Greetings and welcome to the Fastenal 2021 Annual and Fourth Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Ellen Stolts of Fastenal Company. Thank you. You may begin.

Welcome to the Fastenal Company 2021 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, 2022, 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, Ellen, and good morning, everybody. Thank you for joining us on our fourth quarter earnings call. Before I start, I would like to make sure my mind is cleared of things so I can focus on the quarter and I thought I'd share a personal story. A little after five this morning, I received a text from my wife; her father, Glenn Gustafson, also known as Gus, had passed away at the age of 90. There wasn't a trip he made to Winona where he wouldn't tell me how many Fastenal trucks he met on the road or he wouldn't beam with pride when he would drive by Pierce Manufacturing in Wisconsin, seeing those shiny fire trucks, knowing that the Blue Team with a whole bunch of vending machines were inside that facility, helping Pierce manufacture those fire trucks. This will be my first earnings call in 26 years where I won't be able to share tidbits of it with Gus after the call. I just want to let Gus know, I love you and you will be missed. Rest assured the Packers will figure out a way to win this weekend without you. With that, a bit on the fourth quarter. Our sales grew about 13% in the fourth quarter. We had one fewer business day, so we grew almost 15% on a daily basis. The quarter was gaining momentum as we went through it, with December growing at 16.5%. We leveraged our income statement, and our operating margin grew almost 14%. The quarter really reflects strong underlying demand, good execution on pricing, and improved product availability in our supply chain. In full disclosure, there was probably the benefit of fewer holiday-related shutdowns that would be typical for this period. It often gets a little dizzying trying to compare 2021 to the prior year given all the wild COVID swings, so I thought I'd share a few vantage points by looking at a two-year comparison. When we started the year, Q1 was up just over 8% from two years earlier, reflecting a weaker environment and a lot of uncertainty. I'm pleased to say that as we went through the year, that picked up. In the second quarter on a two-year basis, we were up just over 10%. In the third quarter, we were up 13%. In the fourth quarter, we were up 20%. On a daily basis, we were up almost 22%, so I'm very pleased with how the year was strengthening within our business as it progressed. Our gross margin recovered from 2020 as we expected, and it's down from 2019, as we expected. As Holden has shared on earlier calls, the way we're growing the business and the way the mix is changing does cause our gross margin to decline over time; again, it's a mix function. However, it also causes our operating expenses to drop over time, and we think it's a very effective way to grow the business for our customers, employees, and shareholders. On a two-year basis, our operating profit grew faster than sales, which really speaks to greater productivity and effective cost control on the part of the Blue Team throughout the organization. When we consider the impacts of COVID-19 on a future basis, we now consider COVID-19 to be merely an ongoing element of our global business environment. Like all of society, we have to learn how to live with it. The first step for us is recognizing it for what it is. It's a serious virus, but our approach is not one of fear and chaos. It's about sharing the facts with our customers and employees regarding what we're doing and how we're handling it daily. At the end of last year, we had 3,400 cases within the Fastenal family over that almost two-year period. Since year-end, that number has grown to 4,000, with about 600 cases in the first two weeks of January, around 400 of those occurring last week. If patterns in January mirror what we saw after Thanksgiving in the U.S., I expect our numbers to drop off in the next couple of weeks and move back to a range of 40-60 cases per week that we've seen before. The biggest focus we've had is sharing facts with our employees. We have aggressively renovated our facilities and air handling to make the air cleaner, not just for COVID, but for flu season in general. This addresses the comfort for everybody in the business. The growth driver details are laid out on Page 5, and we continue to see expansion in sales through our Digital Footprint, which was 46.4% of sales in the fourth quarter versus 37% in the fourth quarter of 2020. Again, on Page 4, this is just a comparison to 2019, which I thought would be helpful for folks. What emerges for me is a business that exits this two-year period stronger as an organization than we entered, which bodes well for our future. An underestimated aspect in these comparisons is that the three-month period on a two-year basis is slightly understated in our strength because we have one less business day. When you do $25 million a day, a lot of that gross profit flows right to the P&L, and that 25.9% operating income growth would have been meaningfully stronger. On Page 5, Holden made an insightful comment that I’m stealing some thunder on. He said that in 2020 and 2021, our customers asked Fastenal for different things than in prior years. Historically, they asked us to move in with them and be on-site to provide resources right within their facility rather than from a few miles away. They also asked us to deploy technology to make their businesses more efficient. Initially, this was about vending; now it's a combination of vending, bins, and what we call FAST Stock, our mobility application, or broadly speaking, our FMI technology. It's really about helping customers be more successful inside their facilities. Our Onsite signings and FMI device signings have been meaningfully impacted by COVID over the past two years; however, we feel our opportunities for the future remain untainted by this and may even be strengthened, as the definition of potential customers has expanded dramatically during this timeframe. One thing that should stand out, given our brand's footprint, is that e-commerce has always been a relatively small piece for us. I'm pleased to say our customers are embracing it more and more, partly due to the times and perhaps partly because we are embracing it too. Our web sales were up almost 50%, and our EDI was up 47.8%. Combined, e-commerce was up about 48% in the fourth quarter of 2021. Page 6 is a new chart I asked Holden to put in, stemming from a question one of our directors had in preparation for the Board meeting. It looked at the fact that we've closed many branches over the last six or seven years, and where we see that going. Most of these closures occurred in our most mature markets: the United States and to a lesser degree, Canada. In those two markets combined, we've seen a similar pattern. Our branch network peaked around 2013. Back then, if you started at one of our branches and hopped in a vehicle to drive 30 minutes, our network would touch about 95% of the U.S. manufacturing base. I don’t have that exact statistic for Canada, so please bear with me. Today, that number is about 94% as we've rationalized our network. Ultimately, we believe our branch network in the U.S. and Canada will contain around 1,450 locations. There are still a few more to consolidate, bringing us to a coverage rate of about 93.5% of the manufacturing base in the United States. As mentioned earlier, our business has evolved, particularly within e-commerce. In March of 2020, we exceeded 10% of sales going through e-commerce for the first time in our history. As we exit 2021, that number has risen to 15% of sales. As noted on the previous page, our volume in e-commerce is up about 48% quarter-over-quarter, and from Q4 of 2019 to Q4 of 2021, we have seen a 105% increase in our e-commerce business. This reflects our customer base embracing this method of ordering products from us. Our focus, however, remains primarily on FMI technology. If a discernible pattern exists in a customer's facility, many businesses will focus on how to turn that into an electronic order. Our perspective is that if there’s a discernible pattern, why should you even be ordering in the first place? Your supply chain partners should ensure it's available when you need it. That’s the essence of our FMI technology. With that, I'll switch it over to Holden.

Great. Thanks, Dan. Turning to Slide 7. As indicated, our sales were up 12.8% in the fourth quarter of 2021. On a same-day basis, sales were up 14.6%, including up 16.5% in December. The period still had difficult COVID-related comparisons with government daily sales down 35.7% and safety and janitorial products being up only 3.5% and down 3.5%, respectively, in the fourth quarter of 2021. As a result, we believe total growth in the period understates the strength we see in our traditional manufacturing and construction customers. Daily sales for our fastener products increased 24.2%. Excluding the COVID-affected safety and janitorial products, our daily sales would have increased by 21.1%. Outside of government and warehousing, this strength was broadly experienced across our end markets, consistent with macro data points such as PMI and industrial production. The period was also buoyed by fewer holiday-related shutdowns and somewhat improved availability of non-fastener products. Pricing contributed 440 to 470 basis points to growth in the fourth quarter of 2021, up from 230 to 260 basis points in the third quarter of 2021. This reflects good execution on actions taken during the year to mitigate cost inflation. Higher costs will remain a challenge in the first half of 2022. While certain metal prices seem to be plateauing for the moment, most remain at high levels. Products imported into our hubs in the first quarter of 2022 will have a higher cost, and shipping costs continue to rise. We currently do not have any broad pricing events queued for the first quarter of 2022, but we'll be addressing specific products and product categories, particularly fasteners, to offset higher costs expected in the first quarter. We expect hub product availability to improve in the first quarter of 2022 and to be more stable throughout the year, benefiting customers who are still struggling with availability. However, this reflects shipment timing and our willingness to procure product supply several months longer than normal. The supply chain remains strained. Labor markets remain tight, though we have seen some improvement in our hiring ability in markets with less restrictive on-premises recruiting policies. Now to Slide 8: the operating margin in the fourth quarter of 2021 was 19.6%, up 10 basis points versus the fourth quarter of 2020. Our dynamics in the quarter mirror the full year, with gross margin rising from 2020's product-driven low and operating expenses being deleveraged as costs reset from 2020's artificially low level. The gross margin was 46.5% in the fourth quarter of 2021, up 90 basis points versus the fourth quarter of 2020. This relates to two items. First, we experienced strong absorption of overhead and strong product demand and growth, which exceeded our expectations, largely due to accelerating volumes in the period. Second, our safety product margin improved as lower-margin, COVID-related PPE made up a smaller proportion of total safety sales versus last year, and the margin on those products has increased. The impact of product and customer mix in the fourth quarter of 2021 was immaterial, as the favorable effect of strong fastener growth nearly matched the negative effect of rapid Onsite growth. As the gap between fastener and non-fastener growth narrows, which seems likely in 2022, this drag is likely to widen to 40 to 50 basis points. Higher pricing continued to largely match higher costs, yielding a neutral price cost in the fourth quarter of 2021. Our fourth quarter 2021 exit rate and first quarter 2022 plans suggest pricing will remain elevated in the first half of 2022, sustaining a neutral price/cost relationship. The increase in gross margin was partly offset by operating expenses growing faster than sales. This primarily relates to cost resets typical of the first year of any recovery but was exacerbated in 2021 due to unique COVID-related cost restraints existing last year. To provide perspective, in the fourth quarter of 2021, we had four SG&A cost reset categories: incentive pay, health insurance, fuel, and travel, where spending collectively increased 35%, producing about 120 basis points of deleverage in the period. On the remainder of our costs, particularly occupancy as we continue to rationalize the branch network and IT as we leverage our strong growth, we achieved 40 basis points of leverage. What should not be lost is the degree to which we improved our operating expense leverage from 2019 to 2021, as detailed on Page 4 of this presentation. The first quarter of 2022 will still face COVID-related comparisons, albeit moderating, aside from last year's mass write-off, but comparisons will mostly normalize in the second quarter, provided volumes remain healthy in 2022. Moving past the initial reset year, combined with continued productivity gains from further penetration of our digital footprint and branch initiatives, should generate improved SG&A leverage. Putting it all together, we reported fourth quarter 2021 EPS of $0.40, up from $0.34 in the fourth quarter of 2020. Now turning to Slide 9; operating cash flow was $156 million in the fourth quarter of 2021, down 51% year-over-year and representing 68% of net income. For the full year, operating cash flow was $770 million, down 30% and representing 83% of net income. We continue to believe our model produces a conversion rate north of 100% of net income. Additions to working capital caused us to fall short of this goal in 2021. Year-over-year, accounts receivable was up 17%, reflecting strong customer demand and a shift from PPE buyers last year towards traditional customers this year, which slightly blended up days outstanding. Inventory was up 13.9%, though roughly 80% of that was due to inflation. Growth in product for stock remains modest given supply chain constraints, the rate of sell-through as product becomes available, and ongoing efforts to clean out slow-moving hub and branch inventory, closed branches, and shift our stocking focus in the field. We have a considerable amount of imported product in transit and expect to see product availability, particularly for fasteners, improve in the first and second quarters. In the current environment, where product availability is a key differentiator, we view our investments in working capital as an effective means of utilizing our balance sheet to support customer service and growth. We finished the fourth quarter of 2021 with debt at 11.4% of total capital, down from 12.9% at the end of the fourth quarter of 2020. We utilized roughly $25 million of our $700 million revolver to have ample liquidity available. Net capital spending in 2021 was $148 million. In 2022, we anticipate net capital spending in the range of $180 million to $200 million. This increase is committed to both upgrading and investing in new automation at a couple of hubs, higher spending on FMI devices to support expected higher signings, and additional manufacturing capacity. That is all for our formal presentation. So with that, operator, we'll turn it over to you for questions.

Our first questions come from David Manthey with Baird. Please proceed with your question.

Thank you. Good morning, everyone. Dan, our thoughts are with you. And Jen, sorry for your loss.

Thanks, David.

Yes. I didn't see in the slides; it may be in there, but what percentage of the revenue mix was fasteners this quarter?

Revenue mix this quarter for fasteners was 33.5%.

Okay. All right, that makes sense. Is it possible that we could see that percentage remain flat or even rise as a percentage of the mix this year?

Yes. At this point, we had a gap between fasteners and non-fasteners this year that I think was about 17 percentage points of growth. I would not expect that to continue. I think your question is how far that comes back. Currently, I'm kind of assuming that growth of fasteners and non-fasteners will be comparable, right? I think the comps are going to be tougher in fasteners. I think the comps are going to be relatively easier in non-fasteners, and I think you're going to see significant convergence towards each other in that regard. That would be an outperformance against history because historically, I think the non-fasteners have grown about three percentage points faster than fasteners.

David, the only thing I'd add quickly is there are two elements that can influence that a little bit in the short term. There is inflation in fasteners right now. So that's an element. But I think Holden is contemplating that in his commentary. The other factor that can help fasteners from a mix standpoint is our growth drivers, particularly the vending element. That's historically helped non-fasteners; you really don't put starting fasteners in a vending machine. It has really supported our safety products over the last decade plus. Our latest component of FMI, FAST Bin, incorporates an RFID bin that provides intelligence into a traditional kanban system, which is very beneficial for our fastener business as that's primarily used with OEM fasteners.

Okay. And then relating to the puts and takes on gross margin, if fastener mix is somewhat neutral. You talk about the higher-priced inventory moving through, and maybe you can scale that factor, the inventory benefit you saw last year that would go away this year. And then anything else, I mean, rebates or other minor puts and takes we should be thinking about for 2022 gross margin?

Yes. There actually are quite a few puts and takes. From a price/cost standpoint, we're fairly neutral, right? So the impact of price on gross margin was neutral in 2021, and we're operating under the assumption that will be neutral in 2022 as well. However, customer product and customer mix was also neutral in 2021. As you get that gap narrowing between fasteners and non-fasteners, you're going to see that neutral flip back negative to the extent that I am assuming that product and customer mix will be sort of a 40 to 50 basis point drag in 2022. Another piece that I think will be a drag on gross margin in 2022 will simply be the absorption that we experienced this year. In addition to accelerating growth, we also had to begin buying more product because of supply chain challenges. If those begin to moderate, I wouldn't expect the same degree of absorption benefit in '22 as we saw in '21. There are some offsets on the other side; 2021 had a lot of mass write-downs that I believe will not recur. I expect product margin improvement in both the fastener and safety side of the business. Nothing dramatic, but I believe you can have some tens of basis points of contribution. We'll also be closely observing the impact of fill-in buys because, in 2021, where we faced extensive restraints on availability in our hubs, our field did a remarkable job sourcing product. When that happened, they typically don't achieve the same margin that they would obtain if they were still within our supply chain, and they often have to move a lot of product around on outside freight, which we wouldn't generally do. To the extent that the supply chain normalizes and that fill-in buy reverses, this will be favorable as well. All these factors contribute to our projections. Netting it out, I still think gross margin will be slightly down in 2022.

Very helpful. Thanks a lot, guys.

Sure.

Thank you. Our next questions come from the line of Josh Pokrzywinski with Morgan Stanley. Please proceed with your question.

Hey, good morning, guys. And also shoutout to the Operator; unlike the totally legit pronunciation.

I was going to ask you; sounds like he got it right.

Yes, no. Like, three tally marks for my career for guys who have got it dead right, yes. So Holden, I guess, similar question on maybe the SG&A leverage.

Yes. Well, remember that part of it is simply a comparison, right? First, I think two things happened in 2022. First, we'll move past the year one reset. I continue to believe that incentive pay will be up. Where we exited was fuel. Fuel will be up. Health care, who knows? We'll see how that plays out. And I don't think that our travel has necessarily returned to what we consider being normal. However, we won't see an order of magnitude of increase in those categories that looks like what it did in 2021. So I think you move past that year one reset, and that takes a comp issue off the table. We aren’t comping against those COVID-related cost takeouts from a year ago, right? The reason the OpEx leverage returns is in part just because the comparison gets easier. We have a long string of improving our leverage and we had a little pause in 2021, but that was due to unique circumstances. In 2022, we'll see something more normal happen, particularly as you move into Q2 and beyond. The comparisons will normalize, and we have efforts we're taking to improve efficiency, such as the structural changes we've made at the branches, which contributes to our ability to rationalize the network further. Those technology investments are also contributing to our ability to rationalize the network more effectively. Where all this comes together is we expect operating margin to be higher in 2022 than 2021 with incrementals in the range of 20% to 25%, which has been our goal.

Got it. That's super helpful detail. And then, Dan, just a follow-up on a comment you made in your prepared remarks on Onsite and the way customers are engaging or wanting to be served.

Yes. First off, I believe the commentary I made about COVID. I think many organizations are coming to the same conclusion. Our willingness to focus on long term rather than short-term chaos will improve. I believe our Onsite signings will improve. An aspect we've started discussing this year, which we'll continue to emphasize, is our Digital Footprint, as it continues to expand, illuminating more for the customer. It also helps us be increasingly efficient as a distribution model because we're pulling more products through the system, based on understanding where they need to go rather than guesswork. In recent months, we've discussed a concept called LIFT, or Local Inventory Fulfillment Terminal, where we have 17 of them now. This includes some within distribution centers and others external. We can look at patterns and effectively determine needs for the upcoming week using the vending machines, thereby making it more efficient. This ensures our valuable resource, people, are better allocated to consultative discussions and service rather than inventory picking. Thus, our Digital Footprint fundamentally plays an important role in our strategy.

Got it. That's helpful. Thanks a lot.

Thank you. Our next questions come from the line of Nigel Coe with Wolfe Research. Please proceed with your questions.

Thanks. Good morning. Thanks for the questions. So Holden, I want to go back to the inventory. I think inventory was up 14% year-over-year, and I believe the comment was that the bulk of that increase was inflation. Is that correct, that the majority of that increase would be inflation? So my follow-up question is, is there more inflation to come through the P&L from inventory? And therefore, to remain price/cost neutral in the first half of the year, especially, do you need to accelerate pricing from the 4.5% in Q4? It's the spirit of that question; you've got no price increases currently planned, but to be price/cost neutral, do you need more price increases?

Yes. To first clarify, about 80% of our increase in inventory in the fourth quarter was attributed to inflation, not from widgets. When examining the inflation projected to impact pricing, we know the costs in the first half exceed our pricing for fasteners. We do have other actions in mind that may not be broadly categorized as price hikes but will be necessary to address specific product pricing gaps, particularly in fasteners, since we haven't been as aggressive with certain customer sets initially. As we assess product availability, especially for fasteners, we anticipate needing to be assertive against some competitors. We successfully managed the majority of price/cost correlations over the last three quarters, and the long supply chain grants visibility extending beyond. We're aware of what will be coming in Q1 and Q2 of 2022 and will act accordingly. While broad pricing events may not be planned, we need to address gaps for specific product lines, particularly fasteners, to avoid falling behind.

Great, that's really helpful. My follow-on question concerns employee costs; I believe they were up 17% this quarter. You've indicated better SG&A leverage going forward. However, I'm curious how much of that 17% is non-recurring in nature, such as discretionary bonuses or sign-on bonuses for hiring, versus base inflation within the employee base.

If we analyze wage inflation, it hasn't dramatically changed compared to earlier in the year. For full-timers, we're in the mid-single-digit range, maybe slightly below 5% for base pay per head. In contrast, part-timers are still experiencing double-digit increases. Incentive pay amounts to a different story; it was up significantly, about 25% over the year, with Q4 showing about a 35% increase. This increase reflects our business's success in driving revenue, profits, and margins, and I believe we will replicate this success next year. However, the first-year reset is genuine, and while I expect incentive compensation to grow, it shouldn't see similar rates as we did in 2021 because we observe this pattern year after year during consecutive cycles.

Thank you. Our next questions come from the line of Hamzah Mazari with Jefferies. Please proceed with your questions.

Dan, I'm sorry to hear about your loss, first of all. My question revolves around Onsite; could you discuss the expectation for Onsite signings this year and whether you think there's pent-up demand as the sales cycle seems to shift?

Our expectations are 350 to 400 Onsite signings. To be decisive, the dynamics creating challenges in 2021 are still in place as we enter the year. To achieve 350 to 400, or 23,000 to 25,000 FMI devices, we might need the marketplace to normalize. The challenge arises when customers are in short-term crisis management; it is typically harder for them to engage in long-term strategic decision-making. Therefore, the market plays an important role. However, the overarching demand for our capabilities remains the same as it has been for years.

I believe there's a demand, and the acknowledgment of our capabilities has expanded significantly. Our ability to deliver a trusted supply chain partner is more appealing now than ever due to the disruptions faced in the last two years. However, hiring challenges will persist. If hiring is difficult for manufacturers, partnering with us as a supply chain solution becomes an easier pathway. I'm optimistic that both customer awareness and our adaptability as a supply chain partner will lead to increased Onsite signings going forward.

Regarding Onsite, even though signings and new activations were lower than anticipated in 2021, we improved our operating margin by about one percentage point, relative to both 2020 and earlier years. Moreover, the days on hand of inventory in that segment have decreased compared to the previous two years. This is important; that group became better through these challenges.

So, my follow-up is on national accounts; which customers are not growing? I know you mentioned 82 of the top 100 are growing. Are they all fitting into a specific bucket, or are there several end markets?

It's mostly company-specific items for that few companies. The one exception would be warehousing-type customers. That group was strong during 2020 and faced challenging comparisons. Additionally, food processing has been somewhat slower, again due to similar dynamics. It's primarily company-specific, but those two areas are worth mentioning.

Got it. Thank you so much.

Thank you. Our next questions come from the line of Adam Uhlman with Cleveland Research. Please proceed with your questions.

Hey, guys, good morning. And Dan, sorry for your loss.

Thanks, Adam.

I wanted to revert to Nigel's question—regarding whether price realization borne a larger potential impact in revenue growth. You recorded around 4.5 points of price realization in Q4. Can you help us understand the scope of the anticipated inflation rolling into the P&L?

Particularly from Q2 onwards, you’ll see significant increases as we hit prior quarter increases. So I wouldn't characterize any additional pricing in 2022 as merely raw incremental because it’ll need to be tracked against prior increases. However, from what we expect in Q1, I could envision that pricing contribution in 2022 could exceed 3%. Although it is hard to predict how the market evolves over the duration of the year, it is possible for pricing to contribute north of 3% for 2022.

Great. Thank you, Holden.

Thank you. Our next questions come from the line of Ryan Merkel with William Blair. Please proceed with your questions.

Thanks. Congrats on the quarter, fellows. I wanted to ask about digital, Dan. You mentioned digital reaching toward 85% of sales. What builds your confidence in that? Is it simply that it adds productivity for the customer? Is it that straightforward? Additionally, what might the long-term makeup be between e-com, bins, and vending?

Our confidence stems from understanding what our customers utilize throughout the year—we believe 65% of it is indeed planned spending, whereas some customers lack the supply chain view or we lack the historical tools to manage that effectively. We believe FMI can grow to fulfill that 65%. Regarding composition, I wouldn't be surprised if about 40% of what we define as FMI is FAST Stock. I think the remainder—about 60%—comes from a mix between bins and vending. Typically, bins are favored for OEM, while vending is prominent for MRO. The distribution of that will ultimately depend on our evolving mix.

That makes sense; it indicates the trend forward and enables growth with less labor while increasing customer productivity. The follow-up is on fasteners; how much of the 24% fastener growth was attributed to pricing? Historically, if metal and transport prices decline, do you have to lower fastener prices?

Regarding fasteners, we attribute about 20% of that growth to pricing. This increase correlates with the rising material costs. Dan has the historical perspective on whether we need to lower prices as metal prices fluctuate.

The past several years indicate that when customers face product costs rising, we merely act as a conduit provided under a competitive landscape. If metal prices increase, costs reflect that increase; if they decline, we also comply accordingly in a competitive market and adjust with the turn of inventory. However, timing becomes pivotal as these may not correct at once due to ongoing transportation challenges. These disruptions stem from various elements, including ocean carriers and port capacity.

Well said, Dan. Thank you.

With that, I see we're at two minutes to the hour. Again, thank you for participating in our call today. I hope everybody has a successful 2022.

Thank you, everyone.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.