Welcome to the Fastenal 4th Quarter and Annual 2025 Earnings Results Conference Call and Webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star 1 on your telephone keypad, and we ask that you please ask one question and one follow-up, then return to the queue. If anyone should require operator assistance, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It's not my pleasure to turn the call over to Dre Schreiber.

Please go ahead. Welcome to the Fastenal Company 2025 Annual and Fourth Quarter Earnings Conference Call. This call will be hosted by Dan Flourness, our Chief Executive Officer, Jeff Watts, our President and Chief Sales Officer, and Max Tunnicliffe, our Chief Financial Officer. This 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 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 1st, 2026 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.

Jeff Watts. Good morning everyone, thank you for joining Fastenal's fourth quarter 2025 earnings. I do want to take a moment to thank the Fastenal Blue team and our employees across the world for their performance and dedication both this quarter and throughout the year. Your commitment and attention to customer needs have played a major role in making 2025 such an exceptionally successful year for Fastenal. So for that, thank you very much. Now let's jump into our results. Now Fastenal delivered a strong 2025 recovery. We achieved double-digit growth in Q4 with daily sales up just over 11% and we continue to gain market share despite a sluggish industrial economy. This marks our second consecutive quarter of double-digit growth but our success is not just about favorable comparisons. It's driven by continued progress on our strategic objectives and they start with increasing our sales and we're winning with key accounts and new contracts. Our focus sales strategy is yielding share gains, we're signing more national and global contracts, and we're deepening relationships with existing large customers. In 2025, our total contract customer count grew by 241, or just over 7%, reflecting solid new customer signings and expansions. These partnerships with big customers are a core driver of our growth. When we think about enhancing our services, we've continued to expand our suite of value-added services particularly our digital in 2025 we significantly grew our installed base of fmi devices and strengthened our digital footprint which combines our e-commerce industrial vending and bin programs but by focusing and investing in these platforms we're improving the customer experience and increasing retention in fact nearly half of our q4 sales were transacted through fmi technology or other digital channels really underlying how crucial these services have become to our customers. Key competitive advantage for Fastenal and it makes us stickier with our customers and more operationally efficient. It also provides our customers with ongoing insight regarding product consumption. You know, insight we're uniquely able to provide in a wide range of locations. During Q4 and really over the course of the year, we continue to win new sites, new markets, and we strengthen our presence in manufacturing. We also continue to grow the range of services of products we delivered through our solution suite. Before financial performance, Our net income increased 12.2% year-over-year to $294.1 million, with earnings per share of $0.26. In 2005, we achieved record annual sales of $8.2 billion, up close to 9% versus 24, and net income of 1.2%. We did see a decline in the count of the smaller customer sites, 2-5K customer sites, but 94% of the under-5K decline was manufacturing and markets, for instance, are heavy in general and industrial because of our service model, including the FMI technology and my devices in the quarter. And that signing pace was slightly below the exceptionally strong Q4 of last year. But Jeff, and I'm excited and thankful to be part of this team. Today,

I'll cover business and market trends, as well as a few points about where we're thinking on 2026. Let's start with the business trends and market drivers slide. Looking at the broader operating environment in the fourth quarter, the U.S. economy continued to send mixed signals, especially in the industrial sector. While some areas showed resilience, others faced continued headwinds that impacted demand and supply chains. U.S. PMI and industrial production remained mixed in Q4, with heavier manufacturing segments showing relative weakness. PMI average was in the low 48s for the quarter, while industrial production was close to flat compared to last year, although with some improvement late in the quarter. Despite the softness, as Jeff mentioned, our daily sales rate remained strong in Q4, up slightly over 11%. This growth was driven by several factors. New customer wins, increased share of wallet with existing customers, and our continued focus on operating more effectively overall. Importantly, customer sentiment remained favorable, even against the backdrop of trade and tariff uncertainty that that has characterized much of 2025. As in prior years, the timing of the December holidays had a meaningful impact on our Q4 results. Just like last year, Christmas and New Year's fell midweek, resulting in a similar pattern of extended customer shutdowns and compressed shipping windows. This led to, for a second year in a row, below normal sequential growth in December, as the industrial customers paused operations for longer stretches around the holidays. Sales to our manufacturing end markets outperformed other markets on a relative basis, led by growth in key accounts. Other segments, such as construction, education, healthcare, transportation, and data centers also saw positive momentum. Our fastener product line growth outpaced non-fastener categories again this quarter. This was driven by several factors, successful signings of large customers, improved product availability due to strategic and thoughtful inventory investments, and targeted pricing actions that balance competitiveness with profitability. Turning now to pricing, our approach during the fourth quarter remained disciplined and responsive to the market. We implemented targeted price adjustments across select product categories, bringing our year-over-year price increase impact to approximately 3% for the quarter on matched product. These actions were designed to offset higher input costs, which they did, while remaining competitive in a challenging environment. We also continued to use data-driven pricing tools to identify opportunities for tailored increases, ensuring we maintained customer loyalty and minimized volume attrition. To summarize this slide, while the macro environment remained unpredictable, our diverse customer base, our focus on key accounts, and specific strategic initiatives allowed us to capture growth opportunities and strengthen our market position. Now, I'll move to our margin performance and driver's slide to talk about profitability. Gross margin decreased 50 basis points in the fourth quarter of 2025 compared to last year, driven by timing elements within our cost of goods sold. These timing factors included the relief of certain inventory-related working capital, which caused related costs to move through the P&L more heavily in the fourth quarter. Additionally, the timing of supplier rebates negatively impacted gross margins. It's important to note that these effects do not indicate a change in our underlying cost structure. Related to tariffs and pricing, our net price cost impact was nearly neutral for the quarter, coming in at 10 basis points negative. Our teams actively manage tariffs and input costs to defend profitability using a combination of data analytics, and sourcing strategies. Throughout the year, our fastener expansion project was our largest positive contributor to gross margin, allowing us to maintain flat gross margin levels year over year on a full year basis. This project will anniversary in the second quarter of 2026. As a reminder, this project did a number of things. It helped us capture higher margin business, and it drove cost savings initiatives, such as price negotiations, consolidating purchases with preferred partners and optimizing sourcing. These actions directly reduced costs and increased efficiency. The benefits from the faster expansion project mitigated the dilutive effect on gross margin of the ongoing shift toward larger customers. As discussed in the past, these accounts tend to generate higher volumes but at lower gross margin rates. We're comfortable with this trade-off as these relationships provide long-term stability and open doors for cross-selling and deeper integration. And the negative impact at the gross margin level is offset at the operating margin level through efficiency gains and cost leverage. Regarding 2026 gross margin, please remember that our fastener expansion project will anniversary after Q1. And so the modest annual gross margin contraction that we've seen historically should be considered in thinking about our 2026 performance. However, we believe this modest contraction will be offset within SG&A as we find efficiencies and further leverage our fixed costs. Now back to 2025. SG&A was 25.4% of net sales in Q4 of 25 compared to 25.9% in the previous period. This demonstrates strong ongoing cost discipline as we more than offset the reload of incentive compensation and our ongoing investments in technology, analytics, and sales support. In addition to our strong sales growth and disciplined expense management, We increased our return on invested capital by 90 basis points on a trailing 12-month basis, reflecting our approach to capital allocation and our commitment to maximizing asset productivity. In total, our performance demonstrates that we can invest for growth while maintaining a sharp focus on profitability, even as our mix involves, and we pursue larger, more complex Turning to the cash flow and capital allocation slide, operating cash flow is approximately $370 million, representing 125% of net income. Cash generation remains strong, even as we added working capital to support growth, but on a more efficient basis year over year. Accounts receivable in inventory rose 8.7% from last year, reflecting our expanding customer base, growth with existing customers, and our fastener expansion project. Accounts payable increased primarily due to inventory growth. Net capital spending for 2025 was $230 million, which was 2.8% of sales with investments focused on strengthening our Fastenal Managed Inventory, or FMI, hardware capabilities, upgrading facilities, advancing IT infrastructure, and expanding our vehicle fleet to support field operations and deliver efficiency. Regarding CapEx for 2026, we will increase our investments to to support our growth expectations. We plan to invest in hub capacity, additional FMI device purchases and IT enhancements with CapEx expected to be approximately three and a half percent of net sales. These investments are designed to drive efficiency, scalability and customer value. During 2025, we returned just over 1 billion in dividends for the full year, accounting for approximately 80% of net income. Reflecting our confidence in cash generation and our commitment to returning value to shareholders. Overall, our capital allocation follows the same framework you've seen from us. We invest in FMI hardware and hub automation to drive throughput and accuracy. We invest in IT and digital capabilities to improve customer experience and sales productivity. And we invest in fleet and facilities to sustain service levels. We return cash through a consistent dividend, and we remain opportunistic on buybacks. Our balance sheet remains conservatively capitalized, preserving flexibility to continue investing in growth. So in closing, I'll just summarize my portion before turning it over to Dan. In 2025, we delivered continued share gains through our key account strategy and new contracts, expanded our FMI technology and digital footprint, and deepened our business in manufacturing and non-manufacturing segments. Gross margin was protected, mainly due to our fastener expansion and supplier initiatives, while operating margin benefited from disciplined SG&A management. We generated strong cash flow with capital allocation focused on growth, technology, and shareholder returns. These accomplishments put us in a good position for continued success in 2026. Thank you. And with that, I'll turn it to Dan.

And you see that in our number, year by 90 basis, really not an $8.2 billion organization. $3.4 million a year. Three key objectives.

And I'll be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. And as a reminder, we ask you, please ask one question and one follow-up, then return to the queue. Once again, that's star 1 to be place in the question queue. One moment, please, while we poll for questions. Our first question is coming from David Manthe from Baird. Your line is now live. Thank you. Good morning, guys.

First off, double-digit net sales growth in 2026, that looks an awful lot like guidance. I'm just

wondering, are you guys feeling okay up there? About the year. Well, so along those lines,

Dan, let me peel that back a bit. You've given us, of course, you're looking for large customer wins. You've given us this machine equivalent unit goal that you have. But I guess when we see that type of target, I guess putting it together with the 10% share gain and the price you're getting, could you just sort of peel it back for us and talk about just the broader economic assumption that underpins that as well as what type of price contribution you're expecting. I hope that's not going too far. That's sort of fundamental to what you're talking about

here. It's good to hear, Dan. All right, thank you. And then my follow-up on the rebate timing

factors. Could you talk about what exactly that is? What was the impact, you think, on the fourth quarter? And then does that unwind in the first quarter? Just the dynamics around that factor.

I'm going to help Max on this.

So, Dave, there's a couple things to consider, first of all. This supplier rebate was a positive true up last year, and it was a negative true up this year. And additionally, compared to the previous couple quarters, this is a – typically, these are annual amounts that we estimate earlier on in the year, and we bake those into our run rates. And so we had a little bit of a, call it, little slight overstatement in Q2 and Q3 as well. So this is, again, just the timing element. It's an estimate. But just to characterize the amount or the size for you, I mentioned in my talking points that the year-over-year drop of 50 basis points is made up of this as well as some inventory timing cost flows. The supplier rebate is the bigger of the two portion. And so with that, we expect that this can to completely normalize going forward.

All right. Appreciate it. Thank you both.

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

Hey, everyone. Thanks for the question. I wanted to start off on incremental margins for 26. I hate to lead the witness, but I was thinking high 20s with double digit top line and then lapping the reload of incentive comp.

But curious for any color. OK. That's great to hear. And then my second question, just back to price, it has built slower than I think you and we expected. And I just want to be clear on why that's the case. Is it that the suppliers aren't raising as fast as you expected? Or is there other reasons? All right. Thanks. I'll pass it on.

The next question is coming from Tommy Wall from Stevens. Your line is now live.

Good morning, and thanks for taking my questions. Dan, you made a comment that you would welcome a green shooter to. I think it's safe to say we all would, but let me ask the question a different way here. Are you seeing any of your large, heavy manufacturing markets, let's say, stabilizing or not getting worse? I'm just thinking auto machinery maybe would be too worth unpacking.

We're not seeing any real decline. It's really flat. We're not seeing a lot of – I mean, I did get the note that someone was mentioning that the economy was slightly improving. I mean, we're not really seeing that, but we're also not seeing any declines in our manufacturing as far as the year-over-year usage.

Yeah. Max, welcome to the call. Appreciate your commentary on some of the capital allocation framework. What I heard sounds very similar, maybe identical to what we've heard previously from Fastenal, But I'm just curious, to the extent you can comment on any different priorities or frameworks you might bring to the role, we'd appreciate hearing a little bit.

No, I would say at this point, you heard me exactly correct. There's not an adjustment in our thinking, but at the same time, you know, I'm two months into the role. And so these are things that we'll look at, but I feel very comfortable and we feel comfortable with our approach to capital allocation. There will always be tweaks. If I wasn't here, there would still be tweaks, and so we would continuously monitor and assess as we go. And then we'll share to the extent that those are material changes, we'd always want to share those.

Thank you. I'll turn it back. I appreciate the time.

Thank you. Next question is coming from Ken Newman from KeyBank Capital Markets. Your line is now live.

Hey, good morning, guys. Thanks for taking the question. Maybe first, Dan, I think you may have touched on this a little bit in your prepared remarks, But I remember correctly, last quarter, one of the takeaways there was, you know, you did give up maybe a little bit of price to support some stronger volume growth and support some market share gains here. Just to clarify, is it correct to assume that you saw that similar dynamic this quarter as well? And if so, maybe some help on quantifying what that impact was.

We need to step it up.

No, maybe to the extent I'm just summarizing a little bit what Dan says we don't need to right now. So this is a time and place assessment assessment for us as we create value. So we're feeling very good with our current approach and no need to get aggressive in that area.

Okay, that's helpful. And then for my follow-up here, Max, just, you know, I think someone had mentioned a headwind to December sales just due to the holiday timing. That's not too unsurprising since I think one of your other public peers had mentioned something similar. But I'm curious, Max, if you had any color on what that impact on holiday timing or extended shutdowns were to ADS in the month of December and how we should think about that maybe normalizing out in January.

Yeah, I wouldn't say we quantified it other than if you just take the sequentials, and Dan did a nice job of explaining why we don't get overly worked up, particularly with the sequentials in November and December. But if you just take those sequentials, you know, last year was like an 8.7, and I think this year sequentially November to December is like a 9.3 in that ballpark, you can back into that potential element there. But we also just saw less activity in the very latter part of December. And so we feel like that will just come back into play in January. We don't look at this as a structural change or touching on our confidence on where our sales are heading.

One thing I'll... Very helpful. Thanks.

Question is coming from Chris Leonard from Morgan Stanley. Your live is now live.

Thank you. I wanted to talk a little bit about price expectations in 26. It seems like there will be incremental price coming. And I know you guys maybe don't want to speak to specific numbers like the prior couple quarters. But could you provide some color just on how material this potential next round of price asks is? you know we obviously see metal prices pushing higher here and i mean is it fair to think 26 price like you know for the full year average would be above 25 levels thank you yeah i'll take

that one dan already said why we don't want to get very specific on this guidance but i would just i guess i'd invite you to look back at our 25 trends and just you can mathematically back into the fact that we will have some carryover pricing impacts. And yeah, will that be substantial? No. And then we can also just say that, and Dan alluded to this already, we will continue to go after pricing. But at this point, it's just such, there's so many moving parts. And based on the way that we've talked about strategizing how we actually put price through the market, it depends on a lot of things it's the input cost and it's the customer behavior so i would just again suggest if you look mathematically we are going to have a positive compare and then we'll of course go for more pricing as well and so at that i think that's where we'll leave it for now and as we go in through each quarter i think we'll get a little bit better view of the world and we'll try to share that as much as we can to the extent we have the confidence on the estimate thank you i appreciate

that. And then, you know, maybe if I could follow up just on the macro, obviously a lot of, you know, choppiness in the data, whether, you know, weather, you know, holiday timing, you know, channel dynamics the last couple quarters. But when you kind of think back and look at the macro or customer end demand, do you feel like, you know, things in January are materially better or worse than they were three to six months ago? Or are we kind of still in this mostly sideways

ways, pattern, looking through some of the monthly volatility. Thank you. Thank you. I appreciate that.

The next question is coming from Stephen Volkman from Jeffries. Your line is now live.

Hi. Good morning, guys. Maybe just a couple of quick follow-ups. I'm curious on slide five, as you look at your e-business, that trend has been decelerating now for a while, And I guess it's been fairly flat as a percent of total. Do you expect that to start to reaccelerate going forward?

Yeah, I mean, that's this is Jeff. Yeah, that's definitely our thought process. I mean, we put a lot of time and resource into relaunching our website. We've put a lot of time not only in the business, but how it actually relates to our FMI and our solution side. So, I mean, it's a big focus for us next year, and we definitely see that to be becoming an increasing number as we move forward, especially in the latter half of 26.

And how should I think about that impacting gross margin or EBIT margin going forward?

EBIT.

Okay, thank you.

Next question is coming from Chris Tenker from Loop Capital Market. Your line is now live. Hey, Chris.

Hey, morning. Thanks for taking the questions, guys. um i guess first one here i'd point more at max i guess just as we look uh at the first quarter gross margin you know typically we see a slight seasonal step up anything to keep in mind that would kind of nudge us off that typical seasonal movement in gross margin here no it's this is an

important topic because there are a couple things so when you just the the step up is fine just keep bear in mind that some of what we talked about in our q4 margins the timing related items so you take that as a factor in q4 of 25 and then then you take your normal step up and then you can also compare against the prior you know prior year q1 as well and so that all should triangulate fairly well for you to give you a general idea at least where we're thinking because even the even the bonus reset chris even the bonus reset which can be a little can potentially be a little confusing is only a year-over-year impact but not a sequential

i think you're thinking about it right that's that's helpful um and then i'm not sure if it's more a jeff or a max question here but thinking about some of the investment spending and investment into 2026 i guess anything one time you need to call out maybe is the fleet refresh in good shape how do we think about vending just anything kind of you know in in the spna

line to think about for 26 here? Some of our bigger investments will be in the distribution space, just as we increase both a bit the size of our footprint, but also the throughput. We definitely have some truck fleet items that we need to push through as well, but that would be less in size. And of course, we distribute through a lot of tech areas like the FMI space. So I would just say, to answer your question, at the top side, it's getting distribution, capacity, and throughput ready for our future, which is here.

Got it. Well, thank you, and best of luck in 26, fellas.

River City, Wisconsin.

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