FASTENAL CO 10-Q

ITEM 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements. Dollar amounts are stated in millions except for share and per share amounts and where otherwise noted. Throughout this document, percentage and dollar change calculations, which are based on non-rounded dollar values, may not be able to be recalculated using the dollar values in this document due to the rounding of those dollar values. References to daily sales rate (DSR) change may reflect either growth (positive) or contraction (negative) for the applicable period. Business Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of over 3,300 in-market locations. Most of our customers are in the manufacturing and non-residential construction markets. The manufacturing market includes sales of products for both original equipment manufacturing (OEM), where our products are consumed in the final products of our customers, and manufacturing, repair and operations (MRO), where our products are consumed to support the facilities and ongoing operations of our customers. The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of our products include farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, our branches, Onsite locations, and customers are primarily located in North America, though we continue to grow our non-North American presence as well. Our motto is Growth Through Customer Service ® and our tagline is Where Industry Meets Innovation ™ . We are a customer- and growth-centric organization focused on identifying unique technologies, capabilities, and supply chain solutions that get us closer to our customers and reduce the total cost of their global supply chain. We believe this close-to-the-customer, 'high-touch, high-tech' partnership approach is differentiated in the marketplace and allows us to gain market share in what remains a fragmented industrial distribution market. Executive Overview The following table presents a performance summary of our results of operations for the three-month periods ended March 31, 2023 and 2022 . Three-month Period 2023 2022 Change Net sales $ 1,859.1 1,704.1 9.1 % Business days 64 64 Daily sales $ 29.0 26.6 9.1 % Gross profit $ 850.0 793.3 7.2 % % of net sales 45.7 % 46.6 % Operating and administrative expenses $ 456.8 435.3 5.0 % % of net sales 24.6 % 25.5 % Operating income $ 393.2 358.0 9.8 % % of net sales 21.2 % 21.0 % Earnings before income taxes $ 389.7 355.7 9.6 % % of net sales 21.0 % 20.9 % Net earnings $ 295.1 269.6 9.5 % Diluted net earnings per share $ 0.52 0.47 10.4 % 12 Table of Contents The table below summarizes our absolute and full time equivalent (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. Change Since: Change Since: Q1 2023 Q4 2022 Q4 2022 Q1 2022 Q1 2022 In-market locations - absolute employee headcount 13,668 13,410 1.9 % 12,855 6.3 % In-market locations - FTE employee headcount 12,219 12,017 1.7 % 11,644 4.9 % Total absolute employee headcount 22,820 22,386 1.9 % 21,167 7.8 % Total FTE employee headcount 20,262 19,854 2.1 % 18,958 6.9 % Number of branch locations 1,660 1,683 -1.4 % 1,760 -5.7 % Number of active Onsite locations 1,674 1,623 3.1 % 1,440 16.3 % Number of in-market locations 3,334 3,306 0.8 % 3,200 4.2 % Weighted FMI devices (MEU installed count) 104,673 102,151 2.5 % 94,425 10.9 % During the last twelve months, we increased our total FTE employee headcount by 1,304. This reflects an increase in our in-market and non-in-market selling FTE employee headcount of 863 to support growth in the marketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution center FTE employee headcount of 173 to support increased 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 268 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development. The table below summarizes the number of branches opened and closed, net of conversions, as well as the number of Onsites activated and closed, net of conversions during the periods presented. Three-month Period 2023 2022 Branch openings 2 6 Branch closures, net of conversions (25) (39) Onsite activations 84 57 Onsite closures, net of conversions (33) (33) In any period, the number of closings tends to reflect 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. Our in-market network 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. 13 Table of Contents FIRST QUARTER OF 2023 VERSUS FIRST QUARTER OF 2022 Results of Operations The following table sets forth condensed consolidated statement of earnings information (as a percentage of net sales) for the periods ended March 31: Three-month Period 2023 2022 Net sales 100.0 % 100.0 % Gross profit 45.7 % 46.6 % Operating and administrative expenses 24.6 % 25.5 % Operating income 21.2 % 21.0 % Net interest expense -0.2 % -0.1 % Earnings before income taxes 21.0 % 20.9 % Note – Amounts may not foot due to rounding difference. Net Sales 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. 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 2023 2022 Net sales $ 1,859.1 1,704.1 Percentage change 9.1 % 20.3 % Business days 64 64 Daily sales $ 29.0 26.6 Percentage change 9.1 % 18.4 % Daily sales impact of currency fluctuations -0.7 % -0.1 % Net sales increased $155.0, or 9.1%, in the first quarter of 2023 when compared to the first quarter of 2022. The number of business days were the same in both periods. We experienced higher unit sales in the first quarter of 2023 that contributed to the increase in net sales in the period. This was due to further growth in underlying demand in markets tied to industrial capital goods and commodities, which more than offset a modest contraction for construction supplies. Foreign exchange negatively affected sales in the first quarter of 2023 by approximately 70 basis points, while adverse weather impacts in February 2023 negatively affected sales in the first quarter of 2023 by 20 to 40 basis points. The impact of product pricing on net sales in the first quarter of 2023 was 290 to 320 basis points compared to the first quarter of 2022. The increase reflects carryover from broad pricing actions taken in the prior year designed to mitigate marketplace inflation for our products and services and, to a lesser degree , targeted actions in the first quarter of 2023 intended to address gross margin pressure for our non-fastener and non-safety products. Spot prices in the marketplace for many inputs remained below prior year levels, though in many cases they were at or above levels experienced in the fourth quarter of 2022. The combination of good demand, more stable cost trends, and our long supply chain for imported fasteners and certain non-fastener products produced stable price levels for our products. The impact of product pricing on net sales in the first quarter of 2022 was 580 to 610 basis points. 14 Table of Contents From a product standpoint, we have three categories: fasteners, safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows: DSR Change Three-month Period % of Sales Three-month Period 2023 2022 2023 2022 Fasteners 7.0 % 24.6 % 33.6 % 34.3 % Safety supplies 5.7 % 15.3 % 20.4 % 21.0 % Other 12.4 % 14.8 % 46.0 % 44.7 % Our end markets consist of manufacturing, non-residential construction, and other, the latter of which includes resellers, government/education, and transportation/warehousing. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows: DSR Change Three-month Period % of Sales Three-month Period 2023 2022 2023 2022 Manufacturing 14.4% 23.9% 74.6% 71.2% Non-residential construction -2.4% 14.1% 9.3% 10.4% Other -4.4% 3.2% 16.1% 18.4% 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. Sales to most of our national account customers grew in the first quarter of 2023 over the prior year, as our sales grew at 82 of our Top 100 national account customers. The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows: DSR Change Three-month Period % of Sales Three-month Period 2023 2022 2023 2022 National Accounts 13.6 % 22.8 % 59.2 % 57.1 % Non-National Accounts 3.4 % 13.0 % 40.8 % 42.9 % Growth Drivers • We signed 89 new Onsite locations (defined as dedicated sales and service provided from within, or in proximity to, the customer's facility) in the first quarter of 2023. We had 1,674 active sites on March 31, 2023, which represented an increase of 16.3% from March 31, 2022. Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew roughly 20% in the first quarter of 2023 over the first quarter of 2022. This growth is due to contributions from Onsites activated and implemented over the last twelve months, as well as continued growth from our older Onsite locations. Our goal for Onsite signings in 2023 remains between 375 to 400. • 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, 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 Technology which combines the sales through FASTStock, FASTBin, and FASTVend. A portion of the growth in 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. 15 Table of Contents The table below summarizes the signings and installations of, and sales through, our FMI devices. Three-month Period 2023 2022 Change Weighted FASTBin/FASTVend signings (MEUs) 5,902 5,329 10.8 % Signings per day 92 83 Weighted FASTBin/FASTVend installations (MEUs; end of period) 104,673 94,425 10.9 % FASTStock sales $ 236.7 198.5 19.3 % % of sales 12.6 % 11.5 % FASTBin/FASTVend sales $ 503.7 412.0 22.2 % % of sales 26.8 % 23.9 % FMI sales $ 740.4 610.5 21.3 % FMI daily sales $ 11.6 9.5 21.3 % % of sales 39.4 % 35.4 % Our goal for weighted FASTBin and FASTVend device signings in 2023 remains between 23,000 to 25,000 MEUs. • 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 eCommerce grew 48.7% in the first quarter of 2023 and represented 21.9% of our total sales in the period. Our d igital 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 first quarter of 2023 represented 54.1% of our sales, an increase from 47.0% of sales in the first quarter of 2022. Gross Profit Our gross prof it, as a percentage of net sales, declined to 45.7% in the first q uarter of 2023 from 46.6% in the first quarter of 2022. The change in our gross profit percentage primarily reflected four items. First, customer and product mix reduced our gross margin percentage. We experienced relatively strong growth from Onsite customers and non-fastener products, each of which tend to have a lower gross margin percentage than our business as a whole. This impact widened sli ghtly on a sequential basis. Second, lower product margins in certain of our other product categories reduced our gross margin percentage. The combination of elevated costs and normalization of product availability for less frequently sold, often non-standard products where there is less visibility into the supply chain has produced some gross margin pressure. We took actions in the first quarter of 2023 to begin to address these pressures. Third, we had higher organizational/overhead costs, primarily due to higher inbound freight costs and working capital needs being relieved from inventory and generating higher period costs. Fourth, freight expenses were favorable, partially offsetting the negative impacts of mix, product gross margin pressure, and organizational/overhead costs. This favorable impact was from costs related to importing product from overseas suppliers being below prior year levels, the volume of containers being imported from overseas suppliers being lower, and record domestic freight revenue leveraging what are relatively stable costs to support our captive fleet. Operating Income Our operating income, as a percentage of net sales, increased to 21.2% in the first quarter of 2023 from 21.0% in the first quarter of 2022. This was due to improved operating expense leverage, which more than offset the decline in our gross profit percentage. Operating and Administrative Expenses Our operating and administrative expenses, as a percentage of net sales, fell to 24.6% in the first quarter of 2023 from 25.5% in the first quarter of 2022. This reflected declines, as a percentage of net sales, in employee-related and occupancy-related expenses. 16 Table of Contents 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 Three-month Period 2023 Employee-related expenses 70% to 75% 4.4 % Occupancy-related expenses 15% to 20% 3.4 % All other operating and administrative expenses 10% to 15% 10.7 % Employee-related expenses include: (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 quarter of 2023, our employee-relate d expenses increased when com pared to the first quarter of 2022. We experienced an increase in employee base pay due to higher average FTE during the period and, to a lesser degree, higher average wages. Bonus and commission payments decreased reflecting the impact of slower sales and profit growth versus the prior year. We also experienced higher profit sharing costs. 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: Change Since: Change Since: Q1 2023 Q4 2022 Q4 2022 Q1 2022 Q1 2022 In-market locations (branches & Onsites) 12,219 12,017 1.7 % 11,644 4.9 % Non-in-market selling 2,485 2,459 1.1 % 2,197 13.1 % Selling subtotal 14,704 14,476 1.6 % 13,841 6.2 % Distribution/Transportation 3,029 2,971 2.0 % 2,856 6.1 % Manufacturing 714 696 2.6 % 656 8.8 % Organizational support personnel (1) 1,815 1,711 6.1 % 1,605 13.1 % Non-selling subtotal 5,558 5,378 3.3 % 5,117 8.6 % Total 20,262 19,854 2.1 % 18,958 6.9 % (1) Organizational support personnel consists of: (1) Sales & Growth Driver Support personnel (35% to 40% of category), which includes sourcing, purchasing, supply chain, product development, etc.; (2) Information Technology personnel (35% to 40% of category); and (3) Administrative Support personnel (25% to 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 quarter of 2023, our occupancy-related expenses increased when compared to the first quarter of 2022. This increase largely reflects higher costs for FMI hardware as we continue to expand our installed base of such hardware. This was partly offset by slightly lower facility expenses as a result of further branch consolidation and lower utility costs. 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) sales of property and equipment. Combined, all other operating and administrative expenses increased in the first quarter of 2023 when compared to the first quarter of 2022. The increase in other operating and administrative expenses relates primarily to higher spending on information technology, increased general insurance costs, and higher spending on travel expenses and supplies. This was only partly offset by lower product movement and fuel costs for our local truck fleet, reduced bad debt expense, and higher profits on sales of assets. 17 Table of Contents Net Interest Expense Our net interest expense was $3.5 in the first quarter of 2023, compared to $2.3 in the first quarter of 2022. This increase was due to higher average debt balances and higher average interest rates on those borrowings during the period. Income Taxes We recorded income tax expense of $94.6 in the first quarter of 2023, or 24.3% of earnings before income taxes. Income tax expense was $86.1 in the first quarter of 2022, 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%. Net Earnings Our net earnings during the first quarter of 2023 were $295.1, an increase of 9.5% compared to the first quarter of 2022. Our diluted net earnings per share were $0.52 during the first quarter of 2023, which increased from $0.47 during the first quarter of 2022. Liquidity and Capital Resources Cash flow activity was as follows for the periods ended March 31: Three-month Period 2023 2022 Change Net cash provided by operating activities $ 388.5 230.0 68.9 % Percentage of net earnings 131.7 % 85.3 % Net cash used in investing activities $ 31.0 33.2 -6.6 % Percentage of net earnings 10.5 % 12.3 % Net cash used in financing activities $ 348.9 199.5 74.9 % Percentage of net earnings 118.2 % 74.0 % Net Cash Provided by Operating Activities The improvement in operating cash flow as a percent of net earnings is due to working capital being a source of cash in the first quarter of 2023, versus working capital being a significant use of cash in the first quarter of 2022. Global supply chains have normalized versus the prior year, resulting in a reduction in the amount of working capital necessary to keep on hand to support our customers' growth. The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of March 31, 2023 when compared to March 31, 2022 were as follows: March 31 Twelve-month Dollar Change Twelve-month Percentage Change 2023 2022 2023 2023 Accounts receivable, net $ 1,149.8 1,071.6 $ 78.2 7.3 % Inventories 1,651.9 1,600.8 51.1 3.2 % Trade working capital $ 2,801.7 2,672.4 $ 129.3 4.8 % Accounts payable $ 266.8 289.9 $ (23.2) -8.0 % Trade working capital, net $ 2,534.9 2,382.5 $ 152.5 6.4 % Net sales in last three months $ 1,859.1 1,704.1 $ 155.0 9.1 % Note - Amounts may not foot due to rounding difference. The increase in our accounts receivable balance in the first quarter of 2023 is primarily attributable to two factors. First, our receivables increased as a result of expanding business activity and resulting growth in our customers' sales. Second, we continue to experience a shift in our mix due to relatively stronger growth from national account customers, which tend to carry longer payment terms than our non-national account customers. The increase in our inventory balance in the first quarter of 2023 is primarily attributable to supporting the improved business activity of our customers. We were able to provide this support even while growing inventory at a slower rate than sales. This 18 Table of Contents reflects the absence of supply disruptions from the prior year that we managed by deepening our inventory, especially imported inventory, and which has allowed us to begin gradually shortening our product ordering cycle. The decrease in our accounts payable balance in the first quarter of 2023 is primarily attributable to the dissipation of supply disruptions from the prior year. That allowed us to gradually begin to shorten our product ordering cycle and reduce the volume of product purchases in the first quarter of 2023 versus the first quarter of 2022. Net Cash Used in Investing Activities Net cash used in investing activities decreased by $2.2 in the first quarter o f 2023 when compared to the first quarter of 2022. T his was due to slightly lower purchases of property and equipment, net of proceeds from the sale of property and equipment, in the first quarter of 2023 compared to the first quarter of 2022. 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 quarter of 2023, our net capital expenditures (purchases of property and equipment net of proceeds from sales of property and equipment) were $30.9, which is a decrease from $33.1 in the first quarter of 2022. 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. During the full year of 2023, we continue to expect our investment in property and equipment, net of proceeds of sales, to be within a ran ge of $210.0 to $230.0, increas ing from $162.4 in 2022. This increase reflects primarily: (1) higher property-related spending on upgrades to and investments in automation of certain facilities, the beginning of construction of a distribution center in Utah, and investment in materials to facilitate our branch conversion projects; (2) investments in fleet equipment to support our network of heavy trucks; and (3) an increase in spending on information technology. 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 2022 annual report on Form 10-K. Net Cash Used in Financing Activities Net cash used in financing acti vities increased $149.4 in the first quarter of 2023 when compared to the first quarter of 2022. This is primarily related to a reduction in our debt obligations, which reflected strong operating cash generation in the period and, to a lesser degree, an increase in cash used for dividend payments. During the first quarter of 2023, we returned $199.8 in dividends to our shareholders, compared to the first quarter of 2022 when we returned $178.4 in dividends. We did not repurchase our common stock in either period. We have authority to purchase up to 6,200,000 additional shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date. Total debt on our balance sheet was $400.0 at the end of the first quarter of 2023, or 10.9% of total capital (the sum of stockholders' equity and total debt). This compares to $365.0, or 10.4% of total capital, at the end of the first quarter of 2022. This increase is from the repurchase of $237.8 of our common stock over the past twelve months. An overview of our cash dividends paid or declared in 2023 and 2022 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements. 19 Table of Contents Critical Accounting Policies and Estimates – A discussion of our critical accounting policies and estimates is contained in our 2022 annual report on Form 10-K. 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. As such, they are considered 'forward-looking statements' that provide current expectations or forecasts of future events. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of terminology such as anticipate, believe, should, estimate, expect, intend, may, will, plan, goal, project, hope, trend, target, opportunity, and similar words or expressions, or by references to typical outcomes. Any statement that is not a purely historical fact, including estimates, projections, trends, and the outcome of events that have not yet occurred, is a forward-looking statement. Our forward-looking statements generally relate to our expectations and beliefs regarding the business environment in which we operate, our projections of future performance, our perceived marketplace opportunities, our strategies, goals, mission and vision, and our expectations related to future capital expenditures, future tax rates, future inventory levels, pricing, Onsite and weighted FMI device signings, the impact of inflation on our cost of goods or operating costs, and the impact of price increases on overall sales growth or margin performance. You should understand that forward-looking statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not limited to, 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 and the challenges of operating in 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, challenges in developing and expanding our digital capabilities, 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. 20 Table of Contents