Fastenal Company (FAST) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Fastenal Company's Third Quarter 2012 Earnings Results. [Operator Instructions] As a reminder, this conference is being recorded. Now I'll turn the conference over to Ellen Trester of Investor Relations. Please begin.

Welcome to the Fastenal Company 2012 third quarter earnings conference call. Present for today's call are Will Oberton, our Chief Executive Officer; Dan Florness, our Chief Financial Officer; and Lee Hein, our President. The call will last for up to 45 minutes. The call will start with a general overview of our quarterly results in operations by Will and Dan, with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until December 1, 2012, at midnight, Central Time. As a reminder, today's conference call includes statements regarding the company's anticipated financial and operating results as well as other forward-looking statements based on current expectations as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. It is important to note that the company's actual results may differ material from those anticipated. Information on factors that could cause actual results to differ materially from these forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur. Forward-looking statements are made as of today's date only, and we undertake no duty to update the information provided on this call. I would now like to turn the call over to Will Oberton. Go ahead, Mr. Oberton.

Good morning. Thank you, Ellen, and good morning, everybody, and thanks for joining our call. I'm going to spend a few minutes with some brief comments on my view of the quarter, then I'm going to turn it over to Dan. Overall, I felt that we did a very good job in the quarter considering a little bit of economic headwind. Sales were slow, but we did see an uptick in September. So we're very optimistic about that. Another thing on a positive note is on a sequential basis, from June to September, we're really on track with what our historical numbers are. So we also see that as a positive. We had a very weak April-May time frame, although we lost a lot of ground for the year. But since then, we've really been tracking very consistent. So there is a little life underneath all of this. We've seen very slow growth in both Asia and Europe. That's also been holding us back. If you compare it to last year, in 2011, we actually were getting about a 200-basis-point bump in our sales because of our foreign activity. And this year, it's about equal to the U.S. business. So we're just not getting any tailwind from our Asia and European businesses. Mexico remains very strong, which is very positive. They've just done great over the last 3 or 4 years, and we continue to invest. I believe we've opened 7 stores in the last year in Mexico, and they continue to perform at a very high level. A little bit on some of the vertical markets. Construction actually bounced back a little bit in September, but if you look at the number, August was a -- was like the low point. And so September is more on a normal number or more a traditional number, almost 10% growth on the construction. In manufacturing, we just haven't seen much change. I think it went -- moved about 10 basis points over the 3-month period, up 10, down 10. So manufacturing has been very consistent, which we actually look as a positive, because it had been moving down prior to that. So we're holding our own in manufacturing. And hopefully, things will pick up as time goes on here. On the margin -- I'm a little disappointed in the margin. We've been working very hard on improving our margin. We didn't lose any ground. We also didn't make up much ground in the quarter. One thing to note on that, though, is that steel remains soft. If you follow the steel markets at all, steel continues to decline a little bit. If you look at -- we look at the Asian steel markets, because a lot of our fasteners come out of Asia. A lot of their prices are down 10% to 20% from a year ago. And so that continues to put pressure on our margin. But I think the team is doing a good job of holding the prices up as they can, but it's more difficult to make gains in a deflationary market. And with fasteners making up close to 50% of our business, that makes a big difference in our margin opportunities. We will continue to work on it and believe we can -- we will show some improvement as we go forward. Some of the other projects or initiatives that we're working on. We continue to work hard on metalworking. Our goal going into the year was to grow that business, the product line, metalworking product line, at least 10 points faster than the overall Fastenal growth. We've been able to maintain that -- actually exceeded that goal. We continue to make nice wins, still not a huge business for us, but it's a nice-sized business, and it's growing meaningfully faster than the overall business. So we're optimistic, and our margins have maintained at a nice level. We're not giving up a lot of price to get that sales. We're not getting the sales on price. So that's very positive for us, and we'll continue to invest heavily on the metalworking business. On the Government side, another one of our new initiatives, our goal is the same in Government: grow the business at least 10% faster than Fastenal. We're also exceeding those goals on that business, tremendous upside, and we'll continue to invest. We continue to make nice wins there. That's going to be a -- it's almost door -- it's like street fighting. It's door-to-door business. You have to go to a lot of small entities, county shops and small hospitals and city shops. Very good, dependable business, but it's hard to get. So it's not one big swing gets it all. So we're working very hard in the Government business and continue to develop our people and train them on how to go after that business, because it is a little different than our traditional industrial and construction business. Vending had a very strong quarter. We had a very strong quarter in vending. We signed over 5,300 machines. We installed just under 4,000 machines. So we've made nice progress in both areas. Some of the positives that I've -- things that I see as positives in that is we've had broader participation at the store level. We're getting more stores to buy into the program. We still have a ways to go there, the stores that have bought in early. The early adopters are signing far more machines than the rest. It is broadening out. And we've also made some very nice customer wins that we picked up over the last 3 to 4 months. So we're optimistic about what's going on there. We believe it will continue to grow in the future. And as a company, we will continue to invest in the vending program as we will in the metalworking and government programs. On the 'pathway to profit', I'm again a little disappointed there. We only picked up 50 basis points year-over-year. Our goal was 100 basis points, but we really didn't have the sales growth to make it happen. You need probably north of 16% -- 15% to 16% sales growth to pick up 100 basis points without squeezing the business too hard on other things. On a positive note, though, if you look at the 2-year run, we're up 190 basis points. We're still staying pretty close to the goal over a longer period, and that's really what we want to do. We know we're going to have some stronger years and some weaker years. So as a project, we're doing nice. The team is doing a great job, I believe, and we believe we can stay on that track going forward. Expense control, done a nice job considering we didn't have the great sales growth that we were -- as good a sales growth as we're expecting. But I think the teams did a nice job looking at the little stuff, and that's how we've been able to maintain the earnings growth that we have. Strong cash flow. Dan and his team did a great job with that, controlling the inventory growth and creating very positive cash flow for the company. So overall, I believe we had a good quarter. I think there is a lot of work to do, a lot of things we can do better. We're very focused on improving our business and growing into the future. With that, I'm going to turn it over to Dan, because Dan will provide more color on the quarter.

Thanks, Will, and thanks, everybody, for joining on today's conference call. A couple of things to make note as we flip through the various pages of the press release. On Page 1, inserted a paragraph into this quarter, a bit atypical for us, but the calendar had some impacts on the quarter. So I wanted to share a few thoughts on that. In the third quarter, we actually had 63 days versus 64 days a year ago. In some businesses, that might not make much of a difference, but for us, when you're selling a very tangible product, the number of business days really does matter. Our headline number is we grew our earnings -- grew our sales, excuse me, at 10.5%. But if you really peer under the hood a little bit, look at our daily growth, that's over 12%. I think that's the number that's really relevant because that's the number that carries the trend into the future. And so I added a little comment -- a blurb on that. Looking at that 10%, very pleased, and to touch -- build on what Will just mentioned, very pleased the fact that we were able to obtain leverage in an environment where we could grow -- where our top line dollars had only grow at 10% and we had a little bit of headwind from the gross profit side as well. One item just to make note of when I look into Q4, we will have -- it's a 63- to 63-day quarter. So there's nothing really going on from that standpoint. There is a little bit of movement around within the months of the quarter. October will have 23 days this year versus 21 a year ago. So that will give us a nice headline number. Daily will probably suffer a little bit because of that just because there's a certain piece of our business that's more centered on the month and there's a piece to our business that's more centered on the day. So just to make everybody aware that there is 2 additional days. Those 2 days we give back in December. So if I look at trade-offs in life, October is a big month for us. And if I can get 2 extra days in October and give them back in December, I'll take that deal anytime. Will touched on the sequential patterns a little bit that we looked at on Page 3 of the release. If I look at the last couple of years, 2010 and 2011, we were beating the benchmark pattern that we laid out, 50%, 60%, 70% of the time. And when we got out to September, we were 490 basis points ahead of the trend line, so 5 points ahead of the trend line year-to-date, looking at January to September. This year, we had a setback in February, some weather issues going on. We quickly got it back in March, but then May came along. And May really changed the year for us and created more conservative tone within the organization for the balance of the year. And at the end of June, we were about 330 basis points behind year-to-date history, and we're basically at that same point. We're about 330 basis points behind now at September. So since June, the business has been kind of treading water as far as how we compare to history, but nice momentum and also nice pickup, as Will mentioned, that we saw in September. And that bodes well as we go into October and into 2013, the more important way of looking at it. In that context of the April-May-June time frame when we did see the slowdown, it was really in the fastener area. The non-fastener area held up much better, but that's also the area that's helped by all the growth drivers, the vending, the Government business, the metalworking. All those things we're doing really demonstrated that we can work through a period of declining economy and maintain very attractive top line growth rates. One thing, in September here, ISM did pop up. Historically, when we looked at ISM, we've always felt ISM led us by about 3 months. So if ISM drops in June, we'd expect to see a drop in September. What we've been seeing in really the last year, 1.5 years is that we kind of coincide with ISM. I'm not quite sure what caused the change, but when we dropped off in May, the ISM dropped off in June. I'll be interested to see if the ISM over 51 in September is a blip or if it has some legs. At this juncture, we're -- the jury is still out for us. And we're still maintaining a conservative tone as we go into the tail end of the year and into the first part of 2013. As Will mentioned, on the growth drivers, top part on Page 6, all I can say on the FAST Solutions is really a nice quarter. Great signings, I attribute that to great focus on it at the field level. Our stores, our districts, our regionals are really running with this. Russ Rubie and his team does a great job and very pleased with that. To me, that gets the piece that jumped out the most is the fact that obviously, this is wrapping up quickly, but we have a fair number of machines that have been out there for 12, 18, 24 months. That's not an inconsequential number. And the fact that, that entire group of customers that have vending, overlapping numbers is still growing faster than 30%, I think it's a staggering figure and demonstrates the power of what vending can mean for our business. It's really about customer engagement. Vending is just the way we measure it. It's about we're engaged with that group of customers, and we're growing because we're providing great service and great value for them. In that same section of growth drivers, did touch on a bit on 2013, we set out some expectations for store openings for next year, indicated a range of 50 to 100, which is about 2% to 4%. And I think our focus really is continuing the growth drivers we have in 2011 and 2012. They're demonstrating great results. We integrate the fasteners. We have some things that we're working on to really drive our OEM fastener growth. And in July, we mentioned the elevation of Lee Hein to President. And I think we announced that right after our call last quarter. So I want to congratulate Lee on that promotion. But I think the final thing we've touched on in that paragraph was talking about fixing our underperforming stores. And when I think of people and their strengths that they bring to the table, one of the strengths that I think of when I think of Lee, he's great at assessing people and talent, and he's great at raising the bar. And if you're driving down the road and you -- in your car, and the brake is stuck on one of your tires, it's going to slow you down. And we have a subset of stores in any given month just aren't growing and aren't performing, and we need to raise the bar and get that brake off, because it damages the rest of the engine. And I'm brutally excited about that looking into 2013. Profit drivers of the business on Page 7. Continue to be pleased with the progress of 'pathway to profit'. We took a step back a little bit in some of the smaller groups. I think there's really 2 things that are driving that, one we're working on, and the other one is probably a good problem. One is the gross margin that Will touched on. We're down in gross margin as a percent year-over-year. That creates drag in all those groups of stores. The other thing is we're preventing a rolling out. In the smaller stores, the expense of that vending does put a little drag on their pretax, but I think that's a good problem from the standpoint it really is driving our growth. But if you look at the stores that do more than $150,000 a month, where there is no vending impact, I mean negative vending impact, because the dollars of expense isn't big enough, well, that group is impressive, and we saw nice profit growth on a year-over-year basis. The other thing, I think, to think about, and I touched on this in last quarter's call as well, if you look at since we started the 'pathway to profit' back in 2007, we have increased the size of Fastenal by about 65%. We improved our gross margin from 51% to 51.6%, and our profits have doubled, and that's just talking the power of growth, leverage it with improving gross profit and managing your fixed operating expenses and leveraging quite effectively. If you look -- looking at our expenses in the organization, we've always talked about our biggest operating expenses is the people side of the equation. And if I look at what we've done since 2007, we've added around 3,800 people to our organization since the first quarter of 2007. 87% of those adds are in roles that directly contact, that interact with customers every day. 6% are involved in our distribution centers. 6% are involved in our manufacturing. So if I add those 3 up, 99% of our headcount growth since 2007 is in those 3 areas, and that's how you leverage overhead in an organization. The -- I'm very pleased through the fact that -- we hit 21.9%. I'm just going to round up and say 22%. It just feels better. But again, those are 2 highly profitable quarters for us despite the fact that we didn't have great sales growth in the quarter. We continue to make progress on our exclusive brands. We're essentially at 10% of sales to date. Vending really is helping move that number. And then finally, I'm touching on some working capital. Will mentioned continued improvement on working capital. Now I do want to mention that Scott Camp and his team really did a nice job, I think, year-to-date on managing the distribution side of the inventory. We've lost a little traction on the accounts receivable side. Part of that was a short September. It takes X number of days to collect cash, and there's enough of August business that's coming in here the first week of October. That's more of a calendar issue. But when I look at cash flow year-to-date, we've taken 90% of our earnings and turned it into operating cash. We've spent about 27% of earnings on CapEx. A big piece of that relates to the success we're seeing in vending, and we've thrown off 63% of our earnings in free cash flow year-to-date, great number. And because of that, we did announce last night an increase to our dividend and are paying out a $0.21 dividend in the fourth quarter. With that, I'll turn it over to what questions might come up.

[Operator Instructions] We have a question from Hamzah Mazari of Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is just on store growth. You've talked about 2% to 4% growth next year. How should investors think about that number? Is that more of a normalized growth rate for you guys on stores? Or do you plan on increasing store growth if you get more comfortable on the economy? Just curious to see how we should think about store growth given where Fastenal is right now.

I'm going to be perfectly honest. I don't know that we know, and I'll say that in a couple of ways. We still don't know yet from our non-North American business what that means for store openings into the future. We just don't know. If I center the answer on North America, what we know about the market is it's big, $140 billion to $150 billion. It's $160 billion a year, depending on whose math you're looking at. And we have somewhere between 2% and 3% market share. And historically, a lot of our eggs are in the store opening basket. And with 'pathway to profit', we really took a step away from that and said, "There's a whole bunch of ways for us to go out and go after this market share, and we have this network that's out there that is -- that has unbelievable capabilities." And that's balanced our total growth drivers across more channels. So we put tools in the hand not just of an area where we're more sparse but area where we're more dense. I mean, when I look at the growth we continue to see in the Upper Midwest in a business that we've been in for 40-plus years -- and we're doing it with a combination of store openings, vending, government, the whole gamut as far as growth drivers. We think 2% to 4% is a good number for 2013. 2014 and 2015, we'll see when we get there. Long way of truly not answering your question but saying the opportunity is so big that we don't want to pin ourselves into the corner of saying, "It has to go from this one thing." It comes from a variety. But when I think of, for example, the Government business, and I don't know in our products how big the government is, but if you read the headline, government is 20% of our economy. So if we have 2,500 locations, I'm using that so I can do the math in my head, and we add a 20% potential to that, that's like opening 500 stores. So is that a better route to go down in the short term or it's a goal of store openings, I think it's a combination of the 2, but I'll take that Government business. Hamzah Mazari - Crédit Suisse AG, Research Division: That's very helpful, and I appreciate it. Just one last follow-up question. On vending, could you maybe talk about how your vending offering is different from some of your largest -- larger competitors? Specifically, is your machine different? What are you stocking in there relative to what others are stocking? Do you own the inventory? Does the customer own the inventory? I know there's a better [ph] difference between your offering and some of your competition, maybe if you could touch on that.

This is Will. I think a lot of it is quite similar. Our machines are Internet-based appliances, which we think is an advantage, because they're more dependable. Some of the other companies offer a machine that has a PC built into it. Same system that we used to offer 4 or 5 years ago, and we find ours are far more dependable. Because it's a PC-based appliance, it's also a lower-cost system and so we're able to provide them at somewhat lower cost. The inventory in some customers is consigned inventory. In other customers, the customers choose to own it. But the majority is consigned. Some of our competition does consigned inventory, and some of them have the customers own it. I think one of our biggest advantages, compared to the big public companies that we all know of, is our local branch network, because this is a physical business. If you think about the person who's supplying your soda machines or pop machines in the office, those people aren't driving from 3 or 4 hours away in many cases. Our local branch adds a service element that's going to be very hard to duplicate for some of our competitors. I know some of our competitors, their strategy is to ship it into the factory and then have the factory workers put the product away. But I would guess if your person providing the vending machines at your office said that they'll just ship the product to the dock, and you guys can put it away in the morning, probably you'd find -- or you may find a new supplier. So we have that local advantage that really gives us some leverage, and we have this distribution network to move the product more efficiently. But machine to machine, product to product, it's not that dissimilar.

[Operator Instructions] Our next question is from David Manthey with Robert W. Baird. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: First off, Dan, back in the third quarter of last year, you said that you could take your leverage probably down to maybe 12% or 13% growth with energy and you said lower if you hit the wall. And it seems like you've taken the leverage probably down to that level or lower. And I'm just wondering about the strength you saw here in September relative to an uncertain economy. Are you happy where the set point is right now, that you'll maintain that unless things change one way or the other into 2013? That's the first question. And then I'll just sneak the second one in here, too. In terms of vending placements, the number of vending machines, by my math, is up over 300% in the past year, and revenues to customers with vending machines looks like it's up a little bit less than 100% and I'm trying to understand that dynamic. Does that mean you're now getting into smaller customers? Are you placing more of the FAST 3000 machines with their less yield per customer? Or what is the implication from that math?

Okay. First off, a couple of different questions there. First, on the breakpoint, my comment a year ago, '12 and '13, I'm glad to say I was wrong. I think part of it is maybe I'm Midwestern, and I'm an accountant, so it makes me probably too conservative and not willing to put my neck out and say we could do it at 10%, because I didn't think we could. So that's just, I think, good execution, especially in the face of the gross profit dynamic going on, which made it more challenging. On the vending machine, I'm not sure if I'm following your math on the 100% pieces. And in fact, I think I'll kind of restate it back the way we have it. And I'll think out loud a second, and then I'll give you a third question to follow up on my answer. But the way I think about it is the customers that are coming into that group when we introduced vending, our -- that overall business is growing at 30%, and that includes the weight, if you will, of the customers that have anniversary-ed, the customers that had vending a year ago and 2 years ago, because we're looking at that combined group. I think if you're talking about vending being up over 100% because you're looking at the new machines and the dollars going through it, you're just -- you're taking the math and saying, "Okay, 24% of your sales are with customers with vending, and that number is X percent bigger than it was a year ago," you're comparing apples and oranges. Because we have customers that we had a year ago that didn't have vending that have vending today. So when we talk about the percentage of our sales that is vending, that includes customers that have been buying from us for years. We're just now looking at it and saying, "How big is that pool growing, and how big was that customer base a year ago?" and -- which I think is the best way to look at it, because it's really "How much is it impacting your business?" not "What is the dollar growth going through a machine?" Because that's really not a meaningful number. I'm not sure if I answered your question right then [ph]. The other thing I guess I would look at and say if I look at our dollars per machine and I try to understand that dynamic, is it improving or getting worse? It's at or a little bit better than it was a year ago. And so from that standpoint, I don't think there's any dilution going on because of the different models of machines, but there is some impact. When we report our machine count, we're reporting just our absolute count. Here's vending [ph] machines we have out there. And in that mix, there's the traditional FAST 5000 with the locker systems. There's some hydration machines. I think that's what we call it. And there are some cutting tool machines. So there's a variety of machines, and they have different potentials as far as throughput. And the way we measure it is we look at lockers and we say, "We think they have about 1/2 a potential." So when we're looking at dollars per machine, we look at that as a half. But I don't know if I just thought out loud and did a brain dump and didn't answer the question? Maybe Will has a better answer.

The way I look at it, Dave, as I look at the incremental growth off this group of customers, this group of customers represented almost 60%. If you take 25 -- roughly 25% of your business grew 20 points faster than the overall company, the average of that represents the majority of our incremental growth. And we lay that against the expense of the vending program. But then from the vending program, we can also look at it at a different way and, say, we're putting expense of all these machines into our occupancy, because we really think it's just offsite storage, and our occupancy is not outgrowing our revenue, because Dan's group is doing such a great job. So we're really building this into our old P&L working model. And so it's very accretive business when you look at it that way. It's a great growth driver. But we can talk more and try and clear up. I'm a little confused, too, with the question. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: That's great. I appreciate the color on that. Just to follow up on that first question, though, Dan. In terms of how you feel about it, as you're looking at the business level for next year, I'm just trying to get a read. I know you don't have a tremendous amount of visibility, but there's a lot of cross-currents here in terms of the data we're seeing out there in the marketplace, some of the economic data, and then relative to what you're saying for your June, for September. I'm just trying to get a relative read on your feeling. As you look to 2013, are you feeling pretty good? Or are you still fairly cautious about this industrial environment just as a company?

We're cautious. We're investing aggressively. I mean, we're putting vending machines out there. We're adding up -- we're adding sales potential into our organization every day, but we are cautious when we're looking at how we manage our expenses.

And one thing that we did mention on the call is that we've introduced a lot of new technologies and efficiencies into our business that have helped us lower that breakeven down to somewhere below 10%, I guess, if you look at the numbers. Those are things that will continue to benefit us for years, and it's throughout our organization, electronic billing and accounting, the automation in our warehouses. And we've introduced 2 or 3 major things to the stores from point of sale, simplifying the pricing, simplifying the process of -- processing of orders with the goal of being the most efficient distributor in the industry. These are things that have a long tail on and will continue to benefit. So where that breakeven is at any given time will depend on our view. And if we're very bullish, we'll invest heavier, and that will slide up. If we're very conservative, which we're not right now, we're cautiously conservative, we'll pull that down and be able to lower that number. We have better levers on that than we've ever had, because we're not adding the cost of the fixed overhead of the stores. That was a big thing that you couldn't do much about once you had it.

Our next question is from Sam Darkatsh of Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: The -- a couple of questions on vending again. So specifically looking at your vending customers, what do you -- what's the growth that you're seeing from the SKUs that they're buying that don't come from the machines? I'm trying to figure out the -- parse out the actual impacts of the machines themselves on those customers versus what they're doing outside the machines.

Well, I guess I'm going to answer it by talking about if I look at the subset of the business that goes through the vending machine, that number is then -- if we have a $10,000 customer, $2,200 or $2,300 of that, so about 22%, 23% is actually physically going through the machine, but the products that are going through the machine, Sam, could be products that we've been -- there are 40 slots in a machine. 10 of those slots could be items that we've been selling to that customer for years. And it's just now we're selling it using the vending machine as the vehicle, and the other 30 slots or 20 slots or 10 slots are now new products. But the discussion we have with the customer is really one of economics. We're bringing this machine that we believe will help your business. And what we need is a couple of thousand dollars of incremental business with you. And let's use a worst-case scenario. Let's use a scenario where the customer is spending $3,000 a month of business but now going to -- 100% of it's going to go through the vending machine. And I know based on the value of that vending machine brings, that $3,000 spend that we've had with -- that customer had with us is probably going to go down to $1,800 or $2,000, because when it goes through a vending machine, there's more accountability to the product. And so our discussion with that customer is we need, in total, to take your business from $10,000 to $12,000.

Or $3,000, you see, you said $3,000.

$3,000 from the machine, but we're doing $10,000 for that customer.

$2,000 incremental.

I need $2,000 of incremental. And the discussion might be, the customer says, "Well, you know what? I've done $3,000 a month in vending -- in welding supply," and they turn over to welding supply stores. We're not led to the machine dynamic. We're led to the growth of the business. Lee?

Yes. Sam, the other thing that happens just from a branch standpoint, again, back to that local branch, is because our people are there daily or every other day, we're capturing sales because we're there. We're having customers go -- seeing the employee walk in in a blue shirt with our blue machine going, "That's our supplier. Hey, while you're here, could you give me whatever?" We're seeing growth because of that also, back to the local store. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Okay. Let me ask a second question, then. You've talked in the past about the average size of a customer that uses a vending solution. What is that average size now? How many more customers do you have of that size that have not yet signed up with vending solutions? And how many customers of that size do you tend to add on an annual basis?

When we started vending and we looked at the opportunity, and I think this is the best way to answer it, we looked at it and said, "We have 230,000, 240,000 active customers a month, and we think about 10% of that number, 25,000 to 30,000, based on our initial definition of the vending, the FAST 5000, could have a vending machine." And we looked at it and said, "If we could have 2 machines per customer in that environment, there's an opportunity here for us to put out 50,000 machines." That was what we thought about it 3 years ago. And so if I think of the -- I don't have the exact number in front of me, but we have, what, 17,000 machines out there now?

Yes, 17,000 installed.

And the last data I looked at, I think the relationship is about 2 or 2.2 machines per customer. So there's 8,000 customers right now that have vending. Rough numbers. And Lee might have a better number. And so there's a big universe of customers out there that we have today that we put vending into, even based on our definition of, 3 years ago, what the FAST 5000 is. We've added the whole fleet of machines now. We've broadened the audience of customers that could have vending. We've decreased the size that we need to run through the machine and decreased the size of the customer. So I don't think there's a market limitation for us, unless you want to start talking about 2020.

Well, anecdotally, Sam, when you talk to store managers that had not bought into this, they'll tell you that they see 3 or 4 customers in their market that may be a potential. And when you visit stores that have done very well, stores that have 20 or 30 machines, and we have several of those now, and you ask them what their market potential is, with -- the lowest numbers I hear are 50. And most of the people say, "Oh, I'll get well over 100 in my store." And so once that the store managers start to see this, the numbers become so much larger, I'm almost shaking my head, going, "Wow." But these are the guys in the field, these are the guys that understand it. And so it's really about opening the eyes, and the numbers will continue to grow, as Dan said, as we get different machines for smaller customers and larger customers. It's simply a better way to deliver our product.

Our next question is from Ryan Merkel of William Blair. Ryan Merkel - William Blair & Company L.L.C., Research Division: First, I want to start with September, which is a very good month, and you mentioned you saw an uptick. Can you just speak to how the month played out and if there were any surprises from your viewpoint by end market or geography?

No, there really weren't. One thing I noticed about September, Ryan, is the consistency throughout the United States. If you look at the growth region by region, it's probably the narrowest group that you -- band that you've seen in a long time. Nobody had a real bad month, and there's really no one that had a great month, which -- consistency is good for us. We did see a nice uptick, though, in our international business. Part of that was driven by currency, but overall, even the unit growth was up internationally. So it was consistent. It was, for the most part, consistent through the month. We had a little bit of a stronger finish, but we do our daily analysis and we bring the sales in, and we ended up about 200 basis points ahead of where we had estimated even before halfway through the month. Some early days into the month, we were estimating in that high 12s, and that's where we ended up just a little bit about -- or 12.9%. So very consistent pattern, consistent across the United States and steady as the month went. So that was -- it was all positive. Ryan Merkel - William Blair & Company L.L.C., Research Division: That sounds actually very positive. Okay. And then second question, I want to ask about vending, but I'll ask it a different way. If I just look at the number of vending installations and, of course, signings as well, it seems to me that the impact from vending should start to accelerate starting as early as the fourth quarter. Is that the right way to think about it? Is that how you're thinking about it?

I'm not sure why it would -- well... Ryan Merkel - William Blair & Company L.L.C., Research Division: In terms of impact.

The impact is going to continue to grow because the number of machines is growing so fast. And so that adds in layers of potential.

I think the other thing, and we don't know how to measure this, is there's a lot of built-up -- there's a lot of energy going into this project today. But it's really delayed, because it takes us about 90 days to install a machine after we sign it. And it really takes us, on Dan's analysis, another 60 to 90 days to get everything flowing, because what happens in most cases is the customers we sign up have a lot of inventory. Whether we sell it to them or the other guys did, they have a stock that we have to burn through. And many times, we'll actually put that in our machines and burn the inventory through whether it's ours or theirs. So the reality is if I sign a machine today, it's probably March before I see much gain. So we have a lot of energy and selling that has a delayed, positive effect, which is actually a great thing, because it will come through. The other part, you have that. The other is with all that energy, we're probably not working as hard on some other things we should, because we only have so many hours in a day. So it's where you put your time. And as Dan mentioned, fasteners, they're probably suffering because of some of this -- Lee has a comment.

What I'd add also, Ryan, is it's really, you've got to -- focus in on the participation. What's going to accelerate vending or the vending sales is more stores participating. That -- every time you look at Fastenal, whether it's Government, any of our industry specialists, you always have to hold that against how many stores are participating in this growth driver today. And that's really where we come in to drive that, that once the stores latch onto vending, we get the majority of stores participating. That is what will accelerate that.

Thank you. This ends the Q&A portion of today's conference. I'd like to turn the call over to management for any closing remarks.

Once again, as we mentioned at the start of the call, we would like to thank everybody for participating in this quarter's call, and we look forward to discussions in the future. Have a good day, everybody.

Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.