Greetings and welcome to the Fast and All 2026 Q1 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to our host, Dre Schreiber. Dre, thank you. You may begin.

Welcome to the Fastenal Company 2026 First Quarter Earnings Conference Call. This call will be hosted by Dan Flornis, 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 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 that 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 June 1, 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 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. Welcome to Fastenal's first quarter 2026 earnings call. I'm Jeff Watts, President and Chief Sales Officer, and before diving into the results, I want to take a moment to thank our entire Fastenal Blue team across the world for their exceptional work driving the strong performance you're going to hear about today. I also want to highlight a real success that just happened. It was our recent customer expo where we host over 3,000 customers from around the globe and the turnout and engagement, it was just outstanding. We showcased our latest solutions, FMI technology and digital tools, but what really made it successful was the quality of conversations and the strategic partnerships that were being formed and they were being strengthened events like these really demonstrate why we keep gaining market share we help customers improve their efficiency we help them improve their productivity all is becoming a trusted partner overall like I said it was just a great event and one of our best ones yet so moving into the quarter how slide three you know Q1 was a very strong quarter and a great start to the year we delivered 12.4% daily sales growth, our third consecutive quarter of double-digit growth. Now what's important is where this came from. The industrial economy remains somewhat challenging with U.S. manufacturer PMI averaging around 52.6, which is an improvement but still moderate overall. We really didn't see much of a tailwind. We gained share through focused execution. Largely, we won new business with key accounts. We expanded customer site presence and we strengthened our value-added services and solutions this performance was really powered by our three strategic strategic drivers the first being increasing sales effectiveness and we're winning with key accounts and new contracts we added a healthy number of new national account contracts in the quarter keeping us on track for a goal of roughly uh 250 new signings this year you know our total contract count grew by almost eight percent year over year just over uh 3600 contracts and about 75% of our Q1 sales came from these customers which today were deeply embedded with when we look at our customer site spending 50k plus per month they increased 16.3% year-over-year to just over 2,900 sites at 21% of revenue growth now these sites now account for just over half our total sales our approach to enhancing our services is aligned with our strategic commitment to addressing the specific needs of our larger customers rather than just focusing on a one size fits all approach by focusing more on our 10k to 50k plus sites it enables us to have greater direct integration within their facilities deeper insights to deliver better solutions to fit their needs this targeted focus really allows us to implement and develop deliver more tailored solutions to all of our customers regardless of their size kind of think of it like a trickle-down effect smaller customers may not need all of our solutions will be able to take advantage of the pieces where and when they need them and the impact of this approach can can really be seen their average monthly sales per our 50k plus sites not only are we adding new sites but we're selling more of them as we increase the average monthly sales by 5700 per site per month now lastly expanding our markets as our international sales teams become increasingly more aligned their growth continues to accelerate now in March the international business, primarily Europe and Asia, grew almost 24%, and even though today they're a smaller piece of the pie, this performance is exactly what we want to see as we continue to invest in our global expansion. And after speaking with just so many customers last week from different parts of the world, one thing is very clear. Our solutions, our local presence, and our supply chains are definitely in high demand, and it's really why our growth internationally is so important to our future. So tying this all together financially, our daily sales increased 12.4% to $34.9 million per day for the quarter and our operating margin improved to 20.3% up 20 basis points from last year. That improvement was primarily the result of strong leverage of the SG&A expenses which I believe reflects our disciplined approach to managing costs even as we continue to invest in our strategic growth drivers. Now moving on to slide four. In the first quarter, our digital initiatives continued to gain momentum with our digital footprint daily sales up 13.6%, outpacing overall company growth. As a result, digital channels represented 61.5% of the quarter's sales, and we remain on track to reach our digital mix goals by the end of the year. We also accelerated the deployment of our FMI, or Fastenal Managed Inventory technology. In the quarter, we signed close to 7,000 new FMI device agreements, about 110 per day, an 8% increase over last year. This helped expand our active device base by nearly 6% and drove almost 45% of our Q1 sales through FMI, which is up 150 base points over last year. In short, more customers are using our on-site devices and solutions to manage inventory, which makes Fastenal a stickier and more efficient supply chain partner. Meanwhile, our e-business grew daily sales nicely up almost 7% over last year. electronic transactions account for close to 30% of our total sales and we do anticipate digital adoption could continue to continue to rise as more and more customers integrate the procurement systems with fast and all now our investments in technology are delivering measurable results by expanding expanding our digital footprint through FMI and e-commerce we're winning new business and we're driving profitable growth now I think our priorities here very clear we continue to invest in tools and technology and analytics to drive operational excellence and deepen our customer relationships the strength of our first quarter reflects our strategic focus we're winning with large strategic strategic customers we're embedding ourselves deeper through technology and service and doing it financial discipline that drives both top-line growth and bottom-line leverage with that I'll turn the call over to Max who will walk through the financials in more detail thanks thank you Jeff and

good morning everyone overall the quarter showed continuous progress against our strategy we saw improving demand solid execution across the business and strong cash generation even as the broader macro environment remains uneven and in some areas uncertain i'll start on the business trends and market driver slide slide five during the first quarter the industrial environment showed signs of stabilizing us pmi averaged about or above 52 for the quarter and industrial production was slightly positive year over year in january and february this lines up with the gradual improvement we began to see late last year as jeff mentioned our daily sales growth trends on a quarterly basis improved to 12.4 percent for the quarter from just over 11 in the fourth quarter of last year and we continue to outperform the market this growth was driven by a combination of new customer wins, increased share of wallet with existing customers, and pricing. Importantly, the market was not concentrated in any single customer type or end market. Customer sentiment remained generally favorable throughout the quarter. While trade and tariff uncertainty continues to be part of the backdrop, most customers are viewing this uncertainty primarily as a cost and planning issue rather than a demand issue. As a result, activity levels remained healthy and we continue to see solid engagement across our customer base. From an end market perspective, growth was broad based. Manufacturing activity remains solid, particularly in heavy manufacturing, which continues to benefit from our fastener expansion and momentum in key accounts. Heavy manufacturing represented 44% of total sales. Then average daily sales growth in that segment was near the mid teens, consistent with what we saw in the fourth quarter of last year. Construction saw 17% growth, marking a strong turnaround from previous quarters. This increase was widespread, with both large and large national contractors and regional firms benefiting, and activity rising across key metro areas, especially in markets with infrastructure and commercial development. We also saw jumps from other non-manufacturing and markets, including transportation, warehousing, data centers, and other industrial services, as demand improved across a range of customer types. Across materials, both direct and indirect categories grew in the low to mid teens. Direct materials slightly outpaced indirect, supported by higher fastener penetration, improved product availability and pricing actions. Categories like hydraulics, pneumatics, welding and abrasives, and material handling also outperformed the company average, reflecting improving underlying activity levels. Overall, while the macro environment remains unpredictable, our diverse customer base, focus on key accounts and ongoing strategic initiatives allowed us to capture growth opportunities and continue to strengthen our market position. Okay, turning now to slide six, margin performance and drivers. We were approximately 40 basis points below our own Q1 gross margin target as pricing actions did not keep up with cost increases as the quarter played out. As a reminder, we said in our previous earnings call that roughly 50 basis points of margin pressure within in Q4 was timely related and should be added back into our run rate and that played out as we had expected you may recall that these items related to timing of inventory related working capital and supplier rebates what impacted us this quarter Q1 was pricing versus cost tariff related cost moved through the P&L faster than our pricing leaving us as I said approximately 40 basis points short of our own target and 50 basis points year-over-year on pricing, we realized approximately 3.5% year over year, and that compares to 3.3% in the fourth quarter, not enough to offset inflation. While our pricing execution progressed during the quarter, we did not move quickly enough, related mostly because of tariffs and some other items. As you can imagine, tariff uncertainty added additional challenges. In many cases, customer conversations and pricing actions took longer than usual as customers worked through their own planning assumptions. In others, these conversations were delayed as customers and suppliers await further direction on tariff changes and potential refunds. Importantly, we remain focused on maintaining pricing discipline over time, and we focus on continuing to manage toward price cost neutrality. We also experienced smaller headwinds from fuel and transportation costs and customer rebates during the quarter. Customer mix remained a structural headwind to gross margin, as growth skewed toward larger customers that typically carry lower margins on the growth side. However, these accounts are positive to operating margin due to strong fixed cost leverage, higher volumes, and improved operating efficiency. We continue to be comfortable with this tradeoff given the long-term value of these relationships, and we continue to see the net positive impacts on our P&L. Fastener expansion benefits continue to provide a partial offset to gross margin pressure. As expected, these benefits will anniversary early in the second quarter, while we continue to pursue additional sourcing, pricing, and productive opportunities across the business. As a reminder, our fastener expansion project did a number of things. It helped us capture higher margin business, and it drove cost savings initiatives. At the operating margin line, performance improved year over year. SG&A declined from 24.3% of sales to 24.3% of sales compared to 25% in the same quarter last year, reflecting continued cost discipline and leverage. Importantly, we more than offset the reload of incentive compensation, as well as our ongoing investments in tech, analytics, and sales support. In addition to our strong sales growth and cost management, we increased our return on invested capital by 180 basis points on a trailing 12-month basis, which shows our continued approach to capital allocation and maximizing asset productivity. In total, our P&L performance shows that we can invest for growth while maintaining a sharp focus on profits even as our mix evolves and we pursue larger, more complex accounts. Turning to the cash flow and capital allocation slide, operating cash flow was approximately 378 million representing 111 percent of net income cash generation remains strong even as we added working capital to support growth accounts receivable reflects our expanding customer base and growth with existing customers our inventory levels show increasing efficiencies as we continue to find opportunities to optimize inventory while maintaining high availability to meet our customers needs accounts payable increase more than inventory primarily as a result of some timing items associated with both inventory and non-inventory payments net capital spending for the first quarter was approximately 58 million with investments focused on strengthening our hub and automation capacity fast and all managed inventory hardware capabilities and advancing our it infrastructure for full year 2026 we continue to expect net net capex of approximately 320 million as we invest in hub capacity, FMI devices, automation, and technology. These investments are designed to drive efficiency, stability, and customer value. To provide context, our average capital spending relative to sales over the last five years was about two and a half percent compared to roughly four percent in the preceding 10-year period, meaning that we go through periods of different investment run rates. As we mentioned last quarter, 2026 is a year in which we will invest at the higher end of our historical range. If you compare our 26 estimate to the consensus revenue estimate, for full year 26, our capital expenditure range approximates three and a half percent of net sales, reflecting our continued focus on investing to grow our business. We returned $296 million to shareholders during the quarter through dividends and a small amount of share repurchases, which offset dilution. These total 87% of net income, reflecting our confidence in cash generation and our commitment to returning value to shareholders. Our capital allocation approach remains unchanged. We prioritize investing in the business where we see strong returns while returning excess cash to shareholders and maintaining a conservatively capitalized balance sheet. In closing, I'll just summarize my slides before turning it to Dan. The first quarter reflected steady execution across the business. We delivered strong sales growth, disciplined cost management, and solid cash generation. Operating margin expanded year on year despite higher bonuses and continued investments, demonstrating strong SG&A leverage within our P&L. This reflects our ability to effectively manage cost while supporting growth. And we continue to improve our return metrics, which we believe reflect the strength and durability of our business model. that wraps up my section thank you and i'll turn it over to dan thanks max and good morning everybody

and welcome to the our earnings call so i'm on page eight of the of the flip book and from a market outlook standpoint uh first off as we as we talked about in january we've seen some improvements in what the market is willing to to give us versus create obstacles for us although they're only now starting to be realized. After being at Fastenal for 30 years, blue was always my favorite color. It's become even more so in the last 30 years. And despite the fact I'm from Wisconsin, red is not high on my list of favorite colors. If you look at the Purchasing Managers Index, we have an internal grid that we've shared in the past at our annual meeting where we look at it in any month where the ISM is below 50. we color that month red. And if you look at the last decade or so, you don't see much red on it until the last three years. And it was pretty constant. In fact, it was every month constant. And we've had three months now where we're above 50. That generally gives us confidence of what we're going to be seeing three and four months out. And so from that standpoint, our outlook is positive. The other thing for me personally that stands out when I look at this quarter is over the last six or so years, we really changed the focus of Fastenal and kept diving into being a supply chain partner to support businesses. And really, ever since we started the vending initiative about 18 years ago, and we slowed down our openings, we've been really in that mode. We just didn't always say it out loud. But one of the things that struggled as we were changing our format of how we go to market was our non-res construction business really suffered. If I think of it coming out of COVID, it was growing in the mid-single digits. In that 23 to 24 timeframe, it was actually negative mid-single digits. Through 2025, it grew about 4%. We exited the year growing almost 10, and in the first quarter, that business is growing 17%. Now, that's only 8% of our revenues. I don't overstate it, but it tells me a great supply chain partner is relevant to every industry that's out there and that we are that partner, and we can get traction in any end market. All we have to do is understand that on end market, and frankly, the end market has to understand why Fasto can be special for their business. But really exciting to see. The second bullet in the market outlook talks about ongoing focus on price neutrality and managing tariff impacts. You know, one of the things we touched on in January is a wave of cost we saw coming in late last year and early part of this year. And in some ways, it relates to tariffs, but I'm not sure if it does. And it was our branded suppliers. And branded suppliers have a unique market power in that if a customer wants brand X, that supplier can push pretty hard and say, hey, here's where the cost is. And we will share that with the end customer to really allow them to make the decision. Do you want brand X at this price? Do you want brand Y at maybe a different price? And the branded suppliers have been very aggressively in the last six, seven months raising costs. And some of it, I'm sure, is related to tariffs. Maybe they're doing some catch-up. Some of it's maybe related to true inflation. You know, there are some commodities right now, if you're trying to source nitrile gloves, good luck, because the cost of that has gone through the roof in the last 60 days as a result of what's going on in the Middle East. But what we're really aggressively doing in the marketplace is arming our customers and our teams with information to make trade-offs. We're arming them with, here's examples of Brand X has raised the cost of their product by 6%, 7%, 8%. Maybe it's well-defined. Maybe it's kind of a generic spread-across-everything type cost increase. Our job, and one of the conversations we had with our team early this morning, is I really challenge them from the standpoint of what I've seen from this group in the decade that I've been in this role. When this group needs to rise to the occasion and have communications, sometimes discussions that are challenging, that's what we're good at because that's being bluntly honest with your business partners. So we're having some of those conversations right now, and those conversations were really challenged in the first quarter. Partly challenged because of uncertainty around what the Supreme Court was going to rule as it relates to tariff. Partly challenged by, frankly, fatigue of the last 12 months of the pricing actions that have been happening as supply chains have become more costly. And the real challenge to the group is we need to have those tough discussions every day sometimes it's about price sometimes it's about changing product sometimes about changing from brand X to brand Y and get through this with our customer moving on to the second item financial discipline this organization never ceases to impress me on their ability to perform really impressed with the the strong cash generation in the first quarter max touched on that our capital allocation will always be focused on growth of the business infrastructure to support that growth technology to support the efficiency of our teams and information available for our customers and ultimately strong shareholder returns to that extent our ROIC came in at 31% on a trailing 12-month basis a nice improvement over where it was a year ago, and a nice improvement over where it's been for the last decade. From an organizational priorities, I touched on this a second ago, but we'll continue to invest in supporting the future of our business and our customer with an eye towards technology investments that enhance our ability to be more efficient. You saw that play out in our SG&A this quarter. Despite the fact this is our final quarter of reloading bonuses, because we We reward, heavily driven based on earnings growth, and that ramped up dramatically Q2 of last year. So we've now anniversary-ed that going into Q2 of this year. But it's also about being more efficient. That puts us in a position to do special things for our customers without wearing out our teams and being able to reward those teams appropriately. And then strategic progress, as Jeff mentioned, our key account strategy is performing really well. new contract wins are strong. We continue to expand our FM technology deeper and deeper into our customer supply chains. And we find success in a wide range of industries. And one thing that shouldn't be lost on anybody looking at that table on page three of our earnings release, where we look at customer sites and sales segmentation, we have really strong growth with our customer groups but interestingly enough even though manufacturing is 75% of our revenue from a percentage standpoint we're actually seeing stronger growth in the non-manufacturing from the pure number of customers doing 50k plus because while the company might have grown at 16% our non-manufacturing customers grew at 25% we're discovering success across a wide range of industries, a wide range geographies. With that, we'll turn it over to Q&A.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We kindly ask that you please limit yourself to one question or one follow-up question. Our first questions come from the line of David Banthe with Baird.

Please proceed with your questions. Thank you. Good morning, everyone. First question, when you say pricing actions will continue at a slower pace, two questions on that. One, does that imply sequential gains of this sort of 20 basis points or less sequentially quarter to quarter from here, or should we expect that to accelerate? rate. And then number two, if the first quarter of 25, we're kind of using as a baseline, I think you talked about five to 8% ultimately. Is that still the case? And when would you expect to

achieve price cost neutrality? Dave, this is Max. I'll take the first part. And so because we continue to drive price actions this doesn't stop and we were behind where we wanted to be in Q1 those those actions will continue and so although we're not guiding toward a Q2 we would we would do everything in our power to not see the same sequential move from Q1 to Q2 so you can start at that as a starting point but you know it's it's it's our it's in our ability to change that trajectory and so i think that would come with just our statements from from our prepared remarks that we as dan said we've got a team that knows how to knows how to overcome some challenges and then if you could repeat the could you repeat the second part of your question please yeah i was wondering about the baseline i

know there's been changes in the tariff landscape but you originally were saying sort of five to 8% would be the peak level of pricing that you would see. And I'm also wondering, number one, is that still the case? Number two, when would you expect to achieve price cost neutrality if it's that five to eight or if it's something less today? Yeah, we don't have a reason to believe

that that estimate changes. I think it's, you know, IEPA gets replaced essentially by 122. So we don't, in the timing, we feel like around mid-year-ish, we're going to start to see some of that plateau. And so we're well, we feel like we got a good estimate on that part. We just have work to do to make up for some of the traction that we lost through Q1. Again, a timing item. What we can't tell you is when we recover that, but we're going after it.

Hey, Dave, you might notice a little trepidation on our part to answer. to answer you know we probably over answered in january a little bit and uh and underestimated what it would be like to push a string through q1 and and it's it's been a slug yeah or a slug excuse me maybe a slug too but uh but uh the the five to eight was that that's a cumulative number that's not a quarter over quarter so as we're anniversary we go into q2 that will eat some into that. So what we report on a year-over-year might not be that five to eight, but it's a cumulative piece. But the real challenge we have with our folks is we need to have conversations with our customers. We have customers that had business that turned on at different points in time. So it might be some new business that turned on and the facts have changed. It's always guiding that customer to what is happening with their supply chain and how we can address that and sometimes it's substitution sometimes it's price changes but it's it's being candid with your

customer got it okay and then um also as it relates to the improvement you're seeing um in the past fastball has tried to ramp head count in uh anticipation or concurrent with an improving macro backdrop. I'm just wondering, should we expect a similar ramp if the backdrop continues to gain strength for you this time, or is there something different this time around?

You know, I'll throw out a piece, and then Jeff and Max, correct me on what I mess up on, but I think we've really developed some nice efficiencies. We've gotten really focused on on identifying role specificity within our network and and I think our teams really have good capacity built in one of the things we've done in the last several years come out of COVID one part of our employee ranks that really were hollowed out was the part-time ranks because when when schools go remote you it's hard to find that and it really dropped off We've reloaded that portion, and what that is always about is our local district leaders having conversations to understand who in their team is ready to step up and take that next opportunity on business that's turning on. Because everybody's looking out and saying, what business is turning on? Because that's where the biggest need for headcount is. It isn't always on that customer that business is up 5% or 10% because we've taken on some new products. we're really really efficient at turning that kind of business on locally and I don't know Jeff if you want to add anything to that I would just say that

the technology and solutions we're adding and also our customer mix we're making them more efficient we're also making ourselves more efficient so going back in past if you looked at our ramp up in revenue and then our ramp up and headcount I don't think that same number correlates today as it did back then especially with all the technology we have and efficiencies that we're adding in um and i think that's part of the part of the reason our sgna leverage is so good

just as a follow-on to that uh dave we as you can imagine we know where we need to add and so we feel pretty comfortable because there's a lot of pluses and minuses meaning we have a lot of reasons efficiency gains and then we know where we want to plug to drive some further growth so what you're seeing in the pnl q1 from leverage should be uh an expectation we should be able to

continue in that general trajectory. Thank you. Our next question has come from the line of Ryan Merkel with William Blair. Please proceed with your questions. Hey, everyone. Thanks for the

question. I want to start off on the topic of pricing and being slower to pass that on to customers. My question is, what are you doing to fix this issue? Because this is the second time you know, in the past year that we're dealing with this. Yeah. Thanks.

Well, first off, I'm pleased to say it's only the second time because our goal has never been to be great at adjusting prices. Our goal is to be really great at informing your customer what's happening in their supply chain. And so with the chaos of the, you know, the last 12 months or more. Maybe that's a win. The biggest thing is really fine-tuning some of the things we're doing and quantifying it. I was on a conversation this morning, and Kevin Fitzgerald is the individual in the organization who leads our analytics team, and he was going through with our regional leaders some very specific outcomes that are needed from pricing actions we're doing. So it's really dividing and conquering a little bit of saying, here's where you have some flexibility, and frankly, here's where we don't. And I think it's like anything. When you get pushed against the wall a little bit, you push back. I don't know, Jeff or Max, do you want to add anything to that? I think it's good.

Okay, thanks for that. And, look, I appreciate it. You know, it's difficult.

It's a unique environment for pricing.

And then I had to follow up to Dave's question. And I guess, are you seeing suppliers continuing to push pricing? Do you expect higher, you know, inflation because of oil? Okay.

Are you seeing the price increase or are you expecting it? Well, you know, I mentioned it in my commentary about nitrile gloves. I mean, that's not the biggest product line we sell, but it's a meaningful product line that we sell. That price is going crazy because it's all petroleum-based. So it really depends on what energy or petroleum content there is in a product that directly moves it. But there you're seeing percentages that make some of these tariff percentages we've talked about in recent years look small. But again, it's a very small, I don't want to overstate a smaller category, but it's just an example. And as you can imagine, it's just so volatile.

So on a typical year, sitting here in a Q1, we at least internally know that we have had, you know, 99% of the supplier increases if they're coming come through. But it's just, this is just unusual times.

I think our biggest challenge, Ryan, in a time like this, and I'm thinking of our supply chain teams more so than our discussions necessarily with our customer, but our supply chain teams of knowing where you push back and how aggressively you push back. From the standpoint of, you can look at, we understand the cost components of products we source for our customers, and we can share that understanding with our customers, and where there's a commodity that's going up, and it's linked to tariffs, or it's linked to energy prices, we can assess really quickly if that's real or if it's BS, and that determines how much you push back. so part of it is the art of how much you push back and then once you did once you find the pieces that that are truly legitimate of acknowledging that that portion of the supply chain has become more expensive in conveying that to your customer because we're not delivering a unique message to our customer because they're seeing in a lot of commodities or a lot of items they're sourcing outside of the fast on universe too okay all right guys very helpful pass it on

Good luck. Thank you.

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

Good morning, guys. I'm not going to ask about tariffs and pricing, but let's maybe shift to the growth side of the equation. It sounds like, Max, from your commentary around end markets that growth is sort of broadening out. I don't want to put too many words in your mouth, but are you expecting sort of growth to continue to accelerate? We do have a little bit tougher comp in the second quarter. Just how should we think about the growth side going forward?

Well, I'll take that, Max, if you see you looking over my way. I think it's hard to tell right now with everything going on. I haven't checked the news this morning, but we're still cautiously optimistic about the growth continuing. and we're seeing that across the world we haven't seen any pullback in fact you know if you look at our we don't like to give guidance but if you look at our April numbers that that markets continue to expand our markets so overall it's hard to say what the rest of the year is going to look like but right now we're

like I said cautiously optimistic I'll add one piece on there and it's a data point we put in our monthly sales release and that is the percentage of our locations that are growing there's always something that somewhere where a customer is down or a group of customers are down I know I was watching our regional leaders pull together videos for our board each quarter and we'll have two or three and in one of them I was watching yet this weekend this individual is leading a mature part of our business in the central United States and he was talking about what's happening in his overall business, but he was also talking about two customers, his two largest customers who were down 20%. And so there's always specific reasons with customers. But when I look at the percentage of our locations growing, that's been stuck in the mid-60s. And that's a good place. That's been in the mid-60s consistently now since last fall. And whereas, you know, a year ago or more, that was probably down into low 60s or upper 50s. And so the closer that is to 70, life just gets a lot easier because you're seeing broad-based support from a geographic standpoint, which typically translates into from an end market standpoint as well. And Stephen, let me just add one more quick point. If you break down

essentially our DSR as you know in you know run rates and you're an analyst you'll you'll know that we're coming up on some headwinds from a pricing perspective when we comp the prior year so we are very confident in our shared gain opportunities because we believe we have a great business in that space so our internally we expect share gains to continue as they are to increase but at the same time when you model out you got it everyone's thinking about pricing as well we started pricing in q2 of last year and so we're going to start to encounter a little bit of a comp item on the top lane and that's in that regard of course it doesn't impact operating profit because our pricing mechanics were there to offset cost increases so just keep that in mind

the one thing i've always counseled over the years is focus on the sequential patterns of the business Jeff talked about the fact that we're having really strong customer acquisition patterns and despite the fact we're adding customers at a rapid clip that historically would pull down our dollars per customer a little bit because the newer customers aren't as mature as existing customers that's not what's happening so we're adding customers at a very very rapid pace but we're also adding wallets share at the same time and our in our ultimate number is expanding. And Jeff touched on that in his commentary earlier. That makes me more bullish on what the future looks like, because the economy is going to give or take what it gives or take. What we take from others and from the standpoint of market share gains, those are just pure wins.

Great. That's great, Culler. I appreciate that. And then, Dan, you mentioned slug or slug when you have these customer conversations. I'm curious, though, are there competitors out there that are kind of not raising prices as they should or is anyone doing anything competitively that's kind of holding this back?

You know, we're all swimming in the same water and that water has a current to it and that water has become more expensive. That's a really lousy analogy. Sorry about that. But we're all impacted by the same economics. Are there examples where a competitor might get really aggressive with a customer circumstance? That's always true, and there's some of that. I think, by and large, our industry is a rational industry. And the only time you see weird things, I was recently traveling in Indiana, and there was a long-term competitor that uh it wasn't that they were doing anything irrational it was their businesses really struggling and and you see something some signs of that of when when organizations get squeezed too much you see some competitors that either disappear or they have to downsize their operations and we're seeing we i saw some of that and again one data point until I was on a recent trip down to Indiana. But I don't think there's anything irrational going on, but that doesn't mean we don't have circumstances where somebody's trying to elbow somebody else in a customer situation. But that's the exception, not the rule. Thank you, guys.

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

Thanks. Just wanted to, yeah, just wanted to, just to kind of turn attention to the tariffs. How do we think about all the changes to, you know, IEPA to Section 122, the changes to Section 232 tariffs? Just how does that shake out for FASL?

Yeah, Nigel, we just, if we think first of IEPA, which is making the most noise, we've said in the past that that's a smaller, much smaller portion of the total tariff landscape for us. And so those, because they're largely replaced by 122 anyway, we don't see much activity within our P&L to speak to on that one. And even, you know, even the refund noise, once again, it's a very small amount of our total business and our total tariffs. So from our vantage point, it's not in material simply because it creates so much noise and it creates, as we said, the slog of pricing. Part of that slog is driven by the uncertainties in tariffs. But I hope that gives you the context.

The point Max just made about the impact, you know, it's the headline impact. You know, when the Supreme Court ruling came out, if you're a casual observer or if you're not really dialed in to tariffs, you can also look at it and say, I'm sure there's conversations that have occurred where, well, I thought the tariffs were ruled illegal. And so it becomes an education endeavor, and then it becomes a negotiation discussion as opposed to just a negotiation discussion. So it's the headline, in fact. It just slows things down.

And Nigel, just one more point, just because you asked also, I did not comment on 232. 232 does not impact us. There was no change. No, no change. Sorry. Any discussion about changing it does not impact us. 232 has been with us for a while.

Yep. That's helpful. So no change to 232. That's kind of what I was asking about, really. And then just the price cost, it seems obviously, you know, the pricing conversation, we've had that already. But obviously, the inventory, the unit cost of inventory, the inflation-embedded inventory coming through the P&L is certainly a factor as well. So I'm just wondering, are we now at a point where the headwind from the inventory conversion is now behind us?

We're getting close. That's a bit what I was referring to when I was talking about the plateau of the costs. So yeah, we've got a little bit left in there, but around mid-year, we'll have pushed all that through essentially. Okay. Thank you very much, guys.

You're welcome. Thank you. Our next questions come from the line of Tommy Maul with Stevens. Please proceed with your questions. Good morning, and thanks for taking

my questions. Good morning, Tom. So contract signings have gone pretty well. Pricing discussions are behind plan. My question is whether these two are linked. Is it the case that as you're bringing on new contract business, the pricing discussions don't proceed as fast as they might otherwise no I don't

think so I think it's more like the current contract customers and we when we go to raise pricing a lot of the contracts we have today have set terms in place so we can't change pricing for 30 days or 60 days and when the new when the Supreme Court came out their ruling a lot of those conversations almost got put on hold from our customers really push back hard but I don't think a lot of the newer business, that's really not the case. I mean, we're pricing in a lot of that already when we get the business. It's more the current contracts we have in place.

Got it. That's helpful. Thank you, Jeff. And then follow-up question on capital allocation. I wanted to ask about the repurchases. The dollar amount was pretty modest this quarter, but it has been some time since you've deployed capital there. And I would like any kind of update you can provide on a philosophy that may be emerging here, or what was behind the decision-making process to deploy those dollars? Thank you. Yeah, first of all, I do second your

point. It's small, but we just felt as a management team that we wanted to start to offset dilution. And so, that is what we've done, and we'll see. That would be our approach go forward for a bit here. We can change our mind overnight, but that's what you're seeing, is just a simple mathematical offset of dilution. And we'll, as we always say, remain opportunistic, meaning when the time comes, we'll do something else.

Sure. Thank you for the insight. I'll turn it back.

Thank you. Our next questions come from the line of Chris Snyder with Morgan Stanley. Please proceed with your questions.

Thank you. You know, Fastenal, particularly, I guess, on the fastener side, you know, the company turns the inventory very slowly. And that has always provided a lot of visibility into the future COGS, and it felt like you guys were always able to use that visibility or lag to, you know, very appropriately balance price costs through prior inflation up cycles, whether it was, you know, 22, 23, or even last year. It seems like that is more difficult now to kind of match that price cost for the company. um so i guess is there a reason why um you know you're talking earlier i think to nigel about you know maybe a little bit more education that's needed this time around just because tariffs keep moving is that why um you know it's more difficult to kind of execute and realize the price um because it's you know obviously been kind of falling short of expectations for for

almost a year now thank you so um first off we recently changed some of our reporting And in that, we talk more about our direct material side of the business and our indirect material side of the business. And really challenge our analytics team to follow suit and do that on how we think about gross margin and parse out maybe the fast-term business a little differently, parse out some of the product lines a little differently. What I can tell you is the struggles we have right now are not in fast-ners. Our margin is doing just fine there. Where some of the struggles are is you start looking at some of the areas of the business that maybe have a little bit more of a branded presence, because fasteners don't really have a branded presence. There's some, don't get me wrong, but that's not where the dollars are. Our safety margin is challenged because of some of the branded presence. Our cutting tool margin is challenged because of some of the branded presence. So the things that you've known from us historically is true. Our fastener business, we have great insight because we have time on our side, and we can have those types of conversations with the customer, and we can really talk about this OEM fastener. We have four months of inventory, and here's what the price is going to do at the end of that four months. So you can really have a different discussion because our customers know we're about managing price costs. we're not about inventory profits in the short term because that's the relationship we have with our customer where we're getting squeezes on some of those branded products where our timeline to understanding the cost change and how fast it occurs in our in our FIFO inventory is much different than what it is in our faster inventory and that's where we're getting squeezed thank you

that's really really helpful appreciate all that color um if i could just ask one on q2 It sounds like price costs will start getting better, you know, maybe into the back half of the year if I'm kind of understanding the commentary right. But does Q2 get worse before it gets better? I would imagine some of the headwinds that came through on the fuel side will be bigger in Q2 just because, you know, in Q1 maybe only a month or so was impacted. So is there a little bit more pressure that's coming before we kind of get into the recovery? or do you think Q1 is really kind of the trough of that price cost?

So I'm going to answer this one only because I want Jeff and Max to take a step back. So as you know, we're in a leadership transition here, and Max is relatively new in his role. And so I'm going to answer this based on 30 years of experience. Q2 is challenging. Q1 was challenging. Our message to our teams is, here's what's happening. Here's what we need to do. I believe this team will react. But Q2 will be challenging. And I personally feel good when I look out to Q3 and Q4 because I know how long it takes to do certain things. There's price discussions we've had going on since December that there are price changes that we've made. and some went into effect 1st of March, some are 1st of April, there's some in 1st of May, 1st of June. And again, as Jeff touched on it, sometimes it's about the contractual obligations. Sometimes it's just about negotiating and finally agreeing on a price. It might be from the customer's perspective where they have some ability on pricing and what they can do on their end from the standpoint of their marketplace. But Q1, we knew was good. But in January, that's the only place in my gut I didn't feel good was Q1. And then once we have some certainty on the Supreme Court ruling, at least it allowed you to understand a piece. We still don't understand some other aspects and what other type of challenges there will be to tariffs coming down the road. But Q2 is challenging. And I believe the FASNL team can pull it off. Thank you, Dan. I really appreciate all that. That's not a mathematical answer. That's just an honest answer.

No, I appreciate it.

Thank you. Our next questions come from the line of Patrick Bauman with J.P. Morgan. Please proceed with your questions.

Oh, thank you for putting me on here. So I just wanted to touch on incremental margin expectations for this year now. I think last quarter in response to a question Dan suggested that high 20s on incremental margins would be possible this year. Has enough change to alter your thinking there? I mean, I think you still lapped incentive comp headwinds in second quarter, which should be a nice tailwind for the business from a SG&A leverage perspective. I guess I'm just wondering if the price timing dynamics have had enough of an impact to change your thinking on incremental margin expectations for this year.

No, Patrick, we don't believe that is the case. there's enough efficiencies we would say structural down in the SG&A space plus as Dan said there are actions that we're taking to mitigate the gross margin headwind that will be in a in an incremental space that we that we had expected in the past so just it's just a short answer to say we confirm our

previous statement okay now please and I just had one follow-up on the tariffs so So on Section 232, so it sounds like Fastenal was already charging for the full customs value based on your statements. Did you observe any noncompliance in the industry that would have any impact on market dynamics in fasteners going forward regarding the competition and how they were approaching charging for tariffs on imports?

The answer is no on that. Nothing came to our attention.

Okay. Thanks a lot, guys. Best of luck.

Welcome, Patrick. I see we're at four minutes to the hour, so if you have any follow-up questions, I know Max is available through the balance of the day. Thank you again for joining our call today, and thanks for your support on the blue team. Have a good day, everybody.

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