Welcome to the Fastenal Company 2023 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 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 March 1, 2024, 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, and good morning, everyone. Welcome to the Q4 Fastenal earnings call. I'll dive right into the presentation, starting on Page 3, which contains several slides. In 2023, our organization faced two main challenges. First, since November 2022, we have experienced a PMI below 50 for 14 consecutive months, which is significant given our heavy focus on the industrial sector. There are many advantages to having Holden on our team; his previous experience offers insights that are invaluable. I asked him how often we encounter periods like this, and he noted that since 1970, there have been six instances of extended periods below 50, the most recent being during the Great Recession in 2008-2009. It's definitely been a tough stretch. The second challenge is our execution. In 2022, we achieved strong numbers, aided by inflation and the recovering economy post-COVID. Our solid supply chain allowed us to maintain product availability, contributing to our success. However, we recognized some internal execution issues, prompting leadership changes earlier this year. As we approach 2024, I believe we are positioned well despite these challenges. In the fourth quarter, we increased our daily sales by 3.7%, and our team managed expenses effectively. While certain factors played to our advantage, we also faced some headwinds. Ultimately, our earnings per share grew by 8.5% to $0.46. Regarding our growth initiatives, the progress has been somewhat uneven. We have been successful in expanding our Onsite locations, although perhaps not as quickly as we’d hoped. Our performance with FMI devices was strong, and we are continuing to enhance our digital presence. Our operating cash flow reached a record $1.4 billion, representing a 52% increase from 2022. However, it's worth noting that the cash flow numbers can be slightly misleading due to high working capital consumption in 2022 as we worked to ensure a reliable supply chain for our customers. On to our dividends, we issued a fifth dividend of $0.38 per share in December, marking the fourth supplemental dividend since going public in the late 1980s. Our approach has always been to look out for our shareholders’ liquidity needs, especially during uncertain economic times. We’ve consistently paid out dividends when we have excess cash, even through tough periods like December 2008, when we faced a financial crisis. We invested heavily in inventory during 2021 and 2022 due to erratic supply chains, which led to significant cash consumption. Thankfully, conditions have stabilized, allowing us to replenish that cash in 2023, and we expect to continue generating strong cash flow moving into 2024. Our balance sheet remains conservative, providing us with ample resources for future opportunities. Turning to Page 4, we recorded 58 Onsite signings in the fourth quarter of 2023, a modest figure. The market seemed to tighten towards the end of the year for new signings, which may have influenced our results. We finished the year with 1,822 locations, a 12.3% increase. Despite challenges, we are aiming for 375 to 400 new signings in the upcoming year, and our team is focused on achieving that goal. In terms of FMI technology, we had a productive year, averaging 95 device signings per day, nearing our goal of 100 a day. Next year, we plan to sign between 26,000 and 28,000 devices. E-commerce continues to grow significantly, now accounting for about 25% of our sales, up from just 5% a few years ago. Our digital engagement, which includes various technologies and our e-commerce platform, grew from 36% of sales in January 2020 to nearly 59% today, signifying our ongoing commitment to enhancing customer interactions. On Page 5, this will be the last time you will see this particular chart, showcasing our in-market locations, which have grown by 3.5% to 3,419 over the past year. Back in 2015, only about 9% of our in-market locations were Onsite. This model, which began more out of necessity, has since evolved into a significant growth strategy for us, allowing us to engage more closely with customers. In the last decade, the CAGR in our primary markets has risen to approximately 8.2%, a testament to the effectiveness of our strategy in transitioning from traditional branches to Onsite locations. While we've reduced the number of our branches, we now have more Onsite locations, demonstrating a shift that has resulted in substantial revenue growth in this segment. Today, this business contributes about $1.1 billion to our overall revenue, approximately 15% of our total sales, showing the benefits of this strategic change. Thank you for allowing me to share this perspective, and now I will hand it over to Holden.

Great. Thank you, Dan. Good morning, everybody. I'm going to start on Slide 6. Total and daily sales in the fourth quarter of 2023 were up 3.7%. The quarter finished strong with daily sales in December being up 5.3% and outperforming historical sequential patterns. Much of this strength relates to our warehousing end market, which represents sales into the fulfillment centers of retail-oriented customers. This end market has grown significantly for us since the pandemic, helping to diversify our end market exposure and representing 3% to 4% of sales in 2023. It also grew 45% in the fourth quarter and roughly 60% in December. So strength in this end market was a significant contributor to the performance of our other end markets and our safety products categories in the period. Now if you remove warehousing, our sales results continue to reflect sluggish demand. For example, our manufacturing end market continues to grow but at moderating rates, while our fastener product line experienced contraction in MRO, and for the first time this cycle, OEM products. Trends in these markets and product categories tend to be more reflective of cyclical trends and are being impacted by PMI readings that remain sub-50 and soft industrial production, particularly for key components, such as fabricated metals and machinery. This setting is matched by muted feedback from regional leadership. But if conditions didn't get better in the fourth quarter of '23, they didn't get worse either. If we adjust warehousing out of our November and December daily sales rates then the months would still have been very slightly ahead of normal sequentials. As was the case in the third quarter of 2023, pricing was consistent and positive and within a typical range of 0% to 2% with modest deflation within our fastener line. With the usual caveat that our forward vision is limited, we are constructive about 2024 with easier comparisons, channel inventories being in good shape and generally favorable customer outlooks from regional leadership. Entering the year, though, business activity remains subdued. Now to Slide 7. Operating margin in the fourth quarter of 2023 was 20.1%, up 50 basis points year-to-year and achieving a 33% incremental margin. We view this as solid execution against the backdrop of soft growth and low seasonal volumes. Gross margin in the fourth quarter of 2023 was 45.5%, up 20 basis points from the year-ago period. We had year-over-year margin drag from product and customer mix, though the effect did moderate sequentially. This was offset by slightly higher fastener product margins and freight margins, though the impact of the latter moderated meaningfully from the prior quarter and we had slightly positive price cost. Our view of price cost is unchanged from what we described in the third quarter of 2023. It does not reflect any incremental pricing actions in the most recent quarter but rather the recapture of the negative price cost that we had discussed in the fourth quarter of 2022. Our objective remains to be price cost neutral over time. SG&A was 25.3% of sales in the fourth quarter of 2023, improved from 25.7% in the year earlier period. This amounts to small improvements in a lot of areas rather than significant improvement in just one or a few areas. For instance, more favorable comparisons and good expense discipline produced flattish costs and modest leverage around selling related transportation, information technology and spending on travel, meals and supplies. We experienced modest occupancy leverage as a result of vending devices used in a past lease locker program passing their depreciable lives. These were joined by contributions stemming from improvements in our supplier contribution and collaboration programs. The Blue Team did a nice job tightening spending over the course of the year as business activity continued to slow. Putting everything together, we reported fourth quarter 2023 EPS of $0.46, up 8.4% from $0.43 in the fourth quarter of 2022. Now turning to Slide 8. We generated $354 million in operating cash in the fourth quarter of 2023 or 133% of net income and $1.43 billion in operating cash for the full year of 2023. Both dollar amounts represent record operating cash generation that was driven by reduced working capital needs. This produced strong cash balances that allowed us to pay a supplemental fifth dividend in '23, putting cash returned to shareholders through dividends at $1.02 billion for the full year. Even with this, we finished 2023 with a conservatively capitalized balance sheet with debt being 7.2% of total capital, down from 14.9% of total capital at the end of 2022. Working capital dynamics were similar in the fourth quarter of 2023 to what we experienced throughout the full year. Accounts receivable were up 7.3%, which is primarily a combination of total sales growth and a shift in mix towards larger customers, which tend to have longer terms. Inventories were down 10.3%, owing primarily to the effects of slower customer demand, the unwinding of inventory layers built a year ago to manage supply constraints, our field and hub operations, sustainably streamlining inventory processes and modest inventory deflation. Net capital spending in 2023 finished at $161 million, little changed from the $162 million in 2022 and below our forecasted range of $180 million to $190 million. This shortfall has less to do with deliberate project deferrals than it does the slower business activity reducing the need for certain investments to support immediate growth and timing delays outside our control for certain expenditures. Our net capital spending expectations in 2024 is a range of $225 million to $245 million, which reflects catch-up spending for hub automation and capacity, the substantial completion of an upgraded distribution center in Utah, an increase in FMI spend in anticipation of increased signings and information technology. 2023 had its successes. While acknowledging that we didn't hit all our goals, we nonetheless closed the year with a higher installed base of Onsites and FMI devices and a greater proportion of our sales moving through our Digital Footprint. The organization adapted to one less selling day and slower growth than originally anticipated, effectively controlling expenses and defending our operating margin. We improved our balance sheet and produced record operating cash, which allowed us to return record capital to our shareholders. Where we fell short of our expectations was in our ability to generate stronger sales growth. However, we are enthusiastic about the leadership changes made to our sales operations in 2023 and regardless of macro conditions, expect these to lead to improved market share gains in 2024.

Before we start the Q&A, I want to share a few items from a conversation we had this morning with our senior leadership across the company. We discussed a recap of our Board meetings over the past couple of days, thoughts on the quarter, and insights for 2024. First, regarding the P&L, Holden mentioned some points, and I'll present them as we discussed internally. Looking at 2023 and moving into 2024, this is the last year we’ll face branch closings. These closings free up some occupancy, though we've noticed that consolidating locations sometimes leads to increased costs due to higher demands for space, especially since many buildings became attractive for e-commerce distribution during COVID. While we've seen some occupancy savings, we need to be mindful of the challenges ahead in 2024. Consolidating locations is a significant effort and can distract from our business and customers. Now that this distraction has passed, it’s crucial to convert our focus into sales activity to grow the business. In 2023, we benefited from lower bonus payouts, positively impacting the P&L but not for our team members. As 2022 was a strong year leading to higher earnings, the drop in those earnings in 2023 affected bonuses. We do not expect this benefit in 2024 since we anticipate the P&L will not perform as it did previously. Thus, we must concentrate on other areas to drive growth. Another point, as Holden noted, is related to vending depreciation. We experienced a decrease that will also favorably impact the upcoming quarters until we reach the anniversary of that change. I challenge everyone on the call, whether in sales or elsewhere, to focus on helping our branch and onsite locations achieve their goals. I have to thank John Soderberg for placing a sign aimed at motivating our teams to reach their sales targets for 2024. Our mindset is clear: we want to improve from 2023, and the best way to do so is to accelerate our growth. I also want to recognize our team's efforts in ESG. In the past, our frugal operating style held us back, but we’ve learned to better communicate our activities. I'm pleased to report that we recently improved our EcoVadis rating from bronze to silver, which is a commendable achievement in our sector. Lastly, I visited our shop this week to honor Tim Borkowski, who retired after 29 years of leading our manufacturing team. He was known for his thorough tours, and I had a great conversation with him. I reminded our regional leaders that during COVID, we engaged customers with virtual tours, but we've lost that momentum in recent years. I encouraged the team to showcase our capabilities, as we have 1,822 Onsites and plan to sign close to 400 in the coming year. If each Onsite conducted tours throughout the year, we'd leverage our internal manufacturing capabilities, which are significant, accounting for 9% to 10% of our fastener sales, making us unique in the eyes of our customers. Now, I’ll end my remarks and open the floor to questions.

So one of the things about looking at data inventories less orders would suggest PMI should be over 50. So when you look at your end markets, can you see pockets where this is starting to validate that thesis?

For the most part, no. The feedback from the regional leadership has been fairly consistent through much of the year, much of the back half of the year, which is that our customers remain cautious, they remain fairly tight with their spending. I will say that I think that when I asked the leadership about what their customers are saying about 2024, I would say that the forward-looking statements are probably, on balance, more optimistic than the current statements. I also suspect that's always true. But if I look at the markets that are sort of shared with me through regional leadership, in general, I don't think there's been much of a change over the past three to six months.

And then you all have consistently talked about sort of price of zero to 2%, market share is 5% or better. We've had a little bit of metals inflation at the end of the year. Do we trend to the higher end of that zero to 2%, and then what is your confidence about 5% or better in market share?

In terms of inflation, I mean, we keep track of various steel indices. I would say that sort of the Chinese and Taiwanese industries are probably more relevant to us than, say, the US or European ones are. In general, yes, there's been some wiggle and some movement. But if you take the longer view, that wiggle and movement is kind of within the context of, I think, fairly stable steel pricing over the last six to 12 months. So I haven't heard anything suggesting that we believe that steel pricing is a catalyst to incremental price increases going forward. The other thing to remember, Michael, is when you think about the total value of a fastener, only about, I believe, 30% of that is actually in the raw material itself. By the time you sort of wrap on to it, the cost of transportation and various other elements of value add, processing, it's just not a huge piece. So I'm not hearing anything to suggest that the environment is moving back to an inflationary one, with possibly one exception. I think that there's been a lot of global conflict around the Suez Canal. I hear about, a lot about very little water in the Panama Canal. And we are beginning to see shipping costs start to tick up again. I don't know how durable that will be, I don't know how far that will go. It's not creating any actions today, but that is something that we're watching fairly closely.

One thing that was an interesting update we had this week, our Head of Transportation, we've done a lot of work over the last several years to improve our own ability to track product. So if I'm in a branch, I can pull up a screen now. And if I'm looking for some product, I can look at it and say, 'Oh, the truck that's bringing that is in the middle of Nebraska and it's going to be here in 30 minutes.' It could be here in 3 hours or it might be on a container. And we've gotten to the point now where we're tracking it where we're seeing it at the container level. So he pulled up the screen the other day and the number of dots you saw on the map that went around the southern tip of Africa were meaningful. And I didn't see any dots that went through the Suez Canal on the product we were moving. And that just was a snapshot at that point in time in the information.

So something to watch. And then as it relates to market share, this year has been unusual. In that we didn’t achieve market share at the levels we expect of ourselves. I don't think it reflects a change in our cultural attitude. We think that ultimately gaining market share is what we're here to do. Structurally, we still have the tools to be able to do it. And I think we made changes to our approach and our leadership in the past six to eight months, which have us very enthusiastic that we're going to kick that market share machine back up in 2024. So we expect it of ourselves, let me put it that way.

First question, I did want to ask you about these shipping containers. Clearly, we've seen an uptick. But is it primarily or is it focused on those containers that are coming through the Red Sea or Panama Canal, or is there any impact that rolls over on those containers coming directly from Asia to California today? Just thinking about where your main exposures are and how we should think about that if it does extend.

Yes, I think you may have caught me with a question that's more granular than I studied, to be honest. What I can tell you is we've seen an uptick in recent weeks, a meaningful uptick in the cost of a container. How that looks route by route, I don't know.

A lot of our products come through the West Coast. In recent years, as our volumes have grown, we have been bringing more containers to the East Coast, specifically to our facilities in North Carolina and Atlanta, since we are bringing in full containers. However, historically, most of our product has come through the West Coast.

I think this is likely some speculation, but I would say that the disruption moving from China to the West Coast ports is less than the disruption moving in the opposite direction. However, if the existing capacity is going to be used for longer trips, it will stress the entire global network, which will ultimately affect our costs, and that's what we've started to observe. Again, it's very early, and we don't know how this will play out, but it's something we're monitoring.

And then second, on channel work, we've been hearing about some suppliers cutting the number of distributors they deal with. And I'm wondering, have any of your suppliers actively consolidated their distributor partners that you know of?

I'm not aware of any suppliers consolidating their distributor partners, but it wouldn't surprise me. The growth is coming from fewer sources, so it's possible, but I don't have any specific information.

Over time, there has been gradual consolidation in terms of who we work with and engage with. We have an extensive list, but there are tiers, and our higher tiers have consolidated slightly as relationships evolve. However, I haven't heard of any recent or deliberate initiative by suppliers to consolidate.

I guess Onsite sales growth in the quarter was only slightly ahead of company average rate, which is a notable slowdown versus past performance here. I mean, do you think that's kind of a one-off due to some of the customer plant shutdowns exiting the year? I guess, how much or how little should we really make of that lower Onsite sales growth rate in the quarter?

It's relevant. We've mentioned that our signings this year were below our expectations. Earlier in the year, we benefited from signings that were higher than the previous year, which was impacted by the pandemic. Now, as we reflect on those earlier signings and consider another year where our signings are slower, it's natural to see that effect play out. It seems to me that this largely relates to the pacing of our signings. We appreciate that our Onsite continues to grow and our installed base is expanding, but the pace of signings has not met our expectations, and that is evident in the current situation.

One thing I think I've shared in prior calls, I have conversations with all of our district managers throughout the course of the year. And one thing that I've seen that's changed is our average DM has the opportunity for about 60 Onsites. And so we're having these conversations. You could tell the ones that were really dialed in, the ones that aren't. The ones that are really dialed in are sitting there with, 'Hey, here's my number of potential, here's what we have, the top, the form that's warming.' And how good they are at communicating that tells me, 'Hey, do they have a plan that you feel comfortable with to come into the year with their pipelines to give them a couple of Onsites?' With 240 district managers, if a high percentage are a really good plan to give them a couple of Onsites, maybe some have three, maybe some have one, but consistently a couple of Onsites, you're at your number with cushion and you feel good about what's your pipeline.

I might also say, the answer to office comments, talking about how the year was marked by two things. One was difficult markets, the other was execution. I think I described the part of it that was the execution. The other thing to think about is if you look at where industrial production has weakened, it's really weakened in sort of the machinery and fabricated metals parts of the industrial production spectrum. And those are areas that are relevant to us as a company but they're particularly relevant in that Onsite world. And what we saw in the fourth quarter, to give you a sense, is all year, we've had a fairly significant gap between OEM fastener growth and MRO fastener contraction, which is a reflection of the Onsites coming on. In the fourth quarter, that gap narrowed appreciably. And I think what you're also seeing is simply the relative weakness in the machinery and fab metals is having a disproportionate impact on areas that disproportionately impact the Onsites. And so I think, again, it's a combination of market and our own execution.

And I guess maybe just touching on that last point. As those growth drivers impact gross margin, we saw that mix was better this quarter. If these current trends hold, I guess I would assume kind of the same story for '24. I guess how do we think about the impact of mix on gross margin in this year kind of as you see it today?

I think I try to predict what mix will be every year, it's a fairly thankless effort to be quite honest. But I think I've used like 50 to 70 basis points in the past. I think it will be less than that, and I think it will be less than that for a few reasons. One, we talked about fewer branch closures. If we have fewer branch closures, I think the rate of attrition in our smaller customer set will also slow. So you won't have the same order of magnitude impact from that. We have had slower Onsite signings. And again, that ripple effect, I think at least in the earlier part of the year, that's going to put less pressure on the channel mix impact. I would also point out that over the balance of this year, you've had a dramatic difference in growth between fasteners and non-fasteners, and maybe there's a little element of both comparison and market here. But I would wager that next year that gap is not going to be as wide, and that would relieve some pressure off of the product mix element as well. And so I still think mix will be negative; it's just the nature of our growth drivers. But I don't think it will be as negative as sort of the normal 50 to 70 that I've talked about in the past; I think it could be narrower than that.

Just wanted to touch on the color on some of the warehousing demand that you saw this quarter. Just curious what really drove that increase, is that really new customer acquisition, is it gaining market share with existing customers? And I know it's small for you now, but just where do you think that could go in terms of mix longer term?

Over the past five to six years, we have made a significant effort to pursue that business because our vending platform and our expertise in safety create a natural partnership opportunity with those customers. We have experienced substantial growth in this area. Looking at it more closely, there are several factors at play. While I wouldn't say it's solely due to customer acquisition, we are continually adding locations with our customers as they expand. Our deeper penetration into the market has been aided by instances where we stepped in to support when other suppliers couldn't deliver, which strengthens our position as a reliable partner and helps us gain market share, as clients prefer to work with dependable suppliers. This has been beneficial for us, especially as these customers have a robust business environment and an increasing demand for our products. We have also had unique opportunities to provide specific products they needed, sometimes focused on their employees' safety or logistical needs, making us well-suited to assist them during the quarter.

I want to highlight a couple of points. Before the pandemic, the warehousing sector accounted for less than 1% of our sales. Often, we’re asked how we’ve improved our business in the post-pandemic landscape. This is a case where we retained business that we gained during the pandemic. We appreciate having that customer base involved. Additionally, I mentioned that the market saw a 60% increase in December. However, Christmas is not a monthly event, and the presents given today do not hold the same commercial value. Therefore, I do not anticipate that level of demand from this customer base as we move into 2024, compared to what we experienced during the last holiday season.

Just for my follow-up here. Just looking at the seasonal benchmark for this year, just assuming that '24 follows that seasonal benchmark as a baseline. It does imply quarterly ADS steps up pretty strongly here and call it, the high single-digit range in the back half. Just outside of the comps and the normal seasonality, I'm just trying to weigh that against maybe the slower Onsites and how that maybe ramps through the year. Is this anything to suggest that sales wouldn't necessarily follow those trends that we should be kind of aware of?

I'm not going to predict the DSRs for January, February, and March. What I can say is that Onsite activities might have an effect. I'm not sure how it will specifically impact January. There's definitely a lot of value in understanding these trends, but there's also a considerable margin of error when you're looking at just 20 days of activity and trying to draw significant conclusions. Over several months, Onsites might grow a bit more slowly without market improvements due to some of the signings. However, we're also noticing an increase in sales activity in non-Onsite national accounts, which could contribute positively. There are many factors at play, making it hard for me to definitively predict whether we will exceed or fall short of those DSR benchmarks.

Probably the piece that I'd throw out on that, it relates less to the question per se and more to an example. So we had our Board meeting the last couple of days. And one thing I ask of all of our leadership team is, hey, be in one of the week of the Board meeting. You spent some time with your teams, with other folks and be here because we participate in the Board meetings in person. We had one person that wasn't here because he was sitting at an airport in Nashville, Tennessee, and there was 8 inches of snow. And so he participated remotely and I was sitting with him this morning, and he's kind of freaked out right now because the winter weather has not been our friend in January. And it's not been our industry's friend; it's not been our customers' friend. In fact, I received a picture the other day, it was actually from a supplier in the Memphis area, so a little bit further west from Nashville. And had a picture of their warehouse, their distribution facility and their head of sales sent it over to our traffic manager and said, 'Every truck that was coming and picking up product that they canceled, except for one.' And he said there was a blue Fastenal semi that was here 15 minutes ago; I'm sorry it wasn't in the picture, but it was great to see you guys still run it. And so the weather is hammering the month pretty hard. Well, there's a lot of months left; we'll see how we dig out, no pun intended. But our distribution network is working; that's a beautiful thing and that truck was there to pick up product.

Yes, the weather is not our friend right now, that's for sure. So just going back to the Onsites and it seems you firmly believe this is more of a cyclical factor. You called out the networking kind of factor there. Is there anything structural here that we need to consider, maybe some of the e-com cannibalization? MSM is talking about their implant offerings as well. I'm just curious if there's a bit more, I don't know, pockets of structural headwinds here we need to consider?

When I consider Onsites, e-commerce doesn’t really come into the picture. What Onsite represents is us stepping into the customers' shoes and managing operations within their facility for tasks they may have previously handled themselves, without the same level of expertise, tools, or supply chain visibility that we offer. We provide the Onsite operations with all the tools available, such as vending machines and technology-enabled bins or scanning areas, leading to a much more efficient operation. This is related to logistics as much as it is to ordering, because, frankly, when there's an Onsite involved, the products processed through FMI—which is a significant portion of Onsite business—haven't been actively ordered by customers. Consequently, e-commerce isn't the focus here. It tends to be more relevant for smaller customers, as they often purchase in a manner similar to how we do—primarily online. Additionally, we noticed this change in market behavior during 2020, when remote work increased; people began to order more products online than they had previously, since deliveries to facilities may have led to spontaneous orders, whereas individuals working from home tended to use the phone less and relied more on their computers.

I would also say that I don't necessarily agree with the idea that there's competition between Onsites and e-commerce. The truth is that our e-commerce business is a combination of EDI and web sales, along with various digital engagement methods. Approximately 50% of our e-commerce sales are made through Onsites. Therefore, I don't think customers approach this with a singular channel in mind. Instead, they are seeking a variety of solutions to address different needs, and I don't see them as being in conflict.

But a high percentage of that e-commerce you're talking about is EDI…

Yes, although showing me 35% to 40% of our web is also running through Onsites.

Are you noticing areas of competition in the Onsite market? One of your major public competitors is discussing their implant products. Dan, you mentioned that the growth in 2023 was below your expectations. Do you believe that in 2024, you will return to growth rates of around 5 percentage points above the market?

Coming into the year, that would be our expectation. But as far as competition, we have competition in everything we do. There's a lot of companies out there that we compete with other local businesses that do Onsite. What they don't have is maybe some of the tools. And a natural strength to our Onsite model is the fact that we have the branch network, because what's really difficult and where a lot of organizations fail on pieces of Onsite, we have a natural density of people. So let's say you have an Onsite with two employees. Well, let's say one employee's out on maternity leave, let's say one employee's out on vacation, let's say there's turnover. How do you replace that? Well, if you have 50 Fastenal employees that are in this market, it's Omaha, it's up in the Twin Cities, and we have more than 50 in the Twin Cities. But if you have employees in this market, you have redundancy to support that Onsite. So we have a natural advantage in that marketplace versus not necessarily a local competitor but a national competitor because we have a footprint.

And maybe the only other thing I would add, this is largely anecdotal. Again, I sort of asked the regionals how things are going every month. And they sort of just freewheel give me answers. And oftentimes, there's comments about our competitors there, sometimes it's favorable to us, sometimes it's not favorable to us. What I can tell you is I haven't noticed any difference in the cadence of that conversation over the course of this year. So I mean, if part of the question is, are you seeing things intensify, I haven't gotten that from the feedback from the field.

So I have two questions and I'll just ask them upfront. The leadership changes, Dan, what changes did you make and why are you confident that that will accelerate the share gains? And then second question. Can you clarify the tweak to the business model where are the front doors open now on all of the branches? And I think the question I'm getting asked is, could that help sales in '24 or is it not that impactful?

First off, we made several changes. We restructured our National Accounts team, moving some people around, and some individuals are now in different roles. We also had changes in our regional leadership, which were not necessarily performance-related but more due to natural transitions that occur over time. Now, the US is under one leader, whereas for the past 15 years, the eastern and western parts of the United States had two different leaders. Over time, economic factors and personal dynamics have influenced business operations. If I were to describe the differences between the Eastern and Western US, I would note that both have been led by highly successful leaders, but they approach success differently. The Western US has historically been innovative, particularly with Onsites, especially in the Midwestern region, which is more established and had to find new growth strategies. As a result, that region is likely more adept at engaging deeply with large customers. I suspect that the Western US has a larger portion of the manufacturing business compared to the Eastern region, but I may be mistaken. On the other hand, the Eastern business unit excels at acquiring new customers and expanding their businesses, stemming from strong leadership and industrial activity in the area. Regarding our operations, our front doors are open. Although there have been times when they were closed, it was not a widespread issue. The closures were limited to specific states due to stringent regulations, such as in California and possibly Louisiana. We've operated under these conditions in Canada for years because, as a wholesaler, retail transactions were not permitted. While our front doors are open, we have a very different business model, and we experienced faster growth in Canada. I hope that addresses your question.

And I think a couple of pieces of perspective I might add. I mean, Dan touched on it. When we started this process, we had a lot of different experiments in the field going on, right? Some people closed, other people didn't close; some people flipped counters, et cetera. Some people stuck with the traditional, the older CSP model. And I think we wanted to come up with a more consistent model. And so having had the opportunity to evaluate all the different things we were doing, we wanted to sort of consolidate under sort of one approach. We have a lot of customers in a lot of places that share a company and we want to make sure that we weren't creating conflict in that regard. So that was part of what went into that. As it relates to the impact on growth, bear in mind that if you're talking about accounts that are smaller accounts, which tends to be what that walk-in is, because when we're talking about our larger customers, we're typically going to their locations. It represents mid-single digits of our total revenue. So do you get some incremental revenue from that? In all likelihood, we will. I wouldn't overstate the overall impact to growth. It could contribute something at the margin, but I wouldn't overstate the potential of that.

Most of our revenue, we don't even know where our location is.

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