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Item 2. Management’s Discussion and Analysis

2024-04-16 compared with 2023-10-17 · 139 added, 288 removed, 147 unchanged (74% of the section changed)

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.

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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 approximately 3,400 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.

We distribute these supplies through a network of more than 3,400 in-market locations.

Our largest end market is manufacturing.

Sales to these customers includes 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.

We also service general and commercial contractors in non-residential end markets as well as 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.

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Executive Overview

The following table presents a performance summary of our results of operations for the nine-month and three-month periods ended September 30, 2023 and 2022 .

Nine-month Period Three-month Period

2023 2022 Change 2023 2022 Change

The following table presents a performance summary of our results of operations for the three-month periods ended March 31, 2024 and 2023 .

Three-month Period

2024 2023 Change

Net sales $ 1,895.1 1,859.1 1.9 %

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% of net sales 45.5 % 45.7 %

Operating and administrative expenses $ 1,380.2 1,326.7 4.0 % $ 460.9 447.3 3.0 %

Selling, general, and administrative expenses $ 471.4 456.8 3.2 %

% of net sales 24.9 % 24.6 %

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% of net sales 20.6 % 21.2 %

Earnings before income taxes $ 1,167.8 1,111.8 5.0 % $ 385.4 375.3 2.7 %

Income before income taxes $ 389.8 389.7 0.0 %

% of net sales 20.6 % 21.0 %

Net earnings $ 888.6 841.3 5.6 % $ 295.5 284.6 3.8 %

Diluted net earnings per share $ 1.55 1.46 6.3 % $ 0.52 0.50 4.1 %

Net income $ 297.7 295.1 0.9 %

Diluted net income per share $ 0.52 0.52 0.6 %

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.

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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.

Total selling personnel - absolute employee headcount 16,261 16,302 -0.3 % 15,898 2.3 % 15,662 3.8 %

Total selling personnel - FTE employee headcount 14,750 14,993 -1.6 % 14,476 1.9 % 14,284 3.3 %

Selling personnel - absolute employee headcount 16,764 16,512 1.5 % 16,178 3.6 %

Selling personnel - FTE employee headcount 15,102 15,070 0.2 % 14,704 2.7 %

Total personnel - absolute employee headcount 23,695 23,201 2.1 % 22,820 3.8 %

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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.

Nine-month Period Three-month Period

2023 2022 2023 2022

Three-month Period

Branch openings — 2

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Onsite closures, net of conversions (29) (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.

THIRD QUARTER OF 2023 VERSUS THIRD QUARTER OF 2022

Our in-market network forms the foundation of our business strategy.

In recent years, we have seen a gradual increase in our in-market locations.

This has reflected significant growth in Onsites and, to a lesser degree, international branches, which has more than overcome a meaningful decline in our traditional branch network from a strategic rationalization that aligned our physical footprint with changes in our business strategies.

Branch closures may occur in the future to reflect normal churn in our business, but the strategic rationalization has concluded.

As a result, we expect to see an increase in the rate of in-market location growth as Onsites continue to increase while our traditional branch network remains stable or grows moderately to sustain and improve our network and support our growth drivers.

FIRST QUARTER OF 2024 VERSUS FIRST QUARTER OF 2023

Results of Operations

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

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

Three-month Period

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Gross profit 45.5 % 45.7 %

Operating and administrative expenses 25.0 % 24.8 %

Selling, general, and administrative expenses 24.9 % 24.6 %

Operating income 20.6 % 21.2 %

Net interest expense 0.0 % -0.2 %

Earnings before income taxes 20.9 % 20.8 %

Income before income taxes 20.6 % 21.0 %

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:

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

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Daily sales impact of currency fluctuations 0.0 % -0.7 %

Net sales increased $43.5, or 2.4%, in the third quarter of 2023 when compared to the third quarter of 2022.

There was one fewer selling day in the quarter relative to the prior year period and, taking this into consideration, our net daily sales growth increased 4.0% in the third quarter of 2023 compared to the third quarter of 2022.

We experienced higher unit sales in the third quarter of 2023 that was primarily due to growth at our Onsite locations, particularly those opened in the last two years.

This more than offset the impact of softer end market demand on our manufacturing customers and lower revenues to construction and reseller customers.

Foreign exchange negatively affected sales in the third quarter of 2023 by approximately 10 basis points.

The impact of product pricing on net sales in the third quarter of 2023 was modestly positive, consistent with historical trends, as compared to the impact of product pricing on net sales in the third quarter of 2022 of 550 to 580 basis points.

Incremental pricing actions over the past twelve months have been of modest scope, resulting in mostly stable price levels through the third quarter of 2023.

Net sales increased $36.1, or 1.9%, in the first quarter of 2024 when compared to the first quarter of 2023.

The effect of adverse weather in the first quarter of 2024 was a reduction in sales by 35 to 55 basis points as compared to a reduction in sales in the first quarter of 2023 by 20 to 40 basis points, resulting in a net negative impact from adverse weather in the first quarter of 2024 of 10 to 30 basis points.

The effect of foreign exchange on sales was not material in the first quarter of 2024 as compared to negatively affecting sales in the first quarter of 2023 by approximately 70 basis points.

We experienc ed higher unit sales in the first quarter of 2024 primarily due to growth with larger customers and Onsite locations opened in the last two years .

The impact of product pricing was not material to net sales in the first quarter of 2024, as compared to the impact of product pricing on net sales in the first quarter of 2023 of 290 to 320 basis points.

Incremental pricing actions over the past twelve months have been modest in scope, resulting in mostly stable price levels through the first quarter of 2024.

From a product standpoint, we have three categories:

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

We experienced increasing divergence in the performance of our fastener versus our non-fastener product lines in the third quarter of 2023, which we believe relates to two factors.

First, fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to weaker manufacturing end markets.

fasteners (including fasteners used in original equipment manufacturing (OEM) and maintenance, repair, and operations (MRO), safety supplies, and other product lines, the latter of which includes eight smaller product categories, such as tools, janitorial supplies, and cutting tools.

We continued to experience a divergence in the performance of our fastener versus our non-fastener product lines in the first quarter of 2024, which we believe relates to three factors.

First, fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to periods of weaker industrial production .

Second, pricing for fasteners has decelerated at a faster pace than non-fastener products.

Third, while the rate of outgrowth has slowed relative to what we experienced during the final two months of 2023, we continued to experience relatively faster growth with our retailer-oriented customers due to market share gains, product mix, and easier comparisons.

This factor primarily benefited our safety product line.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

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2024 2023 2024 2023

Fasteners -2.0 % 18.2 % 32.1 % 34.1 %

OEM fasteners -4.0 % 12.6 % 19.6 % 20.8 %

MRO fasteners -5.1 % -1.1 % 11.9 % 12.8 %

Total fasteners -4.4 % 7.0 % 31.5 % 33.6 %

Safety supplies 8.3 % 5.7 % 21.6 % 20.4 %

Other 6.8 % 15.4 % 46.5 % 45.4 %

Our end markets consist of manufacturing, non-residential construction, reseller, and other, the latter of which includes government/education and transportation/warehousing.

We continued to experience a significant divergence in the performance of our manufacturing end market versus our non-manufacturing end markets in the third quarter of 2023.

We are growing relatively faster with key account customers, particularly Onsites, with significant managed spend where our service model and technology is particularly impactful, which disproportionately benefits manufacturing customers.

Other product lines 3.9 % 12.4 % 46.9 % 46.0 %

From an end market standpoint, we have five categories:

heavy manufacturing, other manufacturing, non-residential construction, reseller, and other, the latter of which includes government/education and transportation/warehousing .

We continued to experience a divergence in the performance of our manufacturing end market versus our non-manufacturing end markets in the first quarter of 2024, although the scale of that divergence has continued to narrow.

These trends reflect a number of factors.

First, we are growing relatively faster with key account customers with significant managed spend where our service model and technology is particularly impactful, which disproportionately benefits manufacturing customers.

At the same time, this benefit has been increasingly offset by weakening end markets.

Second, while our non-residential and reseller end markets remain relatively weak, they are beginning to come across easier comparisons in the preceding periods.

This factor primarily benefited our other product lines.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

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Other manufacturing 2.5 % 10.2 % 31.6 % 31.5 %

Total manufacturing 2.6 % 14.4 % 75.0 % 74.6 %

Non-residential construction -6.6 % -2.4 % 8.5 % 9.3 %

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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.

We continued to experience a significant divergence in the performance of our national account customers versus our non-national account customers, which relates to the relative growth of our sales through Onsite locations and larger, key accounts.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

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

We continued to experience a significant divergence in the performance of our national account customers versus our non-national account customers, which relates to the relative growth of our sa les through Onsite locations and larger, key accounts.

T he DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Three-month Period % of Sales

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Growth Drivers

• We signed 93 new Onsite locations (defined as dedicated sales and service provided from within, or in proximity to, the customer's facility) in the third quarter of 2023, resulting in 268 year-to-date signings of new Onsite locations.

We had 1,778 active sites on September 30, 2023, which represented an increase of 13.5% from September 30, 2022.

Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew at a low double-digit rate in the third quarter of 2023 over the third quarter of 2022.

This growth is primarily due to contributions from Onsites activated and implemented in 2022 and 2023.

Based on the signings in the first nine months of 2023, we currently expect to sign approximately 350 new Onsite locatio ns for the full year of 2023.

• We signed 102 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 2024.

We had 1,872 active sites on March 31, 2024, which represented an increase of 11.8% from March 31, 2023.

Daily sales through our Onsite locations, excluding sales transferred from branches to new Onsites, grew at a low single-digit rate in the first quarter of 2024 over the first quarter of 2023.

This growth is due to contributions from Onsites activated and implemented in 2024 and 2023, as well as an increase in revenues per location among our more mature locations.

These factors were only partly offset by Onsite closures.

Our goal for Onsite signings in 2024 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.

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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.

The second statistic is sales 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.

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% of sales 41.5 % 39.4 %

Our goal for weighted FASTBin and FASTVend device signings in 20 23 remains between 23,000 to 25,000 M EUs.

• 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 41.3% in the third quarter of 2023 and represented 24.5% of our total sales in the period.

Our goal for weighted FASTBin and FASTVend device signings in 2024 remains between 26,000 to 28,000 MEUs.

• Our eCommerce business includes sales made through EDI, or other types of technical integrations, and through our web verticals.

Daily sales through eCommerce grew 33.6% in the first quarter of 2024 and represented 28.6% 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).

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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 2023 represented 57.1% of our sales, an increase from 49.5% of sales in the third quarter of 2022.

Our gross prof it, as a percentage of net sales, was unchanged at 45.9% in the third q uarter of 2023 from 45.9% in the third quarter of 2022.

Customer and product mix had a negative effect on our gross profit percentage.

We continued to experience relatively strong growth from Onsite customers and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a whole.

This was offset by a number of favorable variables.

First, we continue to experience favorable freight costs, which reflects elevated domestic freight revenue leveraging what are relatively stable costs to support our captive fleet, lower expenses related to external freight providers, and lower fuel costs.

Second, in the third quarter of 2022 we had a $3.4 write-down of pandemic-related gloves that did not recur in the third quarter of 2023.

Third, we experienced slightly positive price-cost.

This reflects moderating product costs, as we took no meaningful pricing actions in the period, and an easy comparison, as it largely recaptures the price-cost deficit experienced in the third quarter of 2022.

Operating Income

Our operating income, as a percentage of net sales, was unchanged at 21.0% in the third quarter of 2023 from 21.0% in the third quarter of 2022.

Operating and Administrative Expenses

Our operating and administrative expenses, as a percentage of net sales, increased to 25.0% in the third quarter of 2023 from 24.8% in the third quarter of 2022.

This largely reflects an increase, as a percentage of net sales, in other operating and administrative expenses.

Our ability to leverage was adversely impacted by slow sales growth, which made it difficult to leverage spending on certain business initiatives and investments.

Our ability to leverage was also limited by having one less selling day in the third quarter of 2023 than we had in the third quarter of 2022, as most of our operating expenses will not vary based on the number of selling days in a given period.

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

Our Digital Footprint in the first quarter of 2024 represented 59.2% of our sales, an increase from 54.1% of sales in the first quarter of 2023.

Our gross prof it, as a percentage of net sales, decreased to 45.5% in the first qu arter of 2024 from 45.7% in the fi rst quarter of 2023.

Our gross profit percentage was negatively affected by customer and product mix.

This reflects relatively stronger growth from large customers, including Onsite customers, and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a who le.

The negative impact of mix was partly offset by a couple of trends.

First, we continue to experience modestly positive price-cost, reflecting easing product cost, the absence of meaningful pricing actions by us in the period, and an easy comparison versus the price-cost deficit experienced in the first quarter of 2023.

Second, we had favorable leverage of organizational/overhead costs, primarily due to greater utilization of domestic transportation resources as we move more product to support current stocking levels.

SG&A Expenses

Our SG&A expenses, as a percentage of net sales, increased to 24.9% in the first quarter of 2024 from 24.6% in the first quarter of 2023.

We continue to focus on limiting growth in our headcount and improving the balance of full-time and part-time employees in our workforce.

We still deleveraged our employee-related expenses as a result of slower growth in sales in the first quarter of 2024.

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

Approximate Percentage of Total SG&A Expenses Three-month Period

Employee-related expenses 70% to 75% 3.9 %

Occupancy-related expenses 15% to 20% 0.0 %

All other operating and administrative expenses 10% to 15% 11.0 %

All other SG&A expenses 10% to 15% 3.5 %

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 third quarter of 2023, our employee-relate d expenses increased when com pared to the third 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.

We also experienced higher healthcare-related costs.

This was partly offset by bonus and commission payments declining to reflect the impact of slower sales and profit growth versus the prior year.

In the first quarter of 2024, our employee-relate d expenses increased when com pared to the first quarter of 2023.

We experienced an increase in employee base pay due to higher average FTE and higher average wages during the period, as well as an increase in employee health care costs.

This was only partly offset by lower bonus and commission payments reflecting slower sales and profit growth versus the first quarter of 2023.

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:

Total selling personnel (1)

Selling personnel (1)

15,102 15,070 0.2 % 14,704 2.7 %

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Total personnel 20,935 20,721 1.0 % 20,262 3.3 %

(1) Of our Total Selling Personnel, 80%-85% are attached to a specific in-market location.

Of our Selling Personnel, 80%-85% are attached to a specific in-market location.

Organizational support personnel consists of:

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

(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);

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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 and bins utilized as part of our FMI services (we consider this hardware to be a logical extension of our in-market operations and classify the depreciation and repair costs as occupancy expenses).

In the third quarter of 2023, our occupancy-related expenses increased when compared to the third quarter of 2022.

We continue to experience rising rent costs for our buildings due to inflation and upsizing of branches.

At the same time, slowing in the pace of branch closings is resulting in a moderating level of incremental cost reduction to offset these increases.

We also had higher costs for FMI hardware as we continue to expand our installed base of such hardware.

All other operating and administrative 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 and bins utilized as part of FMI services (we consider this hardware 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 2024, our occupancy-related expenses were flat when compared to the first quarter of 2023.

We had lower depreciation expense as we have had a large number of vending machines and certain of our hub automation equipment reach the end of their depreciable lives relative to the first quarter of 2023.

This was offset by slightly higher facility expense.

All other SG&A 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 third quarter of 2023 when compared to the third quarter of 2022.

The increase in other operating and administrative expenses relates primarily to higher spending on information technology, higher bad debt expense, and higher general insurance costs.

Net Interest Expense

Our net interest expense was $1.3 in the third quarter of 2023, compared to $3.9 in the third quarter of 2022.

We had higher interest income, reflecting higher cash balances through the period and higher rates paid on those balances.

We also had lower interest expense, reflecting lower average borrowings through the period, as well as slightly lower average interest rates.

We recorded income tax expense of $89.9 in the third quarter of 2023, or 23.4% of earnings before income taxes.

During the third quarter of 2023, the liability for unrecognized tax benefits decreased $3.9 due to the lapse of statute of limitations, of which $3.8 impacted the effective tax rate.

Income tax expense was $90.7 in the third quarter of 2022, or 24.2% of earnings before income taxes.

Combined, all other SG&A expenses increased in the first quarter of 2024 when compared to the first quarter of 2023.

The increase in other SG&A expenses is primarily a result of modest increases in spending on information technology and higher lease costs in our selling-related vehicle fleet due to an increase in the mix of larger truck types and higher prices on newer vehicles.

Operating Income

Our operating income, as a percentage of net sales, decreased to 20.6% in the first quarter of 2024 from 21.2% in the first quarter of 2023.

We had net interest expense of $0.4 in the first quarter of 2024, compared to net interest expense of $3.5 in the fi rst quarter of 2023.

We had higher interest income, reflecting higher average cash balances through the period, particularly in January and February, and higher rates earned on those balances.

We had lower interest expense, reflecting lower average borrowings through the period.

We recorded income tax expense of $92.1 in the first quarter of 2024, or 23.6% of income before income taxes.

Income tax expense was $94.6 in the first quarter of 2023, or 24.3% of income 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 third quarter of 2023 were $295.5, an increase of 3.8% compared to the third quarter of 2022.

Our diluted net earnings per share were $0.52 during the third quarter of 2023, which increased from $0.50 during the third quarter of 2022.

Our tax rate in the first quarter of 2024 was below our expected ongoing tax rate due to the tax benefits associated with the exercise of stock options during the quarter.

Our net income during the first quarter of 2024 was $297.7, an increase of 0.9% compared to the first quarter of 2023.

Our diluted net income per share was $0.52 during the first quarter of 2024, which was unchanged from $0.52 during the first quarter of 2023.

Liquidity and Capital Resources

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

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

Three-month Period

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Net cash provided by operating activities $ 335.6 388.5 -13.6 %

Percentage of net earnings 131.3 % 90.6 %

Percentage of net income 112.7 % 131.7 %

Net cash used in investing activities $ 48.4 31.0 56.1 %

Percentage of net earnings 14.6 % 15.6 %

Percentage of net income 16.3 % 10.5 %

Net cash used in financing activities $ 267.4 348.9 -23.4 %

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased $130.2 in the third quarter of 2023 when compared to the third quarter of 2022.

The improvement in operating cash flow, as a percent of net earnings, reflects working capital being a source of cash in the third quarter of 2023, as opposed to a use of cash in the third quarter of 2022.

This reflects the normalization of global supply chains versus the prior year and, to a lesser degree, slower business activity, which combine to reduce the rate of working capital expansion necessary to support our customers' growth.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of September 30, 2023 when compared to September 30, 2022 were as follows:

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

Net cash provided by operating activities decreased $52.9 in the first quarter of 2024 when compared to the first quarter of 2023.

The decrease in operating cash flow, as a percent of net income, reflects our operating assets and liabilities being a modest use of cash in the first quarter of 2024 versus a source of cash in the first quarter of 2023.

Inventory was a smaller source of cash in the first quarter of 2024 relative to the preceding period as the pace of inventory reduction slowed as the proc ess of rightsizing stocking levels to reflect smoother supply chains is substantially complete.

We also had relatively less favorable accruals for wages, reflecting the softer growth and earnings environment.

Our rate of conversion of net income into operating cash flow in the first quarter of 2024 is broadly consistent with what we have achieved on average in the first quarter over the last five years.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of March 31, 2024 when compared to March 31, 2023 were as follows:

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

2024 2023 2024 2024

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Note - Amounts may not foot due to rounding difference.

The increase in our accounts receivable balance in the third quarter of 2023 is primarily attributable to two factors.

First, our receivables inc reased as a result of growth in sales to our customers.

The increase in our accounts receivable balance in the first quarter of 2024 was primarily attributable to two factors.

First, our receivables increased as a result of growth in sales to our customers.

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 decrease in our inventory balance in the third quarter of 2023 is primarily attributable to the absence of supply disruptions from the prior year.

Our response at the time was to deepen our inventory as a means of maintaining high service to our customers, particularly for imported inventory.

Dissipation of these disruptions has allowed us to shorten our product ordering cycle.

It is also likely that slower business activity is reducing the level of inventory our customers require us to maintain to meet their production needs.

The decrease in our accounts payable balance in the third quarter of 2023 is primarily attributable to the dissipation of supply disruptions from th e prior year.

That allowed us to gradually begin to shorten our product ordering cycle and reduce the volume of product purchases in the third quarter of 2023 versus the third quarter of 2022.

The decrease in our inventory balance in the first quarter of 2024 primarily reflects progress made over the last twelve months to reduce inventory following the normalization of the supply chain after the disruptions experienced in 2022.

We responded to that event by deepening inventory to support customer growth, and the process of rightsizing our stock can be protracted given the quantity of imported product we source.

We have also experienced modest deflation in our inventory.

The increase in our accounts payable balance in the first quarter of 2024 was primarily attributable to our product purchases increasing to support the growth in our business.

The growth in our accounts payable balance is above the growth in our sales reflecting re-stocking of certain products that were depleted to support certain customer needs during the fourth quarter of 2023.

It also reflects the timing of the Good Friday holiday, as our purchasing activities remained steady relative to slower sales at the end of the first quarter of 2024.

Net Cash Used in Investing Activities

Net cash used in investi ng activities decreased by $1.5 in the third quarter of 2023 when compared to the third quarter of 2022.

This was due to lower net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) in the third quarter of 2023 compared to the third 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.

Net cash used in investi ng activities increased by $17.4 in the first quarter of 2024 when compared to the first quarter of 2023.

This was due to higher net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) in the first quarter of 2024 compared to the first quarter of 2023.

Our capital spending typically falls into six categories:

(1) purchases related to FMI hardware, (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 third quarter of 2023, our net capital expenditures were $42.9, which is a decrease from $44.4 in the third quarter of 2022.

During the first quarter of 2024, our net capital expenditures were $48.3, which was an increase from $30.9 in the first quarter of 2023.

This was primarily due to an increase in spending for facility construction and upgrades, as well as higher vehicle spending reflecting the timing of deliveries from our suppliers.

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.

For the full year of 2023, we expect our investment in property and equipment, net of proceeds from sales, to be within a range of $180.0 to $190.0.

This is a decline from our prior range of $210.0 to $230.0 reflecting a deferral of several distribution center-related proj ects.

This new range represents an increase from $162.4 in 2022, due primarily to investments in fleet equipment to support our network of heavy trucks and an increase in spending on information technology.

During the full year of 2024, we continue to expect our investment in property and equipment, net of proceeds from sales, to be within a range of $225.0 to $245.0, increasing from $160.6 in 2023.

This increase reflects spending to complete our Utah distribution center, investments in picking technology and equipment in our hubs and branches, higher outlays for FMI hardware reflecting our higher targeted signings and a slight build in device inventory, and an increase in spending on information technology.

Net Cash Used in Financing Activities

Net cash used in financing ac tivities increased $66.1 in the third quarter of 2023 when compared to the third quarter of 2022.

This is primarily related to a reduction in our debt obligations, versus an increase in our debt obligations in the third quarter of 2022, which reflected strong operating cash generation in the period.

This was only partly offset by a reduction in the third quarter of 2023 of total capital returned to shareholders compared to the third quarter of 2022.

During the third quarter of 2023, we returned $199.8 to our shareholders in the form of dividends, compared to the third quarter of 2022 when we returned $272.8 to our shareholders in the form of dividends ($177.5) and purchases of our common stock ($95.3).

During the third quarter of 2023, we did not repurchase any of our common stock.

During the third quarter of 2022, we purchased 2,000,000 shares of our common stock at an average price of approximately $47.68 per share.

Net cash used in financing ac tivities decreased $81.5 in the first quarter of 2024 when compared to the first quarter of 2023.

This was primarily due to debt reduction in the first quarter of 2024 being significantly lower than in the first quarter of 2023 owing to smaller outstanding debt balances.

This was only partly offset by an increase in capital returned to shareholders through dividends in the period.

During the first quarter of 2024, we returned $223.2 to our shareholders in the form of dividends, compared to the first quarter of 2023 when we returned $199.8 to our shareholders in the form of dividends.

We did not repurchase any of 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 $260.0 at the end of the third quarter of 2023, or 7.0% of total capital (the sum of stockholders' equity and total debt).

This compares to $555.0, or 14.9% of total capital, at the end of the third quarter of 2022.

This decrease is due to applying operating cash generated to the reduction of total borrowings on the balance sheet.

Our material cash requirements for known contractual obligations include capital expenditures, 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.

Total debt on our balance sheet was $200.0 at the end of the first quarter of 2024, or 5.5% of total capital (the sum of stockholders' equity and total debt).

This compares to $400.0, or 10.9% of total capital, at the end of the first quarter of 2023.

The higher level of debt carried in the first quarter of 2023 was due to having used our revolver to finance working capital to mitigate supply chain constraints.

With the supply chain normalizing, we have been able to reduce layers of working capital and generate cash flow to lower our level of indebtedness in the first quarter of 2024.

Our material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this report in the Notes to Condensed Consolidated Financial Statements and in our 2023 annual report on Form 10-K.

An overview of our cash dividends paid or declared in 2024 and 2023 is contained in Note 3 of the Notes to Condensed Consolidated Financial Statements.

NINE MONTHS ENDED SEPTEMBER 30, 2023 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 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 September 30:

Nine-month Period

Net sales 100.0 % 100.0 %

Gross profit 45.7 % 46.3 %

Operating and administrative expenses 24.7 % 25.1 %

Operating income 21.0 % 21.2 %

Net interest expense -0.1 % -0.2 %

Earnings before income taxes 20.9 % 21.0 %

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

Net sales $ 5,588.1 5,285.0

Percentage change 5.7 % 18.0 %

Business days 191 192

Daily sales $ 29.3 27.5

Percentage Change 6.3 % 17.4 %

Daily sales impact of currency fluctuations -0.4 % -0.4 %

Net sales increased $303.1, or 5.7%, in the first nine months of 2023 when compared to the first nine months of 2022.

There was one fewer selling day in the first nine months of 2023 relative to the prior year period and, taking this into consideration, our net daily sales growth increased 6.3% in the first nine months of 2023 compared to the first nine months of 2022.

We experienced higher unit sales during the period that contributed to the increase in net sales in the period.

This was primarily due to growth at our Onsite locations, with the strongest contribution from those sites opened in the last two years and a more modest contribution from more mature locations.

This more than offset the impact of softer end market demand on our manufacturing customers and lower revenues to construction and reseller customers.

Foreign exchange negatively affected sales in the first nine months of 2023 by approximately 40 basis points.

We estimate that adverse weather in the first quarter of 2023 reduced our growth by approximately 10 basis points during the nine-month period.

The overall impact of product pricing on net sales was 190 to 220 basis points during the first nine months of 2023.

While product pricing has been positive throughout 2023, the impact was greatest in the first two quarters of the period.

This reflects the carryover of broad actions taken in the first quarter of 2022 and targeted actions taken in the first quarter of 2023 to mitigate the effects of higher transportation and material costs for our products, as well as the impact of general inflationary conditions in the marketplace over the past twelve months.

The impa ct of product pricing on net sales wa s 600 to 630 bas is points during the first nine months of 2022 .

From a product standpoint, we have three categories:

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

In the first nine months of 2023, fastener daily sales grew at a slower rate than our other product categories, which we believe relates to two factors.

First, fasteners are more heavily oriented toward production of final goods than maintenance, which results in greater susceptibility to weaker manufacturing end markets.

Second, pricing for fasteners has decelerated at a faster pace than non-fastener products.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Nine-month Period

2023 2022 2023 2022

Fasteners 1.6 % 21.2 % 32.8 % 34.3 %

Safety supplies 7.6 % 13.8 % 20.8 % 20.6 %

Other 9.6 % 15.7 % 46.4 % 45.1 %

Our end markets consist of manufacturing, non-residential construction, reseller, and other, the latter of which includes government/education and transportation/warehousing.

We continued to experience a significant divergence in the performance of our manufacturing end market versus our non-manufacturing end markets in the first nine months of 2023.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Nine-month Period

2023 2022 2023 2022

Heavy manufacturing 13.1 % 26.1 % 43.2 % 40.7 %

Other manufacturing 6.5 % 19.5 % 31.3 % 31.3 %

Non-residential construction -6.2 % 9.8 % 9.2 % 10.4 %

Reseller -7.1 % 4.2 % 5.9 % 6.7 %

Other end markets 1.5 % 0.9 % 10.4 % 10.9 %

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.

The DSR change when compared to the same period in the prior year and the percent of sales in the period were as follows:

Nine-month Period

2023 2022 2023 2022

National accounts 10.8 % 22.1 % 59.8 % 57.5 %

Non-national accounts 0.6 % 11.6 % 40.2 % 42.5 %

Growth Drivers

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

Nine-month Period

2023 2022 Change

Weighted FASTBin/FASTVend signings (MEUs) 18,664 16,005 16.6 %

Signings per day 98 83

Weighted FASTBin/FASTVend installations (MEUs;

end of period) 110,191 99,409 10.8 %

FASTStock sales $ 708.6 621.7 14.0 %

% of sales 12.5 % 11.6 %

FASTBin/FASTVend sales $ 1,550.6 1,302.2 19.1 %

% of sales 27.4 % 24.4 %

FMI sales $ 2,259.2 1,923.9 17.4 %

FMI daily sales $ 11.8 10.0 18.0 %

% of sales 39.9 % 36.0 %

Daily sales through eCommerce grew 44.6% in the first nine months of 2023 and represented 23.2% of our total revenues in the period.

Our Digital Footprint in the first nine months of 2023 represented 55.5% of our sales, an increase from 48.2% of sales in the first nine months of 2022.

In the first nine months of 2023, our gross profit, as a percentage of net sales, declined to 45.7% from 46.3% in the first nine months of 2022 .

The change in our gross profit percentage primarily reflected three items.

First, customer and product mix reduced our gross profit percentage.

We continued to experience relatively strong growth from Onsite customers and non-fastener products, each of which tend to have a lower gross profit percentage than our business as a whole.

This impact widened on a sequential basis.

Second, higher organizational/overhead costs reduced our gross profit percentage, primarily due to higher inbound freight costs and working capital needs being relieved from inventory and generating higher period costs.

Third, favorable freight expenses partially offset the negative impacts of mix and organizational/overhead costs.

This reflected strong domestic freight revenue over the period, which leveraged what are relatively stable costs to support our captive fleet, lower expenses related to external freight providers, and lower fuel costs.

Operating Income

Our operating income, as a percentage of net sales, declined to 21.0% in the first nine months of 2023 from 21.2% in the first nine months of 2022.

The operating leverage we achieved during the period was not sufficient to offset the decline in our gross profit percentage.

Operating and Administrative Expenses

Our operating and administrative expenses, as a percentage of net sales, improved to 24.7% in the first nine months of 2023 from 25.1% in the first nine months of 2022 .

This is due to a decline, as a percentage of net sales, in payroll-related 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

Employee-related expenses 70% to 75% 2.8 %

Occupancy-related expenses 15% to 20% 5.4 %

All other operating and administrative expenses 10% to 15% 9.6 %

In the first nine months of 2023, our employee-related expenses increased when compared to the first nine months of 2022.

We experienced an increase in employee base pay due to higher average FTE and average wages during the period, as well as higher healthcare costs and, to a lesser degree, profit sharing costs.

This was only partly offset by a decrease in bonus and commission payments reflecting the impact of slower sales and profit growth versus the prior year.

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 period:

Total selling personnel (1)

14,750 14,476 1.9 %

Distribution/Transportation personnel 2,984 2,971 0.4 %

Manufacturing personnel 704 696 1.1 %

Organizational support personnel (1)

1,846 1,711 7.9 %

Total personnel 20,284 19,854 2.2 %

(1) Of our Total Selling Personnel, 80%-85% are attached to a specific in-market location.

Organizational support personnel consists of:

(1) Sales & Growth Driver Support personnel (approximately 35% 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.

In the first nine months of 2023, our occupancy-related expenses increased when compared to the first nine months of 2022.

The most significant contributor to this increase was higher cost for FMI hardware as we continue to expand our installed base of such hardware.

We also have experienced rising rent costs for our buildings due to inflation and the upsizing of branches, even as the slowing pace of branch closings is resulting in a moderating level of incremental cost reduction to offset these increases.

Combined, all other operating and administrative expenses increased in the first nine months of 2023 when compared to the first nine months of 2022.

The increase in other operating and administrative expenses relates primarily to higher spending on information technology, higher general insurance costs, increased expenses for travel and supplies, and higher bad debt expense.

Net Interest Expense

Our net interest expense was $7.1 in the first nine months of 2023, compared to $8.9 in the first nine months of 2022 .

We had higher interest income, reflecting higher cash balances through the period and higher rates paid on those balances.

We also had lower interest expense, reflecting lower average borrowings through the period, as well as slightly lower average interest rates.

We recorded income tax expense of $279.2 in the first nine months of 2023, or 23.9% of earnings before income taxes.

During the third quarter of 2023, the liability for unrecognized tax benefits decreased $3.9 due to the lapse of statute of limitations, of which $3.8 impacted the effective tax rate.

Income tax expense was $270.5 in the first nine months of 2022 , or 24.3% of earnings before income taxes.

Our net earnings during the first nine months of 2023 were $888.6, an increase of 5.6% when compared to the first nine months of 2022 .

Our diluted net earnings per share were $1.55 during the first nine months of 2023, which increased from $1.46 during the first nine months of 2022 .

Liquidity and Capital Resources

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

Nine-month Period

2023 2022 Change

Net cash provided by operating activities $ 1,078.7 639.1 68.8 %

Percentage of net earnings 121.4 % 76.0 %

Net cash used in investing activities $ 128.2 121.6 5.4 %

Percentage of net earnings 14.4 % 14.5 %

Net cash used in financing activities $ 879.1 506.2 73.7 %

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased by $439.6 in the first nine months of 2023 when compared to the first nine months of 2022.

The improvement in operating cash flow, as a percent of net earnings, reflects working capital being a source of cash in the first nine months of 2023, as opposed to a significant use of cash in the first nine months of 2022.

This reflects the normalization of global supply chains versus the prior year and, to a lesser degree, slower business activity, which combine to reduce the working capital necessary to support our customers' growth.

Net Cash Used in Investing Activities

Net cash used in investing activities increased by $6.6 in the first nine months of 2023 when compared to the first nine months of 2022.

This was primarily due to an increase in net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) in the first nine months of 2023 compared to in the first nine months of 2022.

During the first nine months of 2023, our net capital expenditures were $127.7, which is an increase from $120.9 in the first nine months of 2022.

For the full year of 2023, we expect our investment in property and equipment, net of proceeds from sales, to be within a range of $180.0 to $190.0.

This is a decline from our prior range of $210.0 to $230.0 reflecting a deferral of several distribution center-related proj ects.

Net Cash Used in Financing Activities

Net cash used in financing activities increased by $372.9 in the first nine months of 2023 when compared to the first nine months of 2022.

This is primarily related to a reduction in our debt obligations, versus an increase in our debt obligations in the first nine months of 2022, which reflected strong operating cash generation in the period.

This was only partly offset by a reduction in the first nine months of 2023 of total capital returned to shareholders compared to the first nine months of 2022.

During the first nine months of 2023, we returned $599.5 to our shareholders in the form of dividends, compared to the first nine months of 2022 when we returned $679.0 to our shareholders in the form of dividends ($534.4) and purchases of our common stock ($144.6).

During the first nine months of 2023, we did not repurchase any of our common stock.

During the first nine months of 2022, we purchased 3,000,000 shares of our common stock at an average price of approximately $48.22 per share.

Critical Accounting Policies and Estimates – A discussion of our critical accounting policies and estimates is contained in our 2023 annual report on Form 10-K.

There have been no material changes from the critical accounting policies and estimates disclosed in our 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.

4 unchanged sentences

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, 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, the impact of price increases on overall sales growth or margin performance, and our ability to grow our business through the enhancement of sales through our Digital Footprint.

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, our expectations related to future capital expenditures, future investment in property and equipment, future tax rates, future inventory levels, pricing, Onsite and weighted FMI device signings, the impact of inflation on our cost of goods or SG&A expenses, the impact of price increases on overall sales growth or margin performance, and our ability to grow our business through the enhancement of sales through our Digital Footprint.

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.

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 SG&A expenses, including FTE growth, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, the rate at which our supply chain normalizes, 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