Hello, and welcome to the Fastenal 2023 Q3 Earnings Results Conference Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Taylor Ranta of the Fastenal Company. Please go ahead, Taylor.

Welcome to the Fastenal Company 2023 third 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 will start with a general overview of our 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 December 1, 2023 at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them. It is important to 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, Taylor. Good morning, everybody, and thank you for joining our third quarter call. I'll start on the -- reference the flip book on Page 3. Conditions remained challenging in the third quarter of '23, reflected in a daily sales growth rate of 4%. Still, regardless of the year, we celebrate milestones when they occur. I remember just over 10 years ago when we hit $10 billion (ph) in daily sales for the first time, we recognized that on this call, as well as internally to celebrate that milestone. Some years later, we hit $20 million. Here in the month of September, we broke $30 million in sales per day for the first time in our history, and my congratulations to the Fastenal organization for hitting that milestone. Our sales growth in the quarter translated into EPS growth -- EPS of $0.52, 4.1% growth over the same period last year. Our results reflect the unique profile -- product profile of our business. Fasteners still constitute about a third of our sales, and within that subcategory, about 63% is in OEM-oriented fastener, and that business can be very cyclical because of the production needs of each of the customers we're serving. If you look at the rest of the business, it tends to be much more MRO-oriented. Our fastener daily sales, as you've seen in our monthly sales release, have decelerated at a faster rate than our non-fastener business as we've gone through the calendar year. The third-quarter operating margin hit was 21%, which matched last year despite the one less selling day. And so, earlier I spoke about the $30 million we do in a day. The quarter had one less day. Many of our -- some of our expenses are tethered to the day, most are not. And…

Thank you, Dan. Good morning, everyone. I'm going to start on the slide deck on Slide 5. Total sales in the third quarter of 2023 were up 2.4%, adjusting for the fact that we had one fewer selling day in the quarter, our daily sales were up 4%. Frankly, the dynamics of the quarter varied very little from the second quarter of 2023. Macro data points and feedback from the regional leadership continue to point to sluggish demand and a cautious outlook for spending and production. We are certainly encouraged by the improvement in our September daily sales rate to up 5%. However, it seems to have more to do with easing comparisons in certain parts of our business than a clear signal of firming customer demand or brightening outlooks. Dynamics around our products, customers and end markets have also trended similarly over the past three months and six months. Manufacturing grew 6.4% despite soft demand, benefiting from further growth in the Onsite installed base and initiatives in national accounts in the field to target key account plan spend, which is disproportionately manufacturing-oriented. Non-manufacturing was down 1.3%, though the rate of decline moderated as we began to hit easier comparisons in non-residential construction, reseller and warehousing customers. From a product standpoint, fasteners are relatively weak at down 2% due to their more cyclical profile and rapid pricing moderation. In contrast, non-fastener products remain healthy, due to further growth in our vending installed base and improved comparisons. As it relates to pricing, it remains positive but has come back to a range of 0% to 2% that we consider to be typical under normal economic conditions. We did experience very modest deflation within our fastener product line. Now to Slide 6. Operating margin in the third quarter of 2023 was 21%,…

[Operator Instructions] Our first question is coming from Nigel Coe from Wolfe Research.

Thanks. Good morning, everyone.

Good morning.

So the price cost definitely coming a bit better than what we expected. Is this as simple as thinking about the ocean freight rate normalization and we're starting to see that now coming through from inventory. So I'm just wondering if when we obviously talk about the freight benefits, just wondering if that's more ocean bound freight as opposed to domestic.

I think, Nigel, there's a little bit of that, that's flowing through, but we've definitely seen lower costs related specifically to our fastener line. And I think that's largely what you're seeing. So yeah, when we think about what caused a lot of the inflation in our business, there was an element of it that was raw material, but there was a fairly significant element that was related to transportation. And so yeah, I think you're just seeing some of that gradual impact play through. But I want to also give a lot of credit to the organization, particularly sort of the field and the national accounts teams and the folks that manage pricing. I mean, I believe five years ago that we wouldn't as effectively have been able to align our pricing and cost in the way we have. The variance that we've had against what's going on in the market has been fairly tame. If you remember, this quarter last year, we were talking about 20 basis point deficit and we felt that, that was going to -- we felt at the time that we hadn't quite caught up with where costing went with fasteners. I think our guidance at the time was we kind of expect that costing to catch up. It has caught up and probably came in a little bit. But I think over coming quarters, you're going to see the benefit that we saw this quarter, which largely recaptures the deficit we saw a year ago. I think you're going to see that begin to moderate. So it wasn't what we expected either. As you know, we target neutral, we continue to target neutral. But I don't think that it's a -- I don't think it's a sustained trend either. I think as we go through the next couple of quarters, it's going to trend back to neutral.

Okay. Thanks, Holden. And then on the CapEx pushouts of the projects, was that an elected push out? Just want to see if that was maybe just, I don't know, supply chain challenges or delays from a supply side or was that elective.

The majority of it was not elective. We had a -- there's a piece of property in there. The signing of which just got pushed out from fourth quarter to first quarter, that's just a calendar timing issue. We did have some automation projects where it's just a matter of when the product is going to come in. We always do it would be later in the year and it's just going to sort of cross the calendar line. So the majority of it relates to projects that we remain committed and excited about and will fall into the 2024 and it was more a function of timing. Now I will say that earlier in the year, we did say, look, take a look at your budgets, it's not a great year in terms of demand and tighten some stuff up. So I think there's some elements in there of what you're talking about, and that's just about enforcing discipline across the organization. But I think the larger portion of it relates to projects that will be coming back into the business in 2024.

Got it. Okay. Thanks a lot.

Thank you.

Thank you. Next question is coming from Chris Snyder from UBS. Your line is now live.

Thank you. I wanted to follow up on some of the price cost commentary. I understand that price cost was positive from a year-on-year perspective. But I think you said the deficit was largely caught up, from which would kind of maybe imply that you're still a bit price cost negative at the moment. So when we think about that trajectory back to neutral, is that like incremental price cost positive to get there or is that incremental price cost give back to get there? Thank you.

I mean I guess I'm viewing the next couple of quarters as being the inverse of the last few. Again, if you remember, in Q3, we talked about fasteners, we had a little bit of a deficit in price-cost. And the guidance at the time was that over the next few quarters, you would see that deficit begin to decline. Was there a fastener deficit in Q4? Yes, there was. Is it possible that we get that fastener deficit from Q4 back in Q4 of this upcoming quarter? Yeah, I think that that's possible. But the deficit Q4 last year was not as wide as the deficit in Q3, and I'm not expecting the benefit in Q4 this year to be at the same level as the benefit we saw in Q3. Really, again, this feels very much like the inverse of what occurred last year. And at the end of the day, yeah, we'll probably wind up over the course of multi-years kind of being neutral from a price cost standpoint. But within that overall trend, there's been a little bit of swinginess.

Thank you. I appreciate that. And then maybe could you just talk a little bit about pricing on the non-fastener side? I think I understand that the fastener is seeing some price pressure, whether it's the metal or the freight. But can you talk about the non-fastener side of the business? Thank you.

Yeah. We don't talk about [indiscernible] behaving largely like we would expect it to. Pricing in the non-fastener areas has moderated just like our overall pricing has, but much like our overall pricing levels at this point, it's kind of back in the range that we would normally expect it to be in. It's still positive. It's lower than it was a year ago. But frankly, that area is performing largely as we expected. Historically, we have not traditionally seen negative pricing in non-fastener products. And I don't expect that, that's going to happen in this cycle either. So we view that the conditions for pricing in those products to be pretty stable here.

Thank you.

Thank you. Next question is coming from David Manthey from Baird. Your line is now live.

Dan, Holden, good morning.

Hi, Dave. Good morning.

First question, could you talk about the feedback and early returns after you reopened the front doors of your stores last month?

I don't -- there hasn't been a lot of feedback. One thing I do every day, and I've done this, quite frankly, have done this for the last eight years is I -- and each day in every web feedback that comes in from customers, I try to read. I'm not going to say I read 100%, but I tried to. And that tells you it's a small enough number that I'm able to even try to, when you consider the hundreds of thousands of customers we have. And over time, you pick up different themes. And obviously, you could -- if I go back to the COVID era, boy, were there themes jumping out. The themes were a society really frustrated, not with us, just with some -- just frustrated. Scared about what's going on. Most of our business is in the U.S. and so scared about what was going on and things that were going on and chaos around them. And oftentimes, I would call -- I would once a week, maybe twice a week call somebody up, kind of throws them a little off kilter when they get a call from me right after they've put something, but you learn a lot that way. It's largely almost too quick to see, but my predecessor had a phrase he used, sometimes he used to keep it on his computer screen. So if you want to grow your business, make it easy to buy. And sometimes, if you confuse the market, it's kind of like in today's world, you've got to eat. It's a rare time that I go out to eat that I don't check on my phone to see if the place is even open. Mondays and Tuesdays, especially you can't necessarily count on it, especially in…

And just probably the one piece of perspective I might add, Dave is, for a long time or for several years, we had a lot of different models occurring within the branch, right? There were some branches that did, in fact, close their doors. There were some branches that had very specific low call average. There are some branches that stayed open. There are branches that flipped their counters -- branches that didn't. And I think what you're really seeing and picking up on is after several years of experimentation, which is really what Fastenal does. It came time to say, let's settle on and align around kind of an agreed approach to it. And so what you picked up is essentially us having looked at the various experimentations that were run throughout the organization for a number of years and say, "hey, here's the path forward that we're going to take.

I appreciate the color, guys. Thank you.

Yeah.

Thank you. Our next question is coming from Jacob Levinson from Melius Research. Your line is now live.

Good morning, Dan, Holden.

Good morning.

I know you guys saw into lots and lots of different end markets. And maybe it's not always easy to tell exactly where the product is going at the end of the day. But maybe you can just walk us through what you're hearing from the field in terms of some of the positive and negative outliers on a vertical basis?

Yeah. Unfortunately, we don't have great granular insight market by market. The example I often give is, there's a lot of manufacturers out there that are considered manufacturers in our business, but they might have enormous oil and gas exposure, but we don't see that oil and gas exposure. So I wish I could give you more detail end market by end market. We just don't have it. The data doesn't break out that way. The feedback from the field continues to be fairly uniform. I think aerospace is doing fairly well. I'm not getting a lot of feedback that anything else is really inflecting more favorably. I'm getting the feedback that everything else remains fairly tepid. And that generally speaking, managers across our business are fairly cautious on where the market is today. But I wish we could give you more granularity end market by end market. We just don't have the means to measure it that way.

The only thing I'll add to it in my ask of everybody hearing this, don't read too much into it because it's a relatively small piece of our business. But when I'm going through the numbers, the individual that poses the stuff together, I often wear him out a little bit with questions and just to understand it myself. And the other end markets, which is about 11% of our business, it's a bunch of stuff in there since the term other and it peaked up. And in one of the components of that is our business and our government business has been gaining strength as we've gone through the year, but it didn't gain strength sequentially in September. And sometimes that's just a function of comp. But generally speaking, it's been gaining because we've been really successful in Onsite and government locations that we have in the business. And so I asked him, I said, I know government didn't tick up. Why did that tick up? And a big chunk of that other is transportation. And it's not automotive transportation that's not in there. It's transportation that we sell into and that saw a real uptick. I'm not sure what that means. So maybe I created more questions with that answer than an answer with that answer. But that was the one thing that jumped out at me. I was -- I'm still scratching my head on it, but at least I know that's what drove the other end markets to grow 12.5%.

Okay. That's helpful color. Thanks. Maybe just switching gears quickly on, I think, maybe in past cycles, FAST would have maybe had trouble holding the margin line and revenue growth at these lower levels. And I guess the question is, structurally, what's really changed in the business today versus prior cycles and gives you that confidence and maybe being able to have higher incremental margins going forward even if the growth rates aren't necessarily in this macro backdrop at least, higher.

Yeah. I think there's a few things in there. One is, when we came through the tariff period, that was brutal from the standpoint of our pricing tools being so decentralized, communicating what was changing almost on a week-by-week basis was incredibly difficult. And there was one quarter I sat down with our IT -- John Soderberg, our leader of IT, and I said, John, I'm going to ask you something that I never -- that I told you I'd never ask you to do. We're going to shut down all IT development for whatever time it takes, and we're going to focus 100% of our energy on a better pricing tool for our organization to use because this is a disaster we're going through right now, and we can't handle these fluctuations because our system isn't built for that. And we shut down IT, and we focused on building what we call our price review tool. And then we had other folks in the organization that took that our district managers. We have a key person here in Winona, Kevin Fitzgerald, who took that and created a great tool and our ability to price and pricing isn't is much about not being too high as it is about not being too low because sometimes if your price isn't precise and you're too high, you might actually hurt your margin because you don't sell enough of that or if you were 3 points lower, you would sell more of it, and it help your margin. So on the gross margin side, we've gotten better at our ability to price. And in the recent years, our transportation team has gotten really agile and manage the expense side. So that's on the gross margin piece. And there's a bunch of other things,…

Thank you, both. That’s great color. I’ll pass it on.

Thanks.

Thank you. Our next question is coming from Patrick Baumann from JPMorgan. Your line is now live.

All right. Good morning. Thanks for taking my questions. Maybe one for Holden first. Just wanted to follow up on the near-term gross margin expectations. It sounds like the price cost will be favorable year-over-year in the fourth quarter. And then, you also have an easy comp, I think you had called out like weaker product margins last year. Maybe that's the non-fastener business. I guess just given that and your third quarter performance, are you thinking the gross margin in the fourth quarter is going to be up year-over-year? And then can it also be up maybe from the third quarter as well?

No, not up from the third quarter. The first off, I think you have a number of things from Q3 to Q4. The first is, there is seasonality in play. And I think it's typically, give or take, 30 basis points of seasonality between third quarter and fourth quarter, that's just proven true over time. It relates to the mix of our business in the fourth quarter, et cetera.

And the delevering of our trucking network.

And the delevering of our trucking network. So I think, first off, you have that sequential headwind. Now, in the past, I've argued that it might be slightly more muted into Q4, but that was also based on a lot of freight advantage. Now, I will tell you in the third quarter, we've begun to see cyclically, sometimes when things get challenging you can see some of your freight revenue piece begin to soften a little bit. And we saw some of that during the third quarter. And the leverage that you get when you grow the freight revenues reverses when you don't. And that was a bit of a challenge at the end of the third quarter that if that carries into the fourth quarter because demand is still weak, I think that, that goes from something that was doing fantastically for us in Q2 and becomes perhaps a little bit weaker. So I think that plays out perhaps a little bit softer as well. And then I guess I do believe that there'll be some moderation in price cost. So I think relative to the third quarter level, I think you're likely to see the fourth quarter come down a little bit greater than normal seasonality in this case.

Great. Helpful color. I really appreciate that. And then, I got one more in terms of the branch size now. It looks like it's close to that target you laid out in the fourth quarter, around the fourth quarter conference call, I think you said 1,450 for U.S. plus Canada. So maybe if you could update us on [Technical Difficulty] is that for now? And then a couple of things in context of that, like how should we think about that sales momentum in the non-res and reseller accounts, which I think has been hurt by some of this consolidation and then also the occupancy expense account where I think you've been benefiting from some of that in terms of costs coming out of the business? Thanks for any color on that. I appreciate it.

That may be four questions.

Yeah. I'll try to unpack that in reverse order. And if I missed something, help me out. But first off, branch count 1,450 is our target number. That's not a -- we're at this number and an edict comes out that says thou shalt not close or thou shalt not open. That number could -- perhaps we should talk in ranges instead of exact points because 1,450 was what our internal team identified as a target number, looking at demographics, and I believe it, I don't have the stat in front of me, so if I'm wrong, I apologize, I would have been in the flipbook from the first -- from January. But I believe at 1,450, we were within 30 minutes of 93% of the U.S. manufacturing base and so it's a theoretical number. Could I see it go down to 1,400, yes. Could I see it go to 1,500, yes. The closure piece will become ever quieter. And as we move into 2024, I know just yesterday, I was chatting with Casey and Jeff about some of that and what they're seeing because there's still a few closures on the horizon. Part of it is reminding folks that the openings are okay, too. And so I think we'll be in that 1,400, 1,500 range. So don't read anything into it moving up or down 20.

And then since it wraps into the concept, what you will see is as the rate of closings moderate versus the last several years, you're going to have a little bit less of an incremental sort of take out of costs than we've had over the last several years. We still believe occupancy is ultimately leverageable but you had inflation at the same time that you had close things that tended to offset one another, and that's going to moderate as you go into 2024 and beyond to some degree, so.

If I look at occupancy in the third quarter, we actually didn't leverage it. And part of the reason for that is within occupancy, we have two components. We have our branch and Onsite network. We have, obviously, our distribution centers. But we also have our FMI, our vending and FASTBin. And the reason we classify that as occupancy. When we started vending 15-plus years ago, looked at it and said, a vending machine is basically a shelf. We've taken a shelf out of the branch. We've wrapped it in a metal box, and we put that shelf in the customer's facility, but it's a shelf. And we really challenged our district leaders to think about that as occupancy on our internal P&L. We classify it as occupancy because if a branch grows from 100 to 150 and for simple purposes, let's just say that, that 50,000 of growth is all vending. I shouldn't need a bigger building. And my occupancy grows because I have the depreciation and expense associated with my vending platform. And it was a way of more holistic about it. Our FMI numbers, as you know, we're signing 95 devices a day. Our FMI grew 6%. And our expenses within occupancy, and that was about 55%. So our occupancy grew just under 4%. And about 55% of that related to vending. But even though we closed some branches and closed some locations, our rent has not gotten cheaper in the last 12 months, and we will continue to be challenged with that. One of the things we've talked about on prior calls is the thing we call Lyft. And Lyft is about efficiency of where we're picking the product to replenish FMI vending today with FMI more broadly. But it also -- if I have a 50 vending machines out of -- that are serviced out of a branch, and I don't need to stock all of that inventory in the local branch because I'm picking it in an automated distribution center in a highly efficient way. Now that distribution center isn't free, but I also don't need to expand the footprint of my branch because I freed up 40 feet of shelving that was dedicated to FAST vending in the past. But it's given us some challenges on the fact that occupancy has grown. And as you can imagine, the further you get from the middle of the country, the more expensive the space gets and when you get into some of our businesses in Europe, it's more expensive than it is in Winona, Minnesota. But I feel good about our ability over time to continue to manage that and lever it, as I said with our FMI, that business is growing quite handsomely, and we grew our expense to 6%, so we levered that nicely.

Thanks so much for the color. Best of luck.

Thanks.

Thank you.

Thank you. Next question is coming from Tommy Moll from Stephens. Your line is now live.

Good morning and thanks for taking the questions. I wanted to start on fasteners and ask whether it's possible to parse the down 2% DSR into an MRO versus OEM component. And it's really the OEM side that's the crux of the question. But any context you could give there and then I'll have one follow-up on OEM. Thanks.

Yeah. So what we're seeing in the quarter is you continue to have MRO fasteners down and we actually had OEM fasteners that were still rising. The perspective you need to have though is, we continue to see our OEM fasteners grow as a proportion of the mix because they tend to benefit from the growth in our Onsite. So today, a lot of our growth is coming through Onsites, and therefore, a lot of those new signings, those new implementations also bring in OEM fasteners. And so in the past, we've talked about OEM, and I think people have been surprised that OEM hasn't gotten negative given sort of the behavior. But if you go back to like mid last year, OEM fasteners were growing mid-20s. If you come to current period, it's growing low-single digits. And so you've seen significant moderation in OEM fasteners as the production environment has softened over the past 12 months, but it's still growing because of the success we continue to have signing and implementing Onsites.

That's helpful. Thanks, Holden. I guess, to keep going with the same theme, some of the commentary you've offered today on the OEM side has sounded similar to recent quarters. And recently, you talked about the destocking dynamic at customer locations, particularly for the OEM business. Is there anything you can do to parse real underlying demand there versus shorter product delivery cycles and maybe customers are just ordering later in their production cycle.

Yeah. If you think about what we do, in a perfect world, where we're supplying OEM fasteners. The customer isn't ordering it per se. We're supplying it when they need it. And that shouldn't change depending on the cycle because the question is, if you peer downstream from the manufacturing activity to our customer or their supply chain to the end market. How much inventory is there because if – there shouldn’t be a different stage of where you're ordering OEM fasteners. The pull-through is what the pull-through is. Now some of the changes from what Holden talked about a year ago, there was elements of inflation in there. But there was also elements of folks had such an unstable supply chain for everything else. Fortunately, they were partnered with Fastenal, and their supply chain for fasteners was great. And I'm having a little fun with you there, but they might have had other stuff or their end markets, possession is [indiscernible] so they just ordered it because they were worried about getting it. And so I think you do have cases of downstream from our manufacturer customers. There's some stuff that piled up, but I think that's worked through. I think the poll right now is to poll. I was talking with our leader in Continental Europe the other day, and his business has ticked up, and I was just asked them some components about it. And he was talking about some of these transportation customers that picked up. He said their business is pulling through what they're selling, but they're being very, very cautious about not getting ahead of anything. So I think there, it's just true demand coming through.

Yeah. Maybe another anecdote as well. At the end of any given year, particularly years where demand is poor. Oftentimes, we get suppliers that approach us to say, hey, we sold just something for a discount. Would you take some of this stuff off our hands, so we can normalize our own production rates, and that's fairly typical. And I'll say that the -- it's still early, and we don't know what December is going to look like in many respects, but we haven't seen as much activity from our suppliers, inquiring about our willingness to enter into those kind of sort of year-end types of deals. And what that might suggest to you is that a lot of our suppliers might have inventories that are pretty close to where they need to be. Those are anecdotes. We're not even in November, December yet. But I'm probably feeling somewhat encouraged about where the inventory levels within and throughout our supply chain are getting to.

That's all very helpful. Thank you, both.

Thank you. Next question is coming from Ryan Merkel from William Blair. Your line is now live.

Hey, guys. Thanks for fitting me in. I had a couple of questions on gross margin. So usually gross margins kind of flat sequentially into 3Q, and obviously, it was up 40 bps. Can you just unpack what the drivers are there, just because that was the surprise factor.

Yeah. As I indicated in my preamble, mix wasn't quite the headwind that I expected it was going to be. And price-cost was more of a tailwind than I expected it to be relative to the guidance that I gave at the Q2 call. Those are the two pieces.

And when you say price cost, you're talking on product, you're talking on freight because it sounds like freight was the thing that you mentioned first driving the gross margin.

Yeah. But in many cases, freight rolls into our product costs, right? The biggest reason why there's been inflation and deflation over the past three or four years isn't the cost of steel, there's a bit of that. It has a lot more to do with what the cost of moving product has been. So the price-cost in our -- when we talk about price-cost, in many cases, elements of freight are moved into product price.

Because we consider that our landed cost to the shelf as opposed to when we're moving it around North America or moving around in our business.

Now there's transportation that does not fall into product costs. Those are our ramp trucks in the field, et cetera. But when you're talking about the cost of moving things from overseas to domestic, that goes into product cost, as Dan said, it's part of landed and that gets reflected in our price cost dynamics.

Got it. Okay. That's helpful. And then sequentially, you think maybe gross margin could come down a little bit more than seasonality. Is that because price-cost is going to decline and the reason there you're going to lower fastener prices to match the lower product costs or is it also this idea that maybe charging for freight is getting a little bit harder.

No. I mean there's a few reasons why I think gross margin will come in a bit. One of it is the seasonality you talked about. The second thing I talked about a moment ago was simply freight revenues has softened a little bit in the face of a weaker cycle. And again, we have a certain degree of leverage around our freight that works great when the freight revenues are at record levels, and it's not quite as good when they're not, that's another element of it. And then the moderation in price-cost that I anticipate is probably has more to do with the field continuing to make modest adjustments where they're required by contract or what have you to do so. And again, we're talking about a relatively small number here. It's not dramatic. But those are the moving pieces that I see playing out to a slightly weaker fourth quarter gross margin relative to third.

All right. Thank you.

Thanks, Ryan. I see it's about 2 minutes before the hour, and I realize everybody on this call has a busy week of earnings conversations to be engaged in. Thank you for your time. Good luck in the fall and my thanks to the Fastenal team. Have a good day, everybody.

Thank you everyone.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.