Greetings, and welcome to the Fastenal 2022 Annual and Fourth Quarter Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Taylor Ranta of Fastenal Company. Thank you. You may begin.

Welcome to the Fastenal Company 2022 annual and fourth quarter earnings conference call. This call will be hosted by Dan Florness, our President and Chief Executive Officer; and Holden Lewis, our Chief Financial Officer. The call will last for up to one hour, and we'll start with a general overview of our annual and quarterly results and operations, with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until March 1, 2023, at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and products. These statements are based on our current expectations and we undertake no duty to update them. It is important note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Dan Florness.

Thank you, and good morning, everybody, and welcome to our fourth quarter earnings call, and Happy New Year. If you -- some highlights on the quarter. I'm on Page 3 of the flip -- of the flipbook. So, our daily sales grew 10.7% in the quarter, eased a bit from what we've seen in recent quarters, primarily because of tougher comparisons to what we were seeing in the fourth quarter last year, but also some moderating demand. I'm pleased to say that our fourth quarter operating margin remained stable at 19.6% and our ability to generate cash. So, we're looking at our cash conversion, it returned to historic levels. And that's really a sign of moderation and the level of inflation that we're seeing in the marketplace. But also, a more stable supply chain and the ability to not need -- that for a double negative, not need to expand our stocking levels to ensure a reliable supply line for our customers. So, it gives us some flexibility as we go into 2023. We're very pleased to see that. 2022 was a year of milestones and they all centered on $1 billion. So, in October, our e-commerce revenues surpassed $1 billion for the first time ever. Our -- and that's on an annual looking at annual milestone. Our international sales exceeded $1 billion. We hit that milestone in the month of November. And as noted in the release this morning, our company-wide net earnings topped $1 billion for the first time ever and that was for calendar 2022. When I look at that chart on the upper left, it's hard to decide where do you start explaining all the noise you have really over the last three years, as we went through COVID, as we emerged from COVID, as we…

Great. Thanks, Dan. Starting on Slide 6. Total and daily sales increased 10.7% in the fourth quarter of 2022, which included an up 8% reading in December and represented further deceleration from prior quarters. We attribute this deceleration to slower industrial production, which shouldn't surprise anyone that tracks the purchasing manager index and more difficult growth and pricing comparisons. But even so, significant elements of our business continue to perform well. For instance, manufacturing, which was roughly 73% of our sales in the fourth quarter of 2022, grew 16% and slightly exceeded normal quarterly sequentials. In addition, our largest customers, as reflected by our national accounts program and which approximated 59% of our sales in the fourth quarter of 2022, grew 15%. We believe continued healthy performance in these areas reflect our investments in Onsite and changes to our branch structure and sales roles. Feedback from our regional leadership on the outlook entering 2023 remain constructive and largely unchanged from the third quarter of 2022. There are a few areas where we have seen incremental weakness, however. For instance, a handful of our large retailer customers tightened their belts regarding facilities and labor and our non-North American sales softened on a strong dollar and geopolitical events. Now we've made significant investments and seeing enormous growth in these areas over the last few years and the current weakness in our view relates to market-specific factors. Construction revenues were also softer, which reflects the conscious decision we have made to position our branches to focus on larger key accounts, which is contributing to better labor leverage. These 3 areas, large retailers, non-North American markets and construction together, represent more than 15% of sales and went from double-digit growth as recently as the first quarter of 2022 to declining in each case by…

Before we start Q&A, my adder to the Holden's comment on the ESG report, I encourage to focus on this call to read it. Don't wait for the movie. It's a -- I think it's a well-written story in the context of how Fastenal tell its story about how our business and our team have addressed this topic really throughout our history, but communicated in a way that is conscious of the formatting in the structure that society has grown more accustomed to. The other piece that I wanted to highlight is another announcement went out last night, which was, we announced that our international team has surpassed $1 billion in revenue for the first time during 2022. My congratulations to everybody listening to this call as part of our international team that spans the Americas, Europe and Asia. And to our team in China, where -- your society has opened a bunch more in recent months, recent weeks, I would like to wish you a Happy Chinese New Year. I believe it's the year of the rabbit. And I hope you since I -- sincerely hope you have a nice opportunity to visit with family as the societies opened up a little bit more. With that, we open the Q&A.

[Operator Instructions] Our first questions come from the line of Ryan Merkel with William Blair.

So, Holden, as you might imagine, I'm getting a few questions on gross margin this morning, obviously, a few moving parts. Should we think about, for '23 a typical 30 basis points to 50 basis points of pressure from mix? Or could it be a little bit greater, just given this price cost dynamic, lower rebates, any other pressures?

Yes. Well, from a mix standpoint, 30 basis points to 50 basis points is probably a low number now versus where it was in the past, primarily because our strategies have changed, right? I mean we have shifted towards really prioritizing key and larger accounts. Now that might be a larger regional account at a branch level. It might be national accounts. But I mean we've shifted our strategy to prioritize those, as you know. And so, I think that you've probably seen a bit of a widening in the expected mix impact from gross margin. Again, there's nothing that's surprising about that. And I would again point you to the improved labor leverage that we've been seeing in the last few years has been the flip side of those decisions, right? So that's deliberate. So, I wouldn't be surprised if the type of leverage that we're looking at from a mix standpoint is more in the 50 basis points to 70 basis points range. But again, as I said, I think that's expected. And I think that it's offset by the labor leverage that we get from the and strategy. And I think that we're product -- where mix is concerned, you have to balance both what's happening at the gross margin with the offsetting impact on operating margin.

Right. Got it. Okay. And then next, moving to incremental margins, your kind of exit 4Q at about 20%. Is this a level you think you can achieve in '23 on mid-single-digit sales growth? It sounds like FTEs will be down. You'll have the incentive comp that's down. Anything you can add there would be helpful.

Yes. I think that you're hitting on important elements from an OpEx standpoint, and we do continue to expect good leverage there, right? And I think we've seen on the labor side, wage inflation has moderated a bit. You're right, incentive pay. Look, I'd love to be paying greater levels of incentive pay. But if the market slows down, that wouldn't happen. So, you wouldn't see that kind of growth there. And I think we'll continue to control headcount and the mix will shift as well, where a lot of the headcount that we add will be part time as we rebuild those ranks or -- so the mix will shift that way. So, I think that there's still good opportunity to leverage labor in 2023. And I think the same for occupancy. End of day, the question though, is what's going to happen on gross margin. And if we can limit the decline in gross margin to our mix, I expect that we'll be able to grow our operating margin year-over-year, which would get you more than that 20% incrementals and would get you, I think, solid into the 2025. I think the question, and I'm sure there'll be additional questions coming up, but I don't want to just leave this hanging out there, ultimately, is how do you think we execute some of the pressure that we've seen in the other product side and any level of deflation that may occur down the road if it occurs? And I think those are variables that are harder to sort of judge. And I think get down to whether or not you believe that we're going to execute effectively on some of the things that we cited that pressured the gross margin this quarter. And obviously, we believe that we're going to execute effectively that we're going to find ways to kind of offset some of the pressures that we saw in 4Q. And when we do that, I think that in a mid-single-digit growth environment that we can defend or improve the margin. But I think there's some -- there's probably more variables or questions on the gross margin going into 2023 than we have answers to right now.

Our next questions come from the line of David Manthey with Baird.

I have one 2-part question on OpEx. The first part is related to labor. The initiatives that you put in place have clearly driven better labor efficiency overall. But I'm wondering, in general, is the Fastenal cost structure more or less variable today than it had been in the past because of some of those structural changes? And then the second question is related to branch rationalization. By the chart you show here, where you're extending it out to 2025, it appears that you're materially complete with that transition. And I'm just wondering, are there any costs related to that transition that you've eaten over the past many years that will go away in 2023? And what I'm referring to is any sort of rationalization costs that a less conservative company might have flagged as nonrecurring or restructuring?

Maybe moving backwards and to your first question. I do think that we will have additional closures this year as we move towards that target. And I think beyond this year, you'll begin to see those closures begin to moderate, right? And so I think part of your question is how long does this -- the sort of this closure process go? And I think we have another year of it before it becomes a little bit less part of the story. But one of the things that we've done in closing the branches is, on top of that, we've sort of shifted the priorities of the branches, which ultimately make those branches more scalable in the future than I think they have been in the past. And so as we grow as a business, I expect that we will -- even if we're not closing branches, I think that as our average branch size grows, we're going to get good leverage out of that. To your point of, are there some expenses that were in there regarding closing? Sure. There's branches that we may have closed where the lease wasn't up and there's a buyout. We haven't scrutinized that spend meaningfully. It's been within the overall results for the last 5 or 6 years that we've been doing this. But there'd probably be some of that, that would also taper out of the model as we move from a branch closing mode to sort of a branch sustaining and leveraging mode 12 to 18 months from now. So, there'll be something in there. But again, I don't -- it's not a massive number. If we were prone to breaking things out, which we're not, I don't know that necessarily would have been that big a number to begin with. So, I wouldn't make too much out of that. As it relates to the underlying leverage -- yes, go ahead, Dan.

Yes. So, you talked about more variable, less variable. That answer will change over time, Dave. If I think of 2022, a big chunk of our compensation programs, whether that be to our district leadership, the leadership in a lot of support areas, our regional leadership, our executive leadership. If you look at all those groups, a big driver of pay is growth in pre-tax. And if you think about that from the context of -- you look at it from the last -- the five years prior to 2022, we're growing our pre-tax ex. And in 2022, we grew our pre-tax ex times two. So, there was a very sizable increase in incentive comp that was paid out in 2022 versus the prior years. And that actually aid into quite a bit of our efficiencies during the year if you look at it just from a P&L perspective and a labor efficiency, because that's a meaningful payout. Depending on what you conclude our earnings growth will be in 2023, I suspect it will be a smaller number than 2022. And that will cause in the 2023 timeframe variable to actually be higher than it had been in the last few years because of that swing. If I look at things that we have done historically in the model, if you're opening branches every year, you're adding a fixed layer of expenses every year. If you're adding people into those branches, you're not getting a lot of revenue and gross profit dollars for those ads. There's a fixed layer that you're adding. That really isn't part of our model anymore. And -- because when we're adding labor into new units, it's going into an Onsite, and we're going into Onsite, because we're -- we have an understanding with the customer…

Yes. But I would say looking over the course of the cycle, Dave, I don't think our variability has changed. I think what we've done is we've reduced the level that our SG&A as a percentage of sales over time can decline to without impairing our levels of service, our ability to grow, et cetera. So I think we've reduced our floor of operating expenses to sales. I don't think the variability of our cost structure has changed much.

Our next questions come from the line of Josh Pokrzywinski with Morgan Stanley.

This is actually Gustavo for Josh -- earlier on the gross margin front and mix headwinds heading into '23. I think just looking a little bit more near term, can you sort of quantify the margin impact from price cost, maybe the improving supply chains? And then how does that sort of trend from here from what you saw in the fourth quarter?

So price cost, the -- I think last quarter, we talked about it being about a 30 basis point impact. This quarter, that was probably more like 40 basis points. So it widened a little bit more than I expected. I will say though, one of the reasons we expected that it would be flat to better this quarter because we expected the dynamic around fasteners to improve. And we, in fact, saw that happen. The drag from a price cost standpoint on the fastener side was narrower than what we saw last quarter, where we saw the more than offset was when I alluded earlier to sort of the other product side, I think we saw a greater impact on the other products that sort of moved that number from where I would have expected it to be to about a 40 basis point drag.

Got it. That’s helpful. And then I guess just sticking with fasteners. And obviously, it’s been a margin headwind here in the fourth quarter as well. I guess with steel deflation coming into the fold now, how should we be thinking about P&L impact from fasteners deflation over the next couple of quarters? And maybe any historical context on what you’ve seen previously would be helpful?

I’ll take historical context first, and I’ll -- yes. So I mean, thinking about the current, as you know, I don’t have the same historical context that Dan does. But the – this is one of those variables on gross margin next year where it comes down, Gustav, to your belief in our ability to execute, right? I mean the -- we do expect that at some point in 2023, there will be requests to adjust fastener pricing down based on the cost of steel. Now you have to --

Or the cost of transportation.

Or the cost of transportation. Now certain costs are still higher labor, things of that nature, right? And so we have to balance that. But in the end, it’s the same question during a period of inflation is can we time the reductions in the price of our product with the lower cost coming through our P&L? And as we have had conversations with customers, that’s been the message that we’ve conveyed is – we understand when our cost is going to come through and these conversations will sort of occur in lockstep with that. And to the degree that we execute that effectively, then we would target neutral from a gross margin standpoint in terms of price cost. But it comes down to your belief in our ability to execute it effectively. I think that with the new tools that we’ve put in place the last few years, I think our ability to manage that process has improved significantly. And I think you saw that during a period of a fairly aggressive inflation. And – so we feel good about that prospect. But our goal would be to really time the cost and the price effectively so that price cost is neutral in 2023. But it comes down to your belief in our ability to execute that effectively.

From a historical perspective, and I’ll use an extreme time frame because, quite frankly, over the years, there hasn’t been a lot of significant inflation or deflationary periods. In the late 2000, so 2008, 2009 timeframe, you saw a period of pretty heightened inflation followed by not only deflation, but the economy getting pounded pretty hard in that late ‘08 and ‘09 timeframe. So, what you saw is if you think of our business in 2 components, large production-type environments and then maybe some of the smaller customer base departments, you – the one is driven more by conversations with customers about pricing. And there, we tend to do a pretty good job over time of maxing it and some you get a little bit ahead of it depending on the turn of that product. But our fasteners turn a lot slower than our – turns slower than our overall inventory. So generally speaking, on the way up, you get a little bit of margin profit in there. And you’ve see an expanding gross profit margin. You saw that back in ‘08, and that’s over that turn of inventory. In ‘09, it was amplified obviously because the economy was weak, but you saw the inverse of that, and we’ve got squeezed pretty hard. But again, it was for a turn. So it’s about understanding what’s happening in the turn versus what’s happening in the long term. What’s changed in today’s environment is that piece that is the more the production center element is a larger component than it would have been back in 2008. And so that piece where the marketplace is raising prices affects a smaller piece of our inventory, and it’s more of these direct conversations. And so – and I think we have better tools to manage through it and have a more sophisticated conversation with our customer on the way up and on the way down. But you know it is it’s easier to slow things down on the way up because your customers arguing that direction, then it is to slow things down on the way down because your customer actually has a different incentive there. So you have those challenges. It will be challenging in the cycle of this turn of inventory, but I believe our team and our tools, we have a means a disciplined way of managing through it.

Our next questions come from the line of Tommy Moll with Stephens.

Wanted to start off with some of the end market -- end market commentary you offered, particularly around what appears to be continued strength in manufacturing tied to industrial capital goods. At the same time, I think, Holden, your word characterizing the outlook for this year on manufacturing was cloudy, obviously, PMI is sub-50 now. Have you seen any softening there? Or would you characterize that end market is just as strong as it was, say, a quarter ago?

Still feels pretty strong. And again, I tend to try to rely on the regional Vice Presidents and kind of their feedback to me. And honestly, the feedback over the last 2 or 3 quarters really hasn't changed that much. We clearly down shifted from first quarter to second quarter. But since then, it's kind of been the same kind of feedback from the RVPs. They still feel good about what we're doing. They feel constructive about the cycle. Their customers are constructive, but nervous. And RVP might cite something that's worrisome, but on the other hand, another one might sort of change their tune quarter-to-quarter. And that's why I look at it net-net, the overall tone and tenor of what the RVPs are describing to us about the marketplace, frankly, it hasn't changed a whole lot as it relates to that manufacturing and the dynamics are fairly similar. So if we look at the same stuff that you do and I've always had a tremendous amount of respect for the PMI and its ability to sort of point directionally to what industrial production is doing. I think if you look at industrial production, that's still growing, but it's -- but that growth has moderated. But we still feel pretty good about what we're doing with focusing on this customer set and really being able to spend more time and grab wallet share at a faster clip. And I think a lot of things that we're doing is making us feel pretty good about a market that, as you pointed out, there's a lot of signals that are suggesting it should be softer than it feels to us right now.

So I have the opportunity throughout the year with 240 district managers. And throughout the year, I'm having conversations with 4, 5 or 6 DMs every week. And our conversation with each one going through learning a little bit more about them, learning about their business, where they think their business is going and just hearing about what they're saying. And we were stuff on our chart sleeps. If you feel like -- if you're nervous, that anxiety manifests itself and how you think about stuff. I think a couple of things are going on. And again, put that in the category, this is from talking to a lot of people and this isn't from studying a lot of numbers. I think what's helping manufacturing is a really healthy backlog that existed through much of 2022. So let's just say you're a manufacturer and your backlog is 100 units and whatever that revenue is because, say, it's 100 units. And because of supply chain constraints, because of just demand in the marketplace from the last several years, maybe some deferred maintenance, whatever it might be, that backlog goes from 100 to 150. And then we get into the latter third of 2022. And let's say that backlog goes from 150 to 120. It's still a really good backlog. And the question is, is the PMI reflecting the 120? Or is it reflecting the concern, the angst that comes with, well, the backlog went from 150 to 120? And is the PMI giving us a head fake or is the PMI really telling us what's going to happen? We honestly don't know. But to Holden's point, the activity we're seeing feels okay. But we are -- we, like everybody else, are a bit nervous about where things are going. The last 3 months and for the next 6 months, I'll be pushing our leadership pretty hard on what we're doing as far as adding headcount and being really thoughtful about it. I feel good about -- set aside the economy for a second, I feel good about the fact that we have 350-plus new Onsites that will be given us juice as we go into 2023, and we didn't have that kind of number coming into 2022 or 2021. And so there's some positives there. But as far as the underlying economy, we're not really sure if the PMI is right or wrong, but we're playing it, assuming it's right.

Very helpful. As a follow-up, I wanted to pivot to pricing dynamics in gross margin. I guess this is a 2-parter. Holding on gross margin, is there anything quantitative or qualitative you'd offer just to bridge us from 4Q to 1Q? And then more broadly, I forget which one of you referenced the broader discounting in the non-fastener, non-safety SKUs. Is this an early sign of a trend that may bleed over into some of your more core product categories? Or any context you could offer on that discounting dynamic would be helpful as well?

We'll have to put our heads together and decide if a two-part or second question is actually three questions. We'll get back to you, Tommy, on that. The -- so the -- the other products, I think, was the second question that you asked. And the -- there's not a lot more, I think, that we can add to kind of why we think it occurred. We just think that those products tend to be less planned. They tend to be a little less centralized in sort of the supply chain. And when markets change and shift, and we've seen some, right? I mean you go back six, nine, 12 months ago and the availability of products in the marketplace was fairly sketchy. It's gotten much better. Inflation conditions have changed. Demand may be softening a little bit sort of under the surface. I don't know. But in the end, I think that the weakness that we're seeing has a lot more to do with things that we've done. And the good news in that is having identified that, there's things that we can do to sort of mitigate those effects. And those are things that we intend to do over the next quarter or such, right? And so, we have a lot of belief, and this is another element of gross margin for next year. It comes down to your confidence in us and our ability to execute sort of the measures we need to mitigate that effect. Now what was your question about bridging from Q4 into next year, it probably does mean that if you look at traditional seasonality around gross margin, it's probably a little weaker in the first part of the year and a little stronger in the second part of the year as we get our arms around the things we need to do to sort of mitigate the issue around the other products. So hopefully, that gives you a little bit of color you can use.

Our next questions come from the line of Jake Levinson with Melius Research.

On a totally different topic. I feel like that international $1 billion revenue level seems to have snuck up on us and it's certainly been one of the fastest-growing parts of your business. I'm curious, what your longer-term aspirations are there? Because as far as I can understand it, it grew kind of organically out of the domestic business that you built in North America. But clearly, it's getting to a pretty sizable level. So, is there a path to further expansion beyond that traditional legacy model, if you will?

Yes. So first off, yes, it's -- that growth has been all organic as has most -- 99.5% of our growth as a company in general over the last 50-plus years. The -- you milestone, I think, has made ever more impressive by the fact that you look at our international business outside of North America, I mean, talk about a year to get your teeth kicked in. You have the chaos that's going on in Europe between the hostilities in Eastern Europe in Ukraine and the energy situation and all the uncertainty and stuff that's been shut down in Europe because of this high energy consumption, et cetera, and moved to other places. You have Asia where the bigger part of our business is in China. Again, these are both relatively small pieces to Fastenal. But to international, they become more important. And so that milestone is ever more important. In China, they've been enduring lockdowns for an extended period of time, and it makes it really difficult to conduct business. So, I think it's really impressed with what they've done throughout this time frame, and I touched on it in my head count numbers, we've continued to invest in the team. I had the opportunity after not being over there for a number of years, obviously, because of COVID, I was over traveling in Europe in the fall in September, October time frame, spent time with our team in Northern Europe. I spent time with our team up in the Netherlands, really impressed with what I'm seeing from a growth perspective, not top line growth, but from the underlying customer acquisition perspective and the team I met with. And what's exciting about that business is you're seeing examples of customers we're signing and Onsites we're signing or branches…

Our next questions come from the line of Chris Snyder with UBS.

I wanted to talk about the ability to drive operating leverage as Onsite activations ramp. And I understand that a fully mature Onsite can be accretive to operating margin despite being materially lower on the gross margin side. But I guess my question is how long do you think it takes? Or how long should we expect it to take from Onsite to reach that level of maturity and how should we think about that dynamic into 2023 as Onsite activations are ramping?

Functionally, I think it's less about a function of time and more a function of scale. And that being said, it really -- well, on an individual on-site basis, you're going to get a certain degree of variability, right? I don't believe that a $600,000 a year on-site is necessarily margin accretive. But if that $600,000, we believe can lend itself to $1.8 million to $2 million a year, then it's certainly worth being in that setting and that environment and that relationship for the potential upside. And that's part of the point of the exercise. But if it's a function of volume, what I've always said is prior to Onsite becoming an initiative, and we just looked at 215 on sites that have been there, somewhere between 1992 and 2014, they were mature not as a function of time, but a function of scale. On average, those Onsite were doing between $1.8 million and $2 million a year in revenue. And that is when you achieved a margin north of 20% on that group. And what I can tell you is during the period of COVID when our signing slowed down, you had a certain maturation of existing on sites that became a faster percentage of the whole than we would have expected to see in the absence of COVID. And one of the by-products of that was we actually saw a pretty good increase in the overall operating margin of our Onsite business. And I believe that, that increase was to the tune of a percentage point a year between 2020 and 2021 and '21 and '22. Now we signed a lot of Onsite last year. We're targeting signing a lot of Onsites this year. Assuming we're successful with that, and we believe we will be, then you'll sort of see the inverse of what happened during COVID, where you're going to see those newer units kind of stepping up a bit in the mix again. And that might make further progress in 2023 on margin at the Onsite level, a little bit more difficult to achieve. You might see a little bit of a step back, but you're not going to step back to where we were pre-pandemic. We've seen the mix of mature units go up. And I think we'll continue to see that. And our expectation is that right now, your average unit is probably between $1.6 million and $1.7 million. If that steps back a little bit in 2023 because of all the new implementations that we're doing and the greater signings, that's fine. But we do expect that, that average size is going to continue to trend towards that 1.8 to 2 and that those margins will trend towards 20% plus. That's the expectation.

We've talked about over time. It's going to add to Holdings. We've talked about over time how we expect the operating margin of our business to continue expanding. And there's really 2 dynamics going on there. One is we can absorb a greater mix, even if they're below company average operating margin, we can accept a greater mix because the branch network isn't stagnant. The branch network is continuing to grow because we're adding revenue every day, and we pulled some units out over time, as we talked about. So if I look at our oldest regions that have the highest concentration of Onsite, their average branch isn't doing $150,000, $140,000 a month. It's doing $210,000, $220,000. Our operating margins are higher in those areas even though our Onsite revenue might be 50% of revenue. And so it's really a case of the network matures, even if the mix is beating you down, your branch network is actually becoming more profitable. The other thing is elements inside our business, and I see we're almost at talks, I'm going to cut it off with this when we're done, I apologize for that. But the elements of our business are becoming stronger. Now I use vending as an example. Five years ago, I sat down with the fellow that leads our vending business. And if you look at vending as a discrete business within Fastenal, it had operating margins between 13% and 14%. So it doesn't take a lot of math to figure out, hey, you keep growing your vending business, that's not friendly to your operating margin. And my comment to Jeff at the time was, Jeff, here are the pieces we need to work on over time. increased revenue per machine, increased the mix of our exclusive brands, increased the mix of our preferred providing brands lower the cost of our devices. All these things need to occur over time. I'm pleased to say when I look at vending as a discrete P&L, we just looked at it last week, it broke 20% for the first time. And Onsite never had the benefit of organizational investments in it to make it better. Didn't have FMI. It didn't have a point-of-sale system that was built for Onsite. It had a point-of-sale system that was built for a branch network. We're investing in those tools today. That helps the efficiency of the Onsite network, too. So, it helps defend the math, but the network is getting better, and we have demonstrated proof that, that occurs already. With that, it is on the hour. Thank you for your interest in Fastenal. Have a great 2023.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.