;

Weighted FASTBin/FASTVend installations (MEUs;

end of period) 94,425 85,157 10.9 %

FASTVend/FASTBin net sales $ 981.1 $ 783.6 25.2 % $ 352.4 $ 269.3 30.9 %

% of net sales 21.7 % 18.1 % 22.4 % 18.8 %

FASTStock net sales $ 416.9 $ 230.1 81.2 % $ 165.9 $ 88.1 88.3 %

% of net sales 9.2 % 5.3 % 10.6 % 6.2 %

FMI net sales $ 1,398.0 $ 1,013.7 37.9 % $ 518.3 $ 357.4 45.0 %

FASTStock sales $ 198.5 $ 110.5 79.5 %

% of sales 11.5 % 7.7 %

FASTBin/FASTVend sales $ 412.0 $ 301.0 36.9 %

% of sales 23.9 % 21.0 %

FMI sales $ 610.5 $ 411.5 48.4 %

FMI daily sales $ 9.5 $ 6.5 46.0 %

% of net sales 30.9 % 23.4 % 33.0 % 25.0 %

• Our FMI signings in the third quarter and year-to-date 2021 trended below expectations.

Similar to Onsites, we believe the near-term challenges posed to our customers by inflation, supply chain, labor, and an increase in COVID infections are lengthening the selling cycle.

Based on year-to-date signings and the tendency for signings in fourth quarters to be seasonally lower, we anticipate weighted FASTVend and FASTBin device signings in 202 1 of 20,500 to 22,000 MEUs, down from our prior expectations of 23,000 to 25,000 MEUs.

All metrics provided above exclude approximat ely 12,500 non -weighted vending devices that are part of a leased locker program.

• Our e-commerce business includes sales made through an electronic data interface (EDI) with our customers or through the web.

Daily sales through e-comm erce grew 44.1% in the first nine months of 2021 and grew 43.4% in the third quarter of 2021.

Revenues attributable to e-commerce represented 13.9% o f our total revenues in the third quarter of 2021.

We view our digital products and services to be comprised of sales through FMI (FASTVend, FASTBin, and FASTStock) plus that proportion of our e-commerce sales that do not represent billings of FMI services (collectively, our Digital Footprint).

% of sales 35.4 % 28.7 %

Our signings in the first quarter of 2022 were below the pace necessary to achieve our annual goals.

However, we had meaningful improvement in signings per day on both an annual and sequential basis and experienced better momentum through the quarter.

As a result, our 2022 goal for weighted FASTBin and FASTVend device signings remains at 23,000 to 25,000 MEUs.

All metrics provided above exclude ap proximately 10,000 non-wei ghted vending devices that are part of a leased locker program.

• Our eCommerce business includes sales made through an electronic data interface (EDI), or other types of technical integrations, and through our web verticals.

Daily sales through eCom merce grew 55.6% in the first quarter of 2022.

Revenues attributable to eCommerce represented 16.1% of our total revenues in the first quarter of 2 022.

Our digital products and services are comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not represent billings of FMI services (collectively, our Digital Footprint).

We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers.

As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.

Our Digital Footprint in the third quarter of 2021 repr esented 43.7% of our sales.

Our Digital Footprint in the first quarter of 2022 represented 47.0% of our sales.

We began to provide this figure in the first quarter of 2021, when we reported that our Digital Footprint represented 34.8% of our sales.

We subsequently identified a calculation error.

Using the same approach to calculating our Digital Footprint as we used in the second and third quarters of 2021, our Digital Footprint represented 39.1% of our sales in the first quarter of 2021.

Net sales increased $140.9, or 10.0%, in the third quarter of 2021 when compared to the third quarter of 2020.

The number of business days were the same in both periods.

The third quarter of 2021 continued to experience strong growth in underlying demand for manufacturing and construction equipment and supplies, which drove higher unit sales that contributed to the increase in net sales that we experienced in the period.

This growth was slightly limited by slower growth or contraction in sales of certain products to certain end markets related to the COVID-19 pandemic when compared to the third quarter of 2020.

While we did see an uptick in sales of certain COVID-related supplies in the third quarter of 2021, relative to the prior year the marketplace is more orderly and better supplied, while the unit price of many products is down significantly.

As a result, the impact on our net sales of the current increase in infections and hospitalizations is significantly reduced from what was experienced in the year earlier period.

For instance, daily sales to government and warehousing customers dec lined 40.5% a nd 13.6% , respectively, while sales of safety products and janitorial supplies (the latter being a subset of other products) d eclined 2.9% and 15.4% , respectively, in the third quarter of 2021.

Using the same approach to calculating our Digital Footprint as we used starting in the second quarter of 2021, our Digital Footprint represented 39.1% of our sales in the first quarter of 2021.

Sales by Product Line

The approximate mix of sales from fasteners, safety supplies, and all other product lines was as follows for the periods ended September 30:

Nine-month Period Three-month Period

2021 2020 2021 2020

The approximate mix of sales from fasteners, safety supplies, and all other product lines was as follows for the periods ended March 31:

Three-month Period

Fasteners 34.3 % 32.5 %

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100.0 % 100.0 %

In the first nine months of 2021, our gross profit, as a percentag e of net sales, improved to 46.1%, or 70 basis points from 45.4% in the first nine months of 2020.

We believe the increase in gross profit during this period is attributable primarily to three items.

(1) Organizational/overhead leverage was favorable primarily due to stronger business conditions.

This includes favorable customer and supplier net rebates due to a combination of stronger demand increasing our product purchasing activity and lower rebates to certain customers that had significant purchases of PPE product in the first nine months of 2020.

(2) Product and customer mix was a benefit to our gross profit percentage in the first nine months of 2021.

This was entirely due to product mix, as from the first nine months of 2020 to the first nine months of 2021 our daily sales of higher profit margin fastener products increased 17.1% while our daily sales of lower gross profit margin non-fastener pro ducts declined 0.5%.

T his was only partly offset by customer mix, which was impacted by the relatively fast growth of our Onsites, which tend to have a gross margin percentage well below the company average.

(3) Product margins improved, primarily due to a higher gross profit percentage for our safety products, due to a decline in the mix of lower margin COVID-affected sales and, to a lesser extent, higher margins on non-COVID affected products.

These positive contributors to our gross profit percentage were partly offset by the $7.8 write-down of the value of our inventory of 3-ply masks in the first quarter of 2021.

The impact of higher product and transportation costs were largely offset by actions taken to mitigate this inflation, including product price increases, throughout the first nine months of 2021.

Our gross prof it, as a percentage of net sales, increased 100 basis points to 46.3% in the t hird quarter of 2 021 from 45.3% in the third quarter of 2020.

This increase reflects several items.

First, overhead/organizational leverage improved primarily due to stronger business conditions.

This includes customer and supplier net rebates, as stronger demand has increased our product purchasing activity.

Second, product margins improved, primarily due to a higher gross profit percentage for our safety products, due to both a decline in the mix of lower margin COVID-affected sales and improved margins for those products.

The impact of product and customer mix was immaterial in the third quarter of 2021.

The impact of price/cost was similarly immaterial in the third quarter of 2021, as greater pricing contribution in the period largely offset higher material costs and significantly higher shipping costs.

Pricing actions taken during the first nine months of 2021 largely matched the product and transportation inflation we experienced in the marketplace, and did not have a material impact on gross profit percentage in either the first nine months or the third quarter of 2021.

Our gross prof it, as a percentage of net sales, increased 120 basis points to 46.6% in the first q uarter of 2 022 from 45.4% in the first quarter of 2021.

This increase reflects a couple of items.

First, the first quarter of 2021 included a $7.8 write-down of masks, the value of which had declined significantly as supply shifted from tightly constrained in mid-2020 to abundantly available in early 2021.

The absence of this write-down contributed 60 basis points to the increase in the gross margin percentage in the first quarter of 2022.

Second, product margins improved, primarily due to a high er gross profit percentage realized in our safety products.

This was a result of the margin of COVID-related products returning to pre-pandemic levels.

The first quarter of 2022 did not have the large, multi-quarter commitments to supply COVID supplies, generally at a lower margin, that existed in the first quarter of 2021.

This more than offset slightly lower fastener product margins .

The impact of price/cost was largely neutral to our gross profit percentage in the first quarter of 2022.

These positive impacts to o ur gross profit percentage were partly offset by higher transportation expenses related primarily to higher overseas shipping costs, third-party freight charges, and the cost of fuel in our internal fleet.

In addition, the net impact of product and customer mix was modestly negative as the dilutive impact of customer mix was slightly greater than the additive impact of product mix.

Operating and Administrative Expenses

In the first nine months of 2021 our operating and administrative expenses, as a percentage of net s ale s, increased to 25.6% compared to 25.0% in the fir st nine months of 2020.

In the third quarter of 2021 our operating and administrative expenses, as a percentage of net sales, increased to 25.9% compared to 24.8% in the th ird quarter of 2020.

In both periods this was primarily a result of our employee-related expenses growing faster than sales, as we did leverage the collective change in occupancy-related and all other operating and administrative expenses.

In the first quarter of 2022 our operating and administrative expenses, as a percentage of net sa les, improved slightly to 25.5% in the first quarter of 2022 from 25.6% in the first quarter of 2021.

A decline, as a percentage of net sales, in occupancy-related expens es was mostly offset by increases, as a percentage of net sales, in employee-related expenses and, to a lesser degree, other operating and administrative expenses.

Th e percentage change in employee- related, occupancy-related, and all other operating and administrative expenses compared to the same periods in the preceding year, is outlined in the table below.

Approximate Percentage of Total Operating and Administrative Expenses Nine-month Period Three-month Period

Employee-related expenses 70% 10.0 % 16.8 %

Approximate Percentage of Total Operating and Administrative Expenses Three-month Period

Employee-related expenses 70% to 75% 22.9 %

Occupancy-related expenses 15% to 20% 5.2 %

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(1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes.

In the first nine months of 2021, our employee-related expenses increased when compared to the first nine months of 2020, primarily as a result of higher incentive pay stemming from strong growth and profits at our in-market locations, which account for the majority of our incentive dollar s, a 25.4% increase in p rofit sharing to reflect a more favorable sales and profit outlook, and a 22.7% increase in our healthcare expenses as employees and their families were more comfortable seeking health care.

In the third quarter of 2021, our employee-related expenses increased when compared to the third quarter of 2020.

We experienced an increase in employee base pay due to higher average FTE during the period, though this grew more slowly than sales, as well as higher wages.

We also experienced a significant increase in bonus and commission payments, reflecting improved business activity and financial performance versus the year-ago period, as well as an increase of 45.1% in health insurance costs as employees and their families were more comfortable seeking health care.

In the first quarter of 2022, our employee-related expenses increased when compared to the first quarter of 2021 due to higher average FTE during the period, a greater proportion of full-time employees in our labor pool, and higher wages.

We experienced a significant increase in bonus and commission payments, which rose at a rate greater than sales, reflecting improved business activity and financial performance versus the year-ago period.

We also experienced higher costs for profit sharing and healthcare.

The table below summarizes our FTE headcount at the end of the periods presented and the percentage change compared to the end of the prior periods:

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Manufacturing 656 619 6.0 % 613 7.0 %

Administration 1,531 1,533 -0.1 % 1,455 5.2 % 1,409 8.7 %

Organizational support personel (1)

1,605 1,598 0.4 % 1,486 8.0 %

Non-selling subtotal 5,117 4,957 3.2 % 4,794 6.7 %

Total 18,958 18,370 3.2 % 18,094 4.8 %

(1) Organizational support personnel consists of:

(1) Sales & Growth Driver Support personnel (35%-40% of category), which includes sourcing, purchasing, supply chain, product development, etc.;

(2) Information Technology personnel (30%-35% of category);

and (3) Administrative Support personnel (25%-30% of category), which includes human resources, Fastenal School of Business, accounting and finance, senior management, etc.

Occupancy-related expenses include:

(1) building rent and depreciation, (2) building utility costs, (3) equipment related to our branches and distribution locations, and (4) industrial vending equipment (we consider the vending equipment, excluding leased locker equipment, to be a logical extension of our in-market operations and classify the depreciation and repair costs as occupancy expenses).

In the first nine months of 2021, our occupancy-related expenses increased when compared to the first nine months of 2020, as we experienced modest growth in costs associated with our facilities, with higher non-branch expenses being only partly offset by lower branch expenses, and our FMI devices.

In the third quarter of 2021, our occupancy-related expe nses increased whe n compared to the third quarter of 2020, primarily due to the accumulation of modest increases in the cost of FMI equipment related to an increase in device installations, facility maintenance expenses, and facility rent and utility costs.

In the first quarter of 2022, our occupancy-related expenses increased when compared to the first quarter of 2021.

Building expense was largely flat, with lower branch-related rent being offset by non-branch capacity expansions, while we saw higher utility costs and slightly higher expenses related to investments in hardware and equipment to support growth of FMI Technology.

All other operating and administrative expenses include:

(1) selling-related transportation, (2) information technology (IT) expenses, (3) general corporate expenses, which consists of legal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) the gain on sales of property and equipment.

Combined, all other operating and administrative expenses decreased in the f irst nine months of 2021 when compared to the first nine months of 2020.

This is largely due to a decline in general corporate expenses, with favorable bad debt trends and lower costs for non-healthcare-related insurance more than offsetting higher travel expense and legal fees.

A modest reduction in selling-related transportation as a result of tight fleet maintenance expenses and efforts to rationalize our local pick-up fleet was offset by higher spending on information technology.

Combined, all other operating and administrative expens es increased in the third quarter of 2021 when compared to the third quarter of 2020.

The period experienced a more than two-and-a-half times increase in travel-related costs as activity continues to normalize in contrast to pandemic-related restrictions that presided in the year earlier period, higher non-healthcare-related insurance costs, rising fuel costs related to our local truck fleet, higher spending on information technology, and lower profits from the sale of branch vehicles.

Combined, all other operating and administrative expenses increased in the f irst quarter of 2022 when compared to the first quarter of 2021.

This is largely due to increases in non-healthcare-related insurance costs and costs related to product movement and fuel for our local truck fleet.

Net Interest Expense

Our net interest expense was $7.2 and $2.3 in the first nine months and the third quarter of 2021, respectively, compared to $6.9 and $2.5 in the first nine months and the third quarter of 2020, respectively.

We recorded income tax expense of $215.5 in the first nine months of 2021, or 23.7% of earnings before income taxes, and $72.6 in the third quarter of 2021, or 23.0% of earnings before income taxes.

Income tax expense was $207.5 in the first nine months of 2020, or 23.8% of earnings before income taxes, and $66.1 in the third quarter of 2020, or 23.0% of earnings before income taxes.

Our net interest expense was $2.3 in the first quarter of 2022, compared to $2.4 in the first quarter of 2021.

We recorded income tax expense of $86.1 in the first quarter of 2022, or 24.2% of earnings before income taxes.

Income tax expense was $67.3 in the first quarter of 2021, or 24.2% of earnings before income taxes.

We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.5%.

Our net earnings during the first nine months of 2021 were $693.8, an increase of 4.7% when compared to the first nine months of 2020.

Our net earnings during the third quarter of 2021 were $243.5, an increase of 9.9% compared to the third quarter of 2020.

Our diluted net earnings per share during the first nine months of 2021 were $1.20, an increase of 4.4% when compared to the first nine months of 2020.

Our diluted net earnings per share were $0.42 during the third quarter of 2021, which increased from $0.38 du ring the third quarter of 2020.

Results of Operations (Comparison to 2019 Periods)

Given the unusual nature of our marketplace over the last 18 months due to the COVID-19 pandemic, we believe that a comparison of net sales, gross profit, operating and administrative expenses, operating income, net earnings, and net cash provided by operating activities during the first nine months and third quarter of 2021 to the same periods in 2019 provides further insight into sustainable trends and underlying performance of our business.

As discussed earlier in this report, there were certain aspects of the COVID-19 pandemic that dramatically impacted our business during 2020.

Given this, we believe that a comparison to the 2019 periods is helpful to demonstrate changes in financial condition and our results of operations during the most recently ended quarter.

The table below provides such a comparison:

Nine-month Period Three-month Period

2021 2019 Change 2021 2019 Change

Net sales $ 4,479.0 $ 4,056.8 10.4 % $ 1,554.2 $ 1,379.1 12.7 %

Gross profit $ 2,064.3 $ 1,917.0 7.7 % $ 720.2 $ 651.1 10.6 %

% of net sales 46.1 % 47.3 % 46.3 % 47.2 %

Operating and administrative expenses $ 1,147.8 $ 1,098.7 4.5 % $ 401.8 $ 369.2 8.8 %

% of net sales 25.6 % 27.1 % 25.9 % 26.8 %

Operating income $ 916.5 $ 818.3 12.0 % $ 318.4 $ 281.9 13.0 %

% of net sales 20.5 % 20.2 % 20.5 % 20.4 %

Net earnings $ 693.8 $ 612.2 13.3 % $ 243.5 $ 213.5 14.1 %

Net cash provided by operating activities $ 613.7 $ 590.3 4.0 % $ 167.4 $ 257.3 -34.9 %

% of net earnings 88.5 % 96.4 % 68.8 % 120.5 %

Our net earnings during the first quarter of 2022 were $269.6, an increase of 28.0% compared to the first quarter of 2021.

Our diluted net earnings per share were $0.47 during the first quarter of 2022, an increase of 27.8% when co mpared to th e first quarter of 2021.

Liquidity and Capital Resources

Cash flow activity was as follows for the periods ended September 30:

Nine-month Period

Cash flow activity was as follows for the periods ended March 31:

Three-month Period

Net cash provided by operating activities $ 230.0 274.8

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Net Cash Provided by Operating Activities

We produced operating cash flow of $613.7 in the first nine months of 2021, a decrease of 21.4% from the first nine months of 2020, r epresenting 88.5% of the pe riod's net earnings ve rsus 117.8% in the first nine months of 2020.

The decline in our operating cash flow generated is primarily due to an increased need for working capital to support our customer's growth as business activity improves.

Customer mix also contributes.

Our traditional manufacturing and construction customers are a greater proportion of our sales mix in the first nine months of 2021 than was the case in the first nine months of 2020, and tend to have longer payment terms and retain more inventory on hand.

We also paid approximately $30.0 in payroll taxes in the third quarter of 2021 that was deferred from 2020 as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of September 30, 2021 when compared to September 30, 2020 were as follows:

September 30 Twelve-month Dollar Change Twelve-month Percentage Change

We produced operating cash flow of $230.0 in the first quarter of 2022, a decrease of 16.3% from the first quarter of 2021, representing 85.3% of the period's net earnings versus 130.5% in the first quarter of 2021.

The decline in our operating cash flow and conversion rate is primarily due to an increased need for working capital to support our customer's growth as business activity improves, as well as from inflation in inventory.

Customer mix, while not as significant a contributor in the period as customer growth and inflation, also contributes in two ways.

First, our mix of traditional manufacturing and construction customers normalized along with general business conditions and were a greater proportion of our sales mix in the first quarter of 2022 than was the case in the first quarter of 2021;

these customers tend to have longer payment terms and require more inventory to support.

Second, national accounts continue to grow in our sales mix, and these customers tend to have longer payment terms.

These impacts were only partly offset by growth in profits.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of March 31, 2022 when compared to March 31, 2021 were as follows:

March 31 Twelve-month Dollar Change Twelve-month Percentage Change

2022 2021 2022 2022

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Note - Amounts may not foot due to rounding difference.

Our accounts receivable balance increased due to two factors.

First, our receivables are expanding as a result of improved business activity and resulting growth in our customers' sales.

Second, in response to the COVID-19 pandemic, customers that traditionally have shorter payment terms represented a smaller propo rtion of our sales mix in the first nine months of 2021 than was the case in the first nine months of 2020 .

Invento ry was $1,401.1 at the end of the third quarter of 2021, an increase of $58.5, or 4.4%, over the third quarter of 2020.

This reflects the addition of inventory to support the growth of our manufacturing and construction customers as they expand production to meet improved business activity, as well as inflation in the value of stocked parts .

This is being partly offset by a couple of factors.

First, we have continued to close traditional branches, including 183 over the past 12 months, improve the match of branch stock to the needs of specific markets, reduce slow or non-moving inventory, and improve the flow of product through our internal logistics.

Second, we have su bstantially reduced the supply of disposable masks that were brought into inventory in 2020 as part of our response to COVID-19, a trend that accelerated in the third quarter of 2021 due to the increase in pandemic-related infections and hospitalizations.

Accounts payable w ere $256.9 at the end of the third quarter of 2021, an increase of $46.4, or 22.1%, over th e third quarter of 2020 due to our product purchases increasing to support the improvement in business activity at our manufacturing and construction customers.

Further, a greater proportion of our purc hases in the first nine months of 2021 were of products with traditional payment terms, whereas in the first nine months of 2020 some COVID-related products still required immediate payment and so produced no payable.

Our accounts receivable bala nce increased due to several factors.

First, our receivables increased as a result of improved business activity and resulting growth in our customers' sales.

Second, a year ago as a result of the COVID-19 pandemic we had a greater mix of customers that traditionally have shorter payment terms.

As the effect of the pandemic has receded and manufacturing and construction markets have experienced strong growth, we saw a shift in our mix in the first quarter of 2022 towards customers that traditionally have longer payment terms.

Inventory was $1,600.8 at the end of the first quarter of 2022, an increase of $295.5, or 22.6%, over the first quarter of 2021.

The impact of inflation on the value of stocked parts continues to represent the most significant element behind the increase in our inventory in the period.

However, increases in the quantity of goods flowing into our hubs is also contributing at a rising rate.

This is due to our commitment to providing a resilient and robust supply chain as our manufacturing and construction customers expand production, deeper inventory stocking due to disruptions in supply chains, and the timing of arrival of imported product .

Accounts payable were $289.9 at the end of the first quarter of 2022, an increase of $74.9, or 34.8%, over the first quarter of 2021 du e to our product purchases increasing to support the improvement in business activity at our manufacturing and construction customers.

Net Cash Used in Investing Activities

Net cash used in investing acti vities decreased by $131.8 in the first nine months of 2021 when compared to the first nine months of 2020.

This was primarily due to the acquisition of certain industrial vending assets of Apex International Technologies LLC (Apex) in the first quarter of 2020;

in contrast, there were no outlays for acquisitions in the first nine months of 2021.

A lesser contributor to the reduction in net cash used in investing activities were slightly lower net capital expenditures (property and equipment net of proceeds from sales) in the first nine months of 2021 compared to in the first nine months of 2020.

Our capital spending w ill typically fall into five categories:

(1) the addition of manufacturing and warehouse property and equipment, (2) the purchase of industrial vending and bin technology, (3) the purchase of software and hardware for our

information processing systems, (4) the addition of fleet vehicles, and (5) the purchase of signage, shelving, and other fixed assets related to branch and Onsite locations.

Net cash used in investing acti vi ties increased by $3.3 in the first quarter of 2022 when compared to the first quarter of 2021.

This was primarily due to an increase in our net capital expenditures (purchases of property and equipment net of proceeds from sales of property and equipment) in the first quarter of 2022 compared to in the first quarter of 2021.

Our capital spending will typical ly fall into six categories:

(1) purchases related to industrial vending, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, (5) expansion, improvement or investment in certain owned or leased branch properties, and (6) the addition of manufacturing and warehouse equipment.

Proceeds from the sales of property and equipment, typically for the planned disposition of pick-up trucks as well as distribution vehicles and trailers in the normal course of business, are netted against these purchases an d additions.

During the first nine months of 2021, our net capital expenditures were $107.0, which is a decrease of 6.9% fro m the first nine months of 2020.

Of the factors described above, the largest reason for the decline in net capital expenditures in the first nine months of 2021 was lower spending on FMI devices to reflect a slow recovery in signings and installations following the pandemic, reduced vending equipment costs following the March 2020 acquisition of certain industrial vending assets of Apex, and an increase in the refurbishment and redeployment of FMI hardware as an alternative to buying new devices.

Modest declines in most other spending categories were offset by higher spending on a non-hub construction project in Winona.

During the first quarter of 2022, our net capital expenditures were $33.1, which is an increase of 10.3% from the first quarter of 2021.

The increase relates to higher spending for FMI equipment to reflect current and anticipated growth in our installed base, higher spending on hub property and equipment to reflect automation and safety upgrades, and higher spending on information technology.

This was partly offset by lower spending on non-hub property due to the absence of spending on our now-completed Winona, Minnesota office building and lower spendi ng for vehicles as tight supply chains have limited availability.

Cash requirements for capital expenditures were satisfied from cash generated from operations, available cash and cash equivalents, our borrowing capacity, and the proceeds of disposals.

We now expect our net capital expenditures (property and equipment net of proceeds from sales) in 2021 to be within a range of $155.0 to $175.0, down fro m our prior range of $170.0 to $200.0.

Our net capital expenditures were $157.5 in 2020.

Our current range continues to reflect increased spending for a non-hub construction project in Winona to support growth, land purchases to support future supply chain investment, an increase in manufacturing capacity, higher spending for equipment and facility upgrades, retrofits, and replacement, and lower anticipated proceeds from asset sales.

However, previously anticipated spending for selling-related vehicles, branch development initiatives, and information technology hardware has moderated due to difficulties with global supply chains.

In 2022, we continue to expect our investment in property and equipment, net of proceeds of sales, to be within a range of $180.0 to $200.0, an increase from $148.2 in 2021.

This reflects an increase in spending on FMI equipment in anticipation of higher signings, an increase in spending on hub properties to reflect upgrades to and investments in automation as well as facilities upgrades, and an increase in manufacturing capacity to support demand and expand capabilities.

In addition to capital expenditures, material cash requirements for known contractual

obligations include debt and lease obligations which are discussed in more detail earlier in this report in the Notes to Condensed Consolidated Financial Statements and in our 2021 annual report on Form 10-K.

Net Cash Used in Financing Activities

Net cash used in financing activities increased $114.3 in the first nine months of 2021 when compared to the first nine months of 2020.

This is primarily due to a reduction in debt obligations incurred in the first nine months of 2020 as part of the acquisition of certain industrial vending assets of Apex.

We returned $482.6 to our shareholders in the first nine months of 2021 in the form of dividends, compared to $482.2 in the first nine months of 2020 in the form of dividends ($430.2) and purchases of our common stock ($52.0).

During the first nine months of 2021, we did not purchase any shares of our common stock.

During the first nine months of 2020, we purchased 1,60 0,000 shares of our common stock at an average price of approximately $32.54 per share, resulting in $52.0 of cash used for share repurchase.

We currently have authority to purcha se up to 3,200,000 additional shares of our common stock.

Net cash used in financing activities increased $45.3 in the first quarter of 2022 when compared to the first quarter of 2021.

This is primarily due to a reduction in debt obligations and an increase in dividends.

We returned $178.4 in dividends to our shareholders in the first quarter of 2022, compared to $160.8 in dividends in the first quarter of 2021.

During the first quarters of 2022 and 2021, we did not purchase any shares of our common stock.

We currently have authority to purchase up to 3,200,000 additional shares of our common stock.

An overview of our cash dividends paid or declared in 2022 and 2021 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates – A discussion of our critical accounting policies and estimates is contained in our 2021 annual report on Form 10-K.

Recently Issued and Adopted Accounting Pronouncements – A description of recently adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Condensed Consolidated Financial Statements.

Certain Contractual Obligations – A discussion of the nature and amount of certain of our contractual obligations is contained in our 2020 annual report on Form 10-K.

That portion of total debt outstanding under our Credit Facility and notes payable classified as long-term, and the maturity of that debt, is described earlier in Note 6 of the Notes to Condensed Consolidated Financial Statements.

Recently Issued and Adopted Accounting Pronouncements – A description of recently issued and adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Condensed Consolidated Financial Statements.

Certain Risks and Uncertainties – Certain statements contained in this document do not relate strictly to historical or current facts.

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Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.

our average branch size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies, weak acceptance or adoption of our FMI offering or Onsite business models, increased competition in FMI or Onsite, difficulty in maintaining installation quality as our FMI business expands, the leasing to customers of a significant number of additional FMI devices, the failure to meet our goals and expectations regarding branch openings, branch closings, or expansion of our FMI offering or Onsite operations, changes in the implementation objectives of our business strategies, our ability to retain certain government and other types of customers that bought product from us for the first time during the pandemic, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling operating expenses, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, changes in our cash position or our need to make capital expenditures, credit market volatility, changes in tax law or the impact of any such changes on future tax rates, changes in tariffs or the impact of any such changes on our financial results, changes in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, difficulties measuring the contribution of price increases on sales growth, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission, including our most recent annual and quarterly reports.

Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the impact of the COVID-19 pandemic, economic downturns, weakness in the manufacturing or commercial construction industries, competitive pressure on selling prices, changes in our current mix of products, customers, or geographic locations, changes in our average branch size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies, weak acceptance or adoption of our FMI offering or Onsite business models, increased competition in FMI or Onsite, difficulty in maintaining installation quality as our FMI business expands, the leasing to customers of a significant number of additional FMI devices, the failure to meet our goals and expectations regarding branch openings, branch closings, or expansion of our FMI offering or Onsite operations, changes in the implementation objectives of our business strategies, our ability to retain certain government and other types of customers that bought product from us for the first time during the pandemic, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling operating expenses, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, changes in our cash position or our need to make capital expenditures, credit market volatility, changes in tax law or the impact of any such changes on future tax rates, changes in tariffs or the impact of any such changes on our financial results, changes in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, difficulties measuring the contribution of price increases on sales growth, acts of war, and other risks and uncertainties detailed in our filings with the Securities and Exchange Commission, including our most recent annual and quarterly reports.

Each forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any such statement to reflect events or circumstances arising after such date.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis