Fastenal Company (FAST)

Investor Day 2015

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Nov 5, 2015

It's been a while since we've done an Investor Day. It was actually here in Indianapolis about four years ago was our last Investor Day. We thank you for coming. We have a very good lineup of speakers. We have a lot of exciting things going on at Fastenal that we want to talk about. I'm going to take just a few minutes in the opening here to talk a little bit about the market and how we see it. I'll turn it over to the presenters. One more thing before I go to that. We're going to do a format where we're not going to take questions until after the presenters. Otherwise, it gets too slow, and it's hard to move through the presentations. As most of you know, we operate in a very large market, very fragmented. We're confident in saying that it's at least $140 billion that's been used for many years. It's a very large market, and you'll see numbers today that help support that. There are many channels to the market, different ways to distribute. Our channel is a store-based model, which most of you know, but there are many different channels. We have many good competitors in our market. There are really 2 types of competitors as we see it, or 2 major types. There's the small independent distributors, normally regionalized, and there's the larger competitors. If you think of the small competitors, the greatest challenges as we look at it for them, there's really 3 things. 1 is supplier support. As the suppliers become bigger, they want to deal with the bigger distributors. It's harder for the small distributors to get the support from the manufacturers. 2 is customer demands. Our customers are demanding more today than they ever have, and they expect more. If you're a small company, it's very hard to meet all the demands of broad product range, e-commerce, quality systems. The challenges are very great. The third one is customer consolidation. Not only do the customers demand more, they want to consolidate their spend amongst fewer distributors, many times larger, not always, so that they can get the economies of greater volume through 1 distributor. As a smaller distributor today, it's an uphill battle just because of those things. The other type of competitor, we have large competitors. Most of you know them. Many of them are public. There are a lot of good companies out there. We respect all of them. Most of them have large, broad product selections, competitive pricing. They ship the product well, good distribution, things similar to what we would do. They have good e-commerce platforms. The thing that I believe, and I believe our team thinks, that we have an advantage over the large competitors, 1 is that we're far much closer to the customer. We are working very hard to get close to the customer, and you're going to hear about that today. We believe we have better distribution, and I'm going to talk a little bit more about that in a minute. We have a lower cost distribution model. Understand the product we sell is generally inexpensive. It's processed steel. It's not like we're shipping electronics. It's inexpensive products. Distribution and the cost to do it is very important. The third one I would say about most of our large competitors is relative to their business model, they have high operating expenses. The fact that we have lower operating expenses than companies that are basically just shipping from central warehouses gives us a structural advantage because we're in the market, but we're not spending any more to be in the market. Fastenal's strengths, when I sit back and look at our strengths, we know how to run small businesses competitively or profitably. We're very good at running a $2 million business at a very high profit level. Because of that, gives us another strength. It gets us closer to the customers. We get more opportunities. The opportunities come to us. As I said earlier, we have a very efficient distribution model. I'm going to take just a second and talk about. I have to work through this because it's an example. Just the efficiency of our distribution. The reason I want to make this point is many investor meetings are talking about, "Why don't you just ship it like everybody else? UPS is a great shipper." I agree. They're a great shipper. Just in the last week, I gathered information to make this point. If you look at Minneapolis as a market, in October, we shipped 959,000 pounds from warehouses to Minneapolis, basically from Winona to Minneapolis. From our stores, we delivered that out to our customers. If you look at the cost of our large trucks, our semis, you add in the cost of our door delivery, we spent about $65,000 in the month of October shipping the product from central distribution to the customer. About $65,000. If you take that same 959,000 pounds, and you divide it in 20-pound boxes, typical UPS box, and you pay the lowest rate that we get, and so you divide it up, and you end up with about 48,000 packages that we would ship in those same packages. You multiply it times the $6.80 that it costs us to ship a 20-pound box. You end up with $337,000 to serve that same market with basically 1 million pounds, which translates our costs are about 1.3% of revenue. If we were to use the other guys, great supplier, we would spend 6.6% of revenue. I'm guessing the gap isn't that wide because there's other pieces of that, but it's a substantial gap. It's probably 300 to 400 basis points advantage that we have using our own distribution, which doesn't include improved service because we get there earlier, and improved flexibility because we own the truck route. It's a point I just really wanted to make because it's something that we often get questions on. Talking a little bit more about today, one thing I want to stress, and you're going to see it, is as an organization, we are very committed to identify and focus on the opportunities that give us Fastenal-like returns. We spend a lot of time strategically thinking that way. If you're in a $140 billion industry, you don't have to do all the business. Which channels do we believe are going to give us the highest returns over a long period of time? That's what we're here to talk about today. The first presentation is going to be on our vending systems. The second one is going to be on our Onsite, something we're very excited about along with vending. We have a presentation on e-commerce. After lunch, we're going to go and look at our CSP store, our local store, and talk about that. Dan will fill in after the three presentations before lunch and give a broad overview of what we're doing. Again, thank you very much for coming, and I'd like to introduce Kevin Fitzgerald. Good morning, everybody. My name's Kevin Fitzgerald. I've been with Fastenal for 16 years. I started as a part-time employee in Richmond, Virginia, and have held various positions within the company. I've run some stores. I've opened some stores. I've worked in our national accounts within our government sales team. Today, I'm now within our vending department. I'm the Vice President of our Fastenal Solutions team, and I'm very excited to talk to you guys about vending. On the agenda today, I'm going to spend a little bit of time talking about history. It's kind of nice talking to a group like this because you guys actually know a lot about our history when it comes to vending. I'm not going to spend a ton of time on history. I'm going to spend a lot more time talking about the market size, what the opportunity is. I'm really excited to introduce to you guys an investment we're making in a professional sales team, some initiatives we have going on. Lastly, why vending? Why is it good for our stores? Why is it good for our customers, and why is it good for you guys as investors and shareholders? Whenever we do talk about history, it's important to talk about the machine behind the machine. This is what got us to the point that we're at today. It's about the technology. It's about the machines that you guys see in the corner. It's also about our local people and our local stores. They're the ones that are at the front line that are servicing the machines that we have in the field today. They're the ones that are out talking to our customers about this technology, showing the cost savings that it presents, and servicing the machines, not only stocking them, also working on products that we can change out, working on optimizing the machines and making them better for the customer and for efficiencies in their store. Another piece to this is our regional sales specialists, which I'll get to in just a few minutes. We also have regional build centers. We have 13 regional build centers strategically located across the country, one of them is right here in Indianapolis, where we configure the machines prior to sending them out to our customers and installing them to make sure everything works properly, to make sure everything vends right, also that the customer can have a really easy experience when they order a machine. Sometimes they can get it within a week, which is fantastic customer service on our part. National distribution. Actually, where we're sitting today is called T Hub. T Hub is our distribution center that we've designed for vending. As you walk out of here today, look at some of the boxes that you see. They actually have product inside of it that are all wrapped specifically to fit inside of our coil machine. We've developed a distribution model to service our customers and our machines more efficiently. National support and training. What we've developed as a company is to support our customers to unlock more of the power for our vending machines. We have a support team that can help train them on how to use the machines, how to use the software, how to use the resources to drive more cost savings and more resources out of the machine. When we look back to 2011, in 2011, we ended the year, we had about 9,400 machines installed across the country. We had a huge increase in 2012, jumping up to 26,900 machines, just under 27,000. Right now, we have 54,291 machines out there in the field, turning coils and turning product for our customers, saving our customers money every day. Speaking of 2011, and Will actually just mentioned it was our last Investor Day, and we had it right here in Indianapolis. We went and we pulled some information from that to show you guys where we were in 2011, and more importantly, where we are today. In 2011, we actually estimated the market at about 258,000 machines. We did that by looking at customers that we had using machines, the technology that we had in 2011, and some of the products that we had vended. Today, we look at the market more like 1.7 million machines, and I'll get to how we come up with that number in just one second. Back in April of 2011, we were signing about 1,400 machines per quarter. Today, we sign about 1,400 per month. I'm going to talk about the next two bullet points kind of in conjunction. The total customer sales with customers with vending in 2011, about $23 million a month, and they were vending about $3.4 million of that product. They would do $3.4 million out of the machine, total of $23 million. Today, our total customer sales are $143 million with customers with vending, and they're vending about $51 million a month. We had about 1,170 customers in March of 2011. Today, we have about 12,785 customers. Our total machine count at that point in time, in March of 2011, was 2,850, and again, 54,000 plus today. When we look at the market, in order to figure out exactly what the market was, and I just said the 1.7 million machines, we started looking at our own internal data, our own internal customer information, and we really identified 10 industries where we have a lot of successful vending machines. We see a lot of success in industries like manufacturing, industries like construction, industries like healthcare. When we looked at these 10 industries, we identified 485,000 potential customers. Well, we have 99,000 of those customers on account today. They're Fastenal customers today. We average, within these 10 industries, about 3.6 machines per customer. That's where it gets us our 1.7 million machines. It's important to note that that's with today's technology. With today's technology, we look at the market at about 1.7 million machines. In 2011, we said it was 258,000 based on the technology we saw then. It's amazing how things change. Another important thing to note, sitting at 54,000 machines today, and we valued the market at 258,000 machines in 2011, we did about 21% of that, which is just exciting to think about where we are today and how successful it's been. If we were to look at a dollar per machine at $1,100, our current opportunity is about $22+ billion in the vending market. As we work to increase our dollar per machine, if we look at a dollar per machine of $1,500 or $2,000, you can see how much it makes a huge impact. Just to follow you through there again, we have 485,000 customers, 3.6 machines on average within customers like this, gives us 1.7 million machines. Again, I'm really excited to talk about this portion of the presentation. It's definitely the number one initiative we have going on within vending today, to introduce our investment in a professional sales team. We're going to add about 280 people to our company to specifically sell vending within our markets. I know a lot of you guys follow a lot of our organization. Really, that's looking at about one person per district to work with our stores and with our customers to add machines. We're about 75% of the way there. We're hiring them now. We're going to have a really specialized training program for this team, where they train exactly how to become experts on selling machines and working to optimize those machines as well. We're going to have them go through a professional development where they really look to increase that dollar per machine, work to make our stores more efficient when they service the machines, work on that implementation process to have our customers be able to install a machine a lot faster so they can enjoy cost savings a lot more quickly. Also, with new technology, any new technology that's out there today or working towards new technology that may be something we're not thinking about today, it's something that we're going to identify in the market and develop for all of our customers. They are a professional sales team. That's the goal is to hire the most professional sales team in Fastenal. That's the track that we're on. We have expectations of them to grow at 40%. When we look at the vending initiatives that we have going on that I'd like to share with you guys, the things that I'm working on, the things that our team in Winona and our team throughout the country are working on as far as vending is concerned, again, number 1 on that list is that sales team, making sure that they're trained, they have the right tools, they're available to go out on sales calls as quickly as we possibly can. Increase our revenue by machine. Sometimes you guys hear that as optimization. It's optimizing our machines so that we increase our revenue by machine, which not only increases our sales and increases our growth, it also is beneficial for the customer, because the more product we can put in the machines that are turning on a more regular basis, the more consumption they're reducing and the more savings that they have. Store efficiencies. I mentioned that on the last slide as well. Making sure that our stores are so efficient when it comes to servicing our machines and using product like you see here today throughout this distribution center, so that when the product flows through our distribution and our stores go to service the machines, they can do it quickly and efficiently. Cost savings, providing different cost savings metrics for our customers so that the decision is so clear when it comes to choosing Fastenal. We're working on customer proposals so that we can identify those 10 industries, what they're using, what the most successful machines we have in the company, what products they're using, what products they're vending, and be able to suggest more to our customers so that we can more guide them into what products should be vending so that they have a better experience. exclusive brands, a great opportunity for our exclusive brands and drive that product through our machines. It's a great venue to put our exclusive brands in. We hear stories about having customers test our exclusive brands to our branded product, and you can do it right there in a vending machine with restrictions. It's a great venue to do that. The machines itself. You guys can see over in the corner, I was talking to some of you guys right before it started. Machines that are new technology that we have out there, that we're going to constantly be working towards and constantly be driving so that we can continue to be of service to our customers. When we think about vending and some of the other great speakers that we have today, whether it's Onsite, e-commerce, or when we go to tour the CSP 16, what I wanted to do was kind of bring into why does vending or how does vending fit into these other initiatives that we have going on within Fastenal? First, if I look at e-commerce, vending fits absolutely in e-commerce because of some of the things that we're going to introduce. One of them is when you think about a spot buy. When you think of spot buy at a customer that has a vending machine, and if we could figure out how to take that product and put it inside their locker, text them a code so that they can go pick that product up so it doesn't get lost in shipping and receiving, or the box gets opened by accident, that would save a customer thousands and thousands of dollars just in efficiencies alone. Our local stores. The local store today that we get to walk through, you guys will see an outdoor locker. Almost the same or similar technology of what I just described, but have an outdoor locker where when a contractor rolls into town, maybe they're running a little late, or maybe they're running really early, and they need us to put something in a locker for them. Our stores could put their order in the locker, text them a code, customer could pick it up. Nobody else can do that. No other supplier can provide that kind of service for our customers. Onsite. Next, you'll hear Chris talk about Onsite, and the opportunity with vending is enormous within just our Onsite customers and his potential customers. Some of those customers today have vending or have Fastenal managing inventory, so they're warm to the idea of us coming on their site and managing their inventory. It also makes our stores extremely efficient within our customers that are Onsite. It could be third shifts or other buildings where we use vending as an opportunity to serve the customers that may be further away within that Onsite facility. Why vending? Why Fastenal vending? First and foremost, it's efficient for our customers. It's extremely efficient for our customers, the technology itself, the reduction in consumption that it provides, the cost savings. It's efficient for them to buy. It's really changing the way that the industry is moving. It's changing the way that customers are buying. We're starting to see vending as some requirements in RFPs or proposals that go out, which is really exciting. It's efficient for our stores. We have a machine that's capturing data for us so that we can provide better and more efficient service to our customers. As I mentioned, the market is huge, $22 billion. When we look at 1.7 million machines as a potential of being out there with today's technology. It's a great growth driver for our company. It has been, and it will continue to be. It also allows us to enter new customers, new markets, customers that we may not have gone after before, but vending provides the avenue for us to be able to go in and offer a service that maybe didn't exist before. It limits our competition. We have competition that provide industrial vending. We absolutely do, and some of them are fantastic at it. It limits our competition where not every single industrial distributor offers vending as part of their distribution model. Again, lastly, it's the machine behind the machine. It creates opportunities for our employees. It creates opportunities for our existing team to grow within the organization. As we continue to support the machines that we have out there, we continue to grow our vending department. That's all I have for vending. I'm going to introduce Kris van Dalen for Onsite. Thanks, Kevin. My name is Kris van Dalen. I'm the Director of Supply Chain Solutions. I have responsibility over our Onsite program. Been with Fastenal 12 years, actually, just under 12 years. Started in Chicago, Illinois, as an assistant manager, so participated in a few store openings in that market, but I've had the privilege over the majority of my career to really be involved with our Onsite business through managing a team supporting our largest customers. I've been in this role a year, and we've really taken a step back and looked at, is Onsite a good solution for our business? If so, how do we get there? Today, I really want to talk to you about defining Onsite. How are we looking at Onsite solutions at Fastenal? What does it mean to us? What does it mean to our customers? From there, I want to talk a little bit about the history. It's not really a new concept to Fastenal. We've got some history in Onsite business, we want to talk about that. I think it's important we touch on where we've been. The business status is important. What's going on? What's gone on in Onsite, where are we at? The market potential, what are we targeting? Where do we feel the best value is for us to go out in the market and really attack the business? Why? Why are we going to be the distributor that has the competitive advantage in the market? We feel that we have that today. I want to talk about the results of 2015 as we put some focus into this program, finally really touching on why Onsite. Onsite, very simply, it's a dedicated team of individuals serving a customer, field service within their facility. Pretty simple concept, what do we really get out of it? We get constant customer interaction, something that we strive for in our store model very difficult to achieve. We have a local market to service. Even our biggest customers, we can't be there 40 or 60 or 80 hours a week. Our customers also get us as a direct available resource. There's a lot of places to go today for information, a lot of places to go to improve your supply chain. When we're there Onsite, we become that resource, that buffer between their purchasing and their procurement and the demand on the floor. When we serve that purpose, we win. As I said, Onsite's not a new concept to Fastenal. It's been 22 years. Over two decades, we've been operating our business from within our customer's facility. This model has been relatively passive for us in terms of how we've gone about it. We haven't aggressively gone out into the market and attacked and said, "We should be Onsite with you as a customer, here's the value proposition of getting there." I'm going to talk a little bit more today about what we're doing to change that. As you can see, if you look back just over the last seven years, we've added on average nine sites, really it's supported our growth as an organization. Outperformed some years, underperformed some others. Really, this subset of Fastenal's business has remained relatively constant in comparison not really driven our growth. Taking a little bit deeper look into, we've got at the end of 2014, we had 212 Onsite locations. What do they look like from a revenue and profitability standpoint, how do we get there? Average site is right around $1.8 million in annual revenue. Nice business. Larger than our average store size today. The margin, however, the gross margin runs about 30% less than our company average. How does that work? Well, we're able to run this business a lot more efficiently. Our operating expense is about 40% less. Depending on the site, runs on average 40% less. When I talk to a lot of people, immediately they're like, "Well, that makes sense." No building, no utilities, phones. Some of those expenses aren't really there. While that's very true and certainly contributes, what we really see as the driving force behind our efficiency is our ability to align our labor with the customer's operation. Our local labor, we're moving two and a half times the cost of goods sold per labor dollar in our Onsite model, and that's exciting for us because it allows us to go out into that market and be a little more aggressive on pricing where we need to, and also aggressive with what we're willing to do in a scope of work to service that customer. Using our local resources, we're able to leverage them and really provide very attractive returns. We know it's profitable business. We know we can do it. We've done it for a long time. How do we change it from something that supported our company for 20-plus years into something that drives us forward for the next 10, 15 to 20 years? What do we need to do? Starts with creating a focus. I'm here today talking to you. I think we've done that. It's talking about branding the program, linking our sites together. We had 212 business units that weren't bound together. They were somewhat isolated in our organization. We had to identify what's the best market for us to approach. We'd had tailored tools to run this business. Starts with training, with systems, and certainly compensation. This is not the same as our store model with how we should compensate people. It's not the same type of market. When we look at training, we look at systems, none of that stuff was really developed in the history of Fastenal to support an Onsite business. We have some misconceptions in our organization about what this can do and really what it is, from the profitability to the staffing, the types of employees, the skill sets. Who do we put in to run these accounts? Finally, our internal expense structure needs to be reviewed. How do we allocate costs for things like this distribution center to Onsite locations? Is it being done the right way so that we can really understand our true cost to serve and make good business decisions in the field? The market potential is, we feel, very powerful. When we took a look at where are we best in Onsite, we took those 212 locations at the end of 2014, what do they look like? Well, they're 75% manufacturing customers, that wasn't good enough for us to start there. Why repeat what we've done? This has been successful. Taking manufacturing customers in the U.S., aligning the number of employees and what they do, we targeted 31,000 sites in North America that are potential Onsite locations. We sent that list out to each DM on the locations within their area and said, "Please take a look at this and vet it for us." Tell us if this is a real opportunity. Tell us about your current relationship with this customer." They came back and said 16,200 of them are for sure possibilities based on what they do, the number of employees they have, and there's a real opportunity here for Onsite. In a little over close to 3,700 of them, they said, "This is a relationship that's in progress, or we've got a great relationship today, and Onsite's an opportunity for us to move forward sometime in the next 12, 24, 36 months, and a real opportunity to pursue." Out of those, 2,200 or so are current customers today. Out of that 2,200, you can see there's a subset of them that already are bought into Fastenal as a supply chain solution, whether it's through a vending platform or through a bin stock program. They've bought in and said, "Fastenal, be part of our supply chain and help us solve our problem." Really, that's the core of what makes Onsite successful. What does this mean? We've gotten 16,200 validated prospects, a market that's worth well over $25 billion in projected revenue. We look at our Onsite average revenue today at $1.8 million per site and project that out over $25 billion. I know today we don't have all the market share within those 212 sites. Tremendous opportunity for Fastenal moving forward with Onsite. We got a market, massive market. Why are we going to be good? What separates us, and Will's touched on it, and Kevin's touched on it today, and I'm going to hammer on it. It's still about our local store. It's still about our local resources, the people, the products we stock in our stores, and our distribution. All of those things are the reason that we will be successful taking that additional step from local to Onsite. You look at the network we've built over 50 years, the investment for us to go and set up a crib and add some resources and go within a customer's facility. Our trucks driving by already going to the local store. Our people are in place to help support and backfill that business. The products are there. It's a minimal investment. It's a lower cost investment, we believe, than our national competition. That'll help us win. It'll make our point of entry from a revenue standpoint into these customers much lower than our national competition, and we believe that we will win in that environment. We're going to be able to create more value. It's our Onsite representatives and the team that works within that customer's responsibility for us to build an inventory model and service and really support that customer. It's the backup of that local store and the additional resources, which help us drive additional value, and we're very excited about that. We've also got a barrier to competition, where we're on site, we're that direct available resource, and we're the easiest place to buy from, the most progressive company they deal with, and we're consistently good how we service them. Again, that's a good thing for us. We can be more agile than our customers in running their supply chain. Today, what's been done? It's November 2015, and we've made some headway. We've created this focus within Fastenal. We got our program branded. We are bringing our current Onsite locations together from operations to training and all those things. We're really working hard on doing that. We've got our market identified. There's additional opportunity outside of manufacturing. With 16,200 prospects, it's plenty for us to go out and provide plenty of opportunity for us to go add business. We're working on heavy lifting, building tailored tools. There's a lot of work that goes into this, specifically the training program. We're building an academy for our Onsite personnel to give them the skills and the tools to go out and run their businesses more efficiently. We believe that's critical to the long-term success of what we do. Some misconceptions within our business. We're going to continue to drive this home. Today, we've communicated with our DMs and our VPs and national accounts team that we can make this business very profitable, even at the reduced gross margin. We know that the staffing and how we staff these stores has been a challenge. We've also run into the misconception and really the challenge of cannibalizing our store business. That's a real hurdle for us in terms of how we go and sell this in the market. We've worked hard on continuing to drive home what's good for our stores and what's good for our people and what's good for our district managers. One of the things that's exposed itself is we see accelerated growth in our store environment when we remove that large account and go Onsite. That stores re-energize from a sales perspective. They can go out and be aggressive. We all know the market potential for industrial supplies is extremely large. Take the burden of that large account out of our store, let them go be aggressive and do what they do best, and that's serve the local market. Our internal expense structure, we're still working very diligently at tackling what we need to there. We've made a lot of progress, and we're excited about what those changes will bring for us in the future. Some of the results in 2015, we're excited about where we're at, and we know we can do a lot better next year. Year to date We had 65 new Onsite customers sign on with Fastenal. Actually, that's 66. We had one yesterday. We're on pace to add 80 for the year. That'll be just under a 40% increase in 2015 over where we were at the end of 2014. $1 million, that number is extremely exciting for us because we take a customer that's run out of a standard model or a brand-new customer to our business, and we put them Onsite. We take that business that we had before, which is some subset, some offset amount, some cannibalized business in the store, and push that aside. We're adding $1 million. We're pacing to add $1 million per new Onsite customer in the first 12 months, 88,000 and change a month. That's new revenue, new market share for Fastenal for Onsite. Districts where we've added an Onsite location and implemented it in 2015, those districts are growing at 12.8%. It represents about 13.5% of our revenue. That number is going to continue to grow as we get more district manager participation and more Onsite customers. The last point here, an 18.2% growth. Drawn a line in the sand in January, our business is up a daily average 18.2%. In October, it was $42.3 million in revenue. There's a $500 million chunk of Fastenal's revenue growing at just over 18% today, and we expect that to continue hopefully into the future as we add more customers and continue to grow our market share with them. Who are they? We've got these 65 customers, 66 customers. 85% of them are manufacturing. Again, we're hitting that target the majority of the time with where we're putting our energy. They've got on average 280 employees, and we figure that market where those customers have brought on board and what that market potential is at over $115 million. We'll get through this first 12 months of rapid growth, but there's a ton more market potential beyond that. If you look at the map, they're global. This is a part of our strategy as a company outside the U.S. into Canada, Mexico, and around the world. We finished 2014, $394 million in revenue through this model. We're going to add about $73 million in revenue through the Onsite model in 2015, and we estimate based on the business as we've turned it on to have 265 implemented customers. We'll pace 80 new customers. We'll get a subset of those implemented and revenue through those channels yet before the end of the year, some will spill over into 2016. Very exciting for us. We're happy with the performance, and given today's economy, we're very happy with how this performed in the first year of the focus of this program. Finally, why Onsite? It really touches on all the stakeholders for Fastenal, starting with our customers. The trend in supply chain today is to really integrate the procurement logistics functions of their business. We feel we're very well positioned to come in and help our customers do that, help them change their culture, help them save money, be more productive. In times like this, companies are begging for people to help them, and we're very excited about that. Their shareholders, we talked about the dynamic growth possibilities through this, and we know that it's going to be profitable growth. We're going to be very selective about how we go about this, and we're going to remain Fastenal-like returns moving forward with our Onsite business and for our employees. We talk a lot internally about continuing to add people to Fastenal and recruit people into the company and make sure we retain our good talent. This is an alternative career path and something we can speak to in terms of developing opportunity as we add another hopefully 200 sites in 2016. Additional opportunity for current employees and new employees into Fastenal. That's all I have on Onsite. I'm going to introduce Kirk Talmontas, Vice President of eCommerce. Good morning. My name is Kirk Talmontas. I am the Vice President of e-commerce here at Fastenal. I started just shy of 13 years ago in Chicago as Assistant General Manager. Had the opportunity from there to really work within a couple stores, run those stores, and then as nine years as a district manager. From there, taking the opportunity to oversee e-commerce for Fastenal. A little background on myself. Today, really what I want to do is I want to share with you how Fastenal e-commerce fits into our existing store-based model and really presents an exit for the high-cost transactional environment. I'll begin with our competitive advantage, specifically as it relates to the online marketplace, move on to our value proposition, identify our target market as well as our immediate opportunity, provide some insight into our new search and new website that's currently under development, and then close with a recap as to why Fastenal e-commerce. It is well known that Fastenal's competitive advantage is the local store servicing the local market, all of which is supported by a world-class distribution system. This system, as well as store footprint, creates an even greater advantage within the online marketplace. Something no other industrial supplier can match. That is the ability to provide same-day service for locally stocked online orders, as well as early A.M. next-day service for regionally stocked product. Who else can provide same-day service on more than 10,000 parts in more than 2,600 markets? Better yet, who can go from this to this in just one hour of delivering a locally stocked online order? If one of these 10,000 locally stocked products does not satisfy our customer's needs, one of our 14 distribution centers can provide locally stocked products and deliver to the local servicing store before many doors even open within many businesses, beating any type of third-party carrier service. Fastenal has a solid grasp on the planned environment, helping our customers manage this piece of their supply chain by leveraging our distribution system, servicing stores, vendor-managed programs, and industrial vending solutions. However, on average, 40% of a customer's spend is considered unplanned, and unfortunately, a majority of this business goes to our online competitors. Because the strategic supply environment is Fastenal's domain, we are positioned to win this business. We have the ability, through our detailed reporting, to identify frequency as well as standardization opportunities of online purchases and suggest to migrate reoccurring spot buys to an existing vendor-managed program or industrial vending solution, ultimately driving lower total cost of ownership for our customers and shrinking the unplanned spend bucket. The value proposition is to provide our customers with an avenue to exit the high-cost transactional model and shift more and more reoccurring needs to a strategic solution. We truly believe that the unplanned spend bucket does not have to be as large as 40% for our customers. Fastenal's immediate opportunity is to capture more of the unplanned spend within our existing customer base. The greatest chance to win this business is with our customers that are generating over $50,000 a year and have an existing Fastenal solution in place. These customers are consistently active, they have established discounts, and we are Onsite servicing this business anywhere between three and five business days per week. This allows us to meet the 24- to 48-hour delivery expectations associated with online orders when a customer selects local store delivery as a reduced cost shipping option during checkout. These customers also have procurement goals, Fastenal can continue to add value within the supply chain by migrating unplanned spend and driving cost savings. I've identified opportunities within three segments, providing a micro to a macro view. Please note that each of these segments has the 60% planned and 40% unplanned spend buckets represented. Within the unplanned portion is a raised share equaling 66%, and it's Fastenal's immediate opportunity. This percentage is coming directly from our customers, as 66% of them have identified through a survey that they procure most, if not all, of their unplanned needs through an online marketplace. The first segment is the target market, which I just spoke to, customers generating over $50,000 a year with an existing solution in place. By taking this group's 2014 spend, we can calculate close to a $740 million opportunity. The next segment is Fastenal's overall customer base. By taking Fastenal's 2014 revenue of $3.7 billion, we can identify close to a $1.5 billion opportunity just within Fastenal's existing customer base. Lastly, following those same principles, one can estimate a $37 billion opportunity within the overall industrial marketplace. Fastenal is currently implementing a new enterprise search technology within the organization. This new search technology will drive our online verticals as well as other internal applications and is scheduled to be deployed sometime in Q1. However, we respect that this new search engine is only as good as the data that it's retrieving. That is why Fastenal's entire product development team spent all of Q3 validating our existing product data, as well as normalized our attributes and attribute values. Parallel to this was a cross-reference expansion project. The objective of this project was to review and build out both our internal and external cross-references. Internally, we validated and expanded our related items, as well as our in-stock alternative products. Externally, we focused on our top competitors by category, as well as our non-supported to supported manufacturer cross-references. Development of fastenal.ca, our Canadian-specific website, is also underway and scheduled to be released sometime in Q1. By incorporating a new workflow, an improved customer interface, a new search engine, and cleansed data, our goal is to deliver an experience that will create excitement and customer retention. The plan is to migrate this new experience to fastenal.com in the latter half of 2016 once some additional new features are ready to be deployed. An organization, our greatest challenge moving forward is breaking our customers' existing habits, as today, they procure a majority of their online needs from our online competitors. We acknowledge in order for a customer to change their habits, they must have a compelling reason to do so. With that in mind, we are building out distinct features that we believe will not only create separation from our online competitors, but also be the compelling reason for more and more customers to migrate to fastenal.com. Two of these features were referenced earlier in Kevin's presentation, FAST360, as well as Ship to Locker. The concept behind FAST360 is to provide our customers with a holistic view into their entire relationship with Fastenal. Our customers are asking for a single point of truth, as well as for Fastenal to act as a single entity, no matter how they transact. One of the most powerful tools being developed within FAST360 is My Inventory. This is a place where a customer can come, enter a part number, description, navigate through a category tree, and we will populate the products, indoor products, and where they live today, whether that's in an existing Fastenal service device, customer bin stock, or vending machine, or dedicated inventory back at the local servicing store right down the street. Instead of having our customers purchase an item that they may already physically have on site or wait until tomorrow for today's needs, our goal is to provide visibility into our customers' inventory by location, help control spend, and provide today's needs today. The other sneak peek feature that you had visibility into is Ship to Locker. This is really about bridging e-commerce and our industrial vending solutions. During checkout, providing our customers with a 24/7 will-call option, where we will place their order in one of the outdoor lockers that are currently being deployed and then send a pickup notification via text and email with an access code. We will deliver this product to an existing locker within one of our customer's facilities that has these devices in place today. These are just two examples, with more to come, of what we are doing to make it easier for our customers to buy, as well as to bring additional value to these customers. What creates the most value for our customers is not having a world-class e-commerce platform that is built to react and ship remotely, but to have a world-class distribution system that is built to plan and manage locally. For us, an e-commerce platform is the digital means to harness that physical advantage. As a recap, Fastenal can deliver unmatched service for locally and regionally stocked online orders, as well as drive cost savings by shrinking the unplanned spend bucket and providing an exit to the high-cost transactional model. For our employees, they can capitalize on the efficiencies gained from orders placed online, as well as have access to the new opportunities across departments as e-commerce grows. Lastly, for the shareholders, we can leverage the operational benefits gained from orders placed online, as well as realize the revenue and profit lift that Fastenal experiences from online versus offline orders, creating greater return on investment. Thank you. Mr. Dan Florness. Good morning, everybody, and thank you for making it to Indianapolis this morning. Earlier today, Kevin and Chris, and Kirk were somewhat anxious about their opportunity to talk to a group of shareholders. I mentioned to them earlier today, as well as earlier in the week, "Guys, you know your subject matter. You're talking to a group of individuals that want to learn about your subject matter." Tell them your story. I have to say, I'm incredibly proud of the job these three young men just did. One thing I think probably stands out as well, as I'm listening to these three young men talk, and I say young men, I turned 52 last weekend, so I can say that now when I'm talking about 30 and 40-year-olds. Kevin has been with Fastenal for 16 years. Chris has been with Fastenal for 12 years, and Kirk for 13. I think I wrote those down correctly this morning. The great news is they're not unique within Fastenal. When I travel around and visit stores within Fastenal, visit distribution centers within Fastenal, go to our manufacturing division, meet with people within Fastenal, that's a common theme. You meet people that are 30 and 35 and 40 or 25 years old, but they've been with Fastenal for 10 or 15 years. They have a wealth of experience to bring to our organization and to our customers, and they have a long runway of future, a benefit for Fastenal as well as our customers and for you, our shareholders. That's what I find truly exciting about the Fastenal organization, is the raw energy, the raw talent, and the future potential of that raw energy and raw talent. Earlier this morning, we put out our October sales numbers, here's some things that I concluded when I was looking through all the data. Felt a lot like September. We're seeing customers that are struggling. We're also seeing some bright spots. A few things I'll touch on is our non-fastener business, the growth actually improved marginally from what we saw in September to what we saw in October. Unfortunately, our fastener business continues to struggle because a big piece of our fastener business is OEM fasteners, and that business is struggling, and that's a sign that our customers are struggling. What you heard from Chris when he was talking about new business we're turning on, and what you've heard from Will and Dan and others over our last few months, is what we're seeing in success with our national account business, with our customer acquisition, in general, is being heavily offset by the reduction in spend with existing customers. In both September and October, we saw a similar thing with our top 100 customers. About 40 of them are negative. About 30 of them are negative double digit. That's not because we lost business. That's because those customers are struggling within their own business, and we're feeling it from the standpoint of OEM fasteners. If you produce 10% or 15% or 20% fewer widgets, you need 10% or 15% or 20% fewer fasteners to tie those widgets together. Another thing that might have jumped out in the numbers, we completed our Fasteners Inc. acquisition on the last weekend, so on October 31st. In our store count you saw this morning, there's 13 stores from that acquisition. There's about 178 employees that show up in the numbers scattered through store piece, the distribution piece, and the support function. I'd like to report an early win that we saw from that new acquisition. We had one of the locations in the Seattle area, had a customer that was planning to implement a handful of vending machines through one of our competitors. I received an email this morning that we just signed eight Fastenal Blue vending machines to go in that facility. It's our first win with our new Fasteners partners up in the Pacific Northwest, so excited for more to come in the future. Sorry, I didn't put that head phone on. Just going to touch on a few things. Will touched on this a bit earlier in the talk, but introduced what we're going to talk about today. As I mentioned, Kevin, Chris, and Kirk, I think did a wonderful job of giving some insight to what's going on with vending in 2015 and beyond, what's going on in the Onsite, really an introduction to that for the first time, just like 2011 was an introduction for the first time of Fastenal vending. We're now here to give you a four-year update. The e-commerce and some of the plans we have going into 2016. Another thing that might jump out for you when you look at our release that went out this morning is in the bottom section, we talk about our headcount. As I mentioned earlier, part of the headcount increase is people we've added at the store. Part of the headcount increase is our recent acquisition of Fasteners Inc. You might also notice in our support function, our support areas, an increase of, and I'll get the exact number, 66 FTEs in the last 12 months. You might scratch your head and say, "Well, geez, Fastenal, you're not growing that fast. What's happening there that you're adding support infrastructure?" 58 of those 66 are in our IT function. Some of the things that Kirk talked about are there because we're building our IT resources. I believe it's next week or the week after, Will's going to be traveling to Bangalore, India, to visit our facility we have there that we set up over the last two years. We currently have about 75 individuals in that facility with a goal of having about 100 people there at the end of next year. Half of our IT increase was there, the other half was here domestically. It's continuing to build the energy and the resources to do some of the things we want to deploy to tie together what is fundamentally a great distribution business, but tie it better to the e-commerce channel that we want to tap into. Another thing as we end the visit today, or end the presentation today, we're going to have three tours. One is going to be going over to the store that you saw perhaps when you parked here this morning and see what we call CSP 16. They're going to give you a lot more details about what that is. When you're going over there, take a look at what you see and how that enhances our ability to provide same-day service to our customer. One thing you might see, I'm not sure if they replenished the shelves. When I got there yesterday, one of the folks that set up the store was apologizing that we didn't have that many hard hats. My reaction was, "That's not a big deal." She said, "Well, we had a customer that called, and they needed 14, and they bought out our inventory." I'm like, "Please tell that story to every shareholder that comes through." I'd love to see a few more empty shelves because of that story, but that was a nice early win in our CSP 2016. CSP, if you recall from a little over a decade ago, was what we called Customer Service Project. It was our merchandising of the store. We did a wonderful job with CSP for about six or seven years. In 2008 and 2009, when the world was coming to an end, we completely dialed down CSP. As we emerged from the recession of 2008 and 2009, we were dialing up a lot of things. Our business was taking off. We were getting into this new venture called vending, and we were putting a lot of energy and a lot of resources into it. To be honest with you, our old friend, CSP, we kind of forgot about them for a few years, and we never dialed that back up. Right now, what you're going to see over, Matt, is a nice catch ourselves up to date and bring it to the information we know about all of our customers across 2,600 stores and let's step up our storefront. One thing we learned when we were doing the due diligence on the Fasteners, Inc. acquisition is we learned a lot about their business versus our business. They're a regional distribution business, a lot of fasteners in their business model. National accounts is not part of their business because they're not a national distributor. It's all about regional and local customers. When I look at how much product they have going out the front door versus the back door, because when I think of our business, most of our sales, most of our inventory goes out the back door of a Fastenal location into a Fastenal truck, and we supply it to the customer's business. We have a relatively small piece, 15%-20% depending on the store, that goes out the front door. If our average store does a little over $100,000, we probably have $25,000 going out the front door. These folks have four times that number going out the front door. We're going to see what we're going to learn from them as well, because we think we bring a lot to their table. They bring some fresh ideas to ours as well, and they reinforce things that we inherently know about our business and about our customers' needs. Right behind you. You've heard us talk over the last few years about T Hub, this new distribution center we were building to support our vending initiative. One thing to think about when you're touring T Hub, then when you're touring I Hub, is they're fundamentally two different facilities. If you think of our business for many years, our public numbers, we stock about 160, 165 days worth of inventory. If I think about our supply chain, about 60 days of that timeframe is inventory sitting in a distribution center. About 100 to 110 days of that supply chain is inventory physically sitting in a store. Our distribution centers are fundamentally about restocking on a periodic basis, inventory going to the store, and the inventory is sold from there. What fundamentally changed with vending is the breadth of SKUs that you're talking about isn't this wide anymore. It becomes this wide, but the frequency is off the chart. It requires a fundamentally different type of distribution center to handle that, and that's what you will see when you're looking through a T Hub facility versus what you're looking at a typical industrial distribution facility of Fastenal that is more about replenishing a store versus replenishing a machine. In the machine, you're talking about days and weeks of inventory, not weeks and months. Hopefully, everybody can see this slide. I know it's maybe a little bit busy, but I want to talk through some of the aspects of what you're seeing here. Over the last six, seven years, we've talked at length in our quarterly releases about what we call Pathway to Profit. I want to take a little bit of a revisit down that and then start talking how the Onsite business that Chris talked about earlier compares to that business and how it's grown over time. If you look at the first two lines on the table here, we've taken the five lines that used to be in our Pathway to Profit disclosure in the 10-Q and in the annual report, and we boiled it down to, hey, here's the stores doing over $100,000, and here are the stores doing under $100,000. If I go back to 2000, our average store did about $70,000 a month in revenue. Our pre-tax that year was 17.4%. 95% of our sales went through a store. The other 5% went through this thing that we were kind of doing, but we didn't really give much thought to. We had a bunch of district managers out there that were being innovative and creative with how to service their customers' needs. We were starting to do Onsite, but we didn't really give it much thought. It was about 5% of our business was either going through an Onsite or what we call a strategic account store, which is similar to an Onsite, but we're not on site, and maybe we're handling two or three or four large customers rather than just one in that facility. By 2005, our average store in that first group doing now 91% of our sales had grown to about $73,000 a month. The Onsite business, the large account business, was now about 9%. For the year of 2005, our pre-tax was about 17.7%. You were seeing a slight pickup because we were doing some things to improve our business. We had set up Shanghai, our sourcing entity, in 2003. We were bypassing some of the master importers. We were doing a better job of sourcing. We were tuning up our business a little bit, but the inherent profitability was shining through because our average store size was starting to grow. By 2010, 83% of our sales were going through a traditional store, either in the U.S. or Canada. 14% of our sales were going through a large account business, principally through an Onsite. 3% was coming outside of the U.S. and Canadian markets. Mexico, outside North America in general. There was a little piece that was added into that because we acquired Holo-Krome late in 2009. Our average store was doing $78,000 a month, and we are now at 19% pre-tax. That number is moving up because our store base is slowly maturing, and it put us in the luxurious position of being able to fund the Onsite at the same time and learn more and more about it. Now let's flash forward to 2015, the third quarter that just ended. 80% of our sales go through a traditional Fastenal store if you look only at U.S. and Canada. Note the pre-tax of the subsets. We talked about Pathway to Profit years ago, and we said, "You know what? We can get to 23%. It's going to take time and a slow maturing of the store base." We hit 23% in our store base in both the second and third quarter of this year because of the fruit of our labor in the last seven years of growing the average store size. Today, our average store is about $106,000. One thing that might jump out as well, if you look at that under $100,000 group, the average store there does about a little over $60,000, between $60,000 and $65,000 a month. 17.5% pre-tax. Looks a lot like Fastenal circa 2000 and 2005 when our average store was a little over $70,000 a month. The fact that we have the same level of profitability is because we've improved the engine. We've improved the business in the last 10, 12 years, and that's why we can get there with a slightly smaller store. The other thing that jumps out, Will talked earlier about the fact that there's things that we can do because we have a structural advantage in the marketplace. My wife and I have been blessed with four wonderful children. We have two kids in high school and two kids in middle school. One thing that I've impressed upon them over the years is have passion in what you do, whether that's your school activities or your extra school activities, sports, et cetera. Know one thing, your mom brings a lot of things to the table athletically, your dad offsets every one of them. Your odds of Olympic-caliber competition are probably pretty limited because you might have passion, but you don't have the structural advantage. The thing that excites me about Fastenal is we have the passion and we have the structural advantage to be an Olympic-caliber distribution business, it allows us to do things others can't. It shines through when I look at that 100,000-plus group of stores. The group there does a little over $165,000 a month on average. We've talked previously about how the gross margin actually drops over time, our gross margin there is lower than the company average. So is our operating cost structure. One thing I've learned from looking at the public distribution businesses over the years, as well as any acquisition targets that we've looked at over the years, here's what I'm typically going to see when I look at that financial statement. You're going to see a business with gross margin somewhere between upper 30s and low 50s. That's what I expect to see before I open something up. You're going to see operating expenses that are probably upper 29, 30 neighborhood to 34 neighborhood. It's typically what you're going to see. If it's a uniquely different business, you might see a number that's materially above that, but it's because it's a unique business. You typically see operating margins somewhere between 8% and 12%. When I think of a lot of the public players that have scale, you probably see that number move up into the 13, 14, 15 neighborhood. It always makes me scratch my head a little bit. They don't have 2,600 stores. That's a tremendous weight on our P&L. Because of the aspect of Fastenal, I'm going to touch on it a little bit more in my closing, because of Fastenal's history and the way we go to market, we developed a frugal nature. Again, I'll touch on that in a few minutes. I wanted to point out the pieces to the equation. The other thing that might jump out to you is, "Hey, Dan, if your stores are at 23% and you just reported 22%, the other 20 has got to be lower than 23." You're right. The other 20 is the international is a very young business for us. The Onsite, as Chris mentioned, operates with lower gross margins, but also materially lower operating expenses. It also has materially lower levels of inventory because with that kind of volume, the inventory turns much more rapidly. Bob Kierlin has told us for years. For me, I've been at Fastenal, I'm in my 20th year. I've heard it for 20 years. Will's heard it, Will and some of the other guys have heard it for 30 years. These folks over here have heard it for 10 to 15. Folks, it's about the return. Never lose sight of when we're looking at store to store, we're looking at common metrics of the business. At the end of the day, it's about what is your return on that business. Onsite is incredibly attractive returns. That's why I'm excited about it. Because with our existing business model, it fits us. Just like four and five years ago, vending had incredibly attractive returns because of our store footprint. Touch on a little bit here about some of our CapEx needs, this is something that I don't know everybody appreciates, but we're working out through a massive capital investment that's occurred over the last four or five years. If I go back to the period 2000 to 2010, if I took all the years and started looking at, hey, what's CapEx relative to net earnings? That's how we think of the number. Some people think about a CapEx relative to sales. We think about a CapEx relative to net earnings, because that's what's paying for it. At most years you'd look at, we're probably going to be in a range somewhere between 25%-30% of earnings we put back into the business in the form of CapEx. Depending on how fast we're growing, will influence how much is going back into the business as far as working capital. Back in 2011, when we had the Investor Day, we started talking to you about some things that we were going to be doing. One thing we talked about is there was going to be, we were really confident, we were excited about this new vending initiative, we were going to put some infrastructure in place, we're going to start buying some vending machines. We weren't sure how fast it was going to grow, we bought ahead, we have an inventory of vending machines ready to deploy today. We're not dependent on the speed at which our manufacturer can produce month to month, quarter to quarter. The second thing is, we had learned a lot when we first put automation into the Indianapolis facility that you're going to see later this morning, as well as our Dallas, Texas, facility. We liked what we learned, we said our CapEx was going to go through the roof. It's going to be there for about three or four years. Over the last four-year period, our CapEx has averaged about 35% of earnings. We peaked out two years ago at 45%. This year, based on Street estimates, we'll come in around low 30s, around 30%. That's what the future looks like, too. We're going to have another five points of operating income that's falling into free cash. I frankly hope we spend it on more working capital because we're growing faster, we'll have that gunpowder that we haven't had in the last four or five years. That's an exciting piece of the business going forward. Now, I'll recap on a few points that Kevin made. The vending opportunity is huge, with 54,000 machines out there, we know a lot about that business. With our store network, it's a natural complement because we can fill the machine. It works really well with what we do. We have that structural advantage I talked about earlier. We have the market-leading capabilities because we have a great vending platform, we have the machine behind the machine to support it. Nobody can come close to that from a pure supply chain efficiency. Will touched on it earlier, too, with his comments about freight. Tremendous advantages that we have built into our model because we were fortunate enough to start with fasteners. Fasteners don't have a lot of value per pound, and they're really expensive to move because there's a lot of secondary operations. If you want to get good at that business, you get good at moving product. You get good at a great source of supply around the country, so you have to move it a shorter distance. There's a lot of touches, a lot of movements, and we built a better machine, and now that machine can service all the other products and all the other output in our supply chain. Same thing with Onsite, as Chris identified earlier. Huge opportunity for us, and I believe we're uniquely situated to go after that business. If you recall from what Chris was talking about, our average Onsite does about $150,000 a month. Most of our competitors that are in the space don't have sufficient profit margins for their model to work in a customer doing under $200,000 or $250,000 a month. That works for us because it fits our existing distribution network, and we can make money there. Our competitors can't because their cost structure is too high. E-commerce. Probably the biggest thing that I think about when I think of e-commerce is everybody that's involved in that space is trying to figure out ways to deliver faster, more efficiently, the flying drones, everything else you hear about, we have that capability today. With our trucking network and our distribution network, we're not two days away. We're not even a day away. We can get you the product before the next day if it's not in the store, at a competitive shipping cost. We can operate and we can make money in that space. Some of our competitors can't, and that's exciting when you think about our capabilities going forward. CSP 16, I'm not going to touch too much on that other than to say, please take a look around the store, ask a lot of questions. The folks that are going to be guiding you through that are very knowledgeable on what we're doing there. Your one question might be, "Geez, you're adding a bunch of inventory per store. How much working capital, how much inventory are we talking about? What's the cash?" We're going to do about 900 stores yet this year that we're converting. You're visiting one of the 900 here in a few minutes. We're going to introduce $25 million-$30 million worth of inventory into those locations. With those locations, we are going to forward deploy inventory in our distribution centers because part of our redundancy will be at the store now rather than the DC. We will fund that from inventory of our DCs. As we go into 2016, we probably will add, in today's dollars, around five days of inventory into our business because of CSP 16. We're excited for the opportunity to make that investment because as Bob has always told us, it's about the return you can generate on that investment. Never shy away from great opportunities to improve your return and grow your business. We've heard about why vending, why Onsite, why e-commerce, why Fastenal in that equation. Two closing points I'd like to make. One is, like you saw in these three young gentlemen that were up here speaking earlier, great people close to the customer. When you have great people close to the customer, you have incredible flexibility of what you do. When you think about that chart that you saw of vending and how fast we moved up that scale from 2011 to 2012 to 2013, what you see is an organization that was able to do that, because we weren't ready to do that. We were able to do that because every shortcoming we might have had structurally within the company was there to be supported by the smart people in our stores who are innovative every day and bring solutions to the customer. That's why it works so well for us that we could do it so rapidly, so fast. The second thing is frugality in the business. I remember when I first joined Fastenal back in the mid-1990s, I went on a trip with Bob Kierlin. Bob was in, I think it was BusinessWeek at the time, but he was publicized as the cheapest CEO in America. He had talked about his used suits and eating at Burger King. I got Bob to switch to Taco Bell on our trips, but that's a different subject for another day. It wasn't about being cheap. It's about being frugal. Here's what frugal means within Fastenal. First thing it means, the further you get away from your customer or the supply line that goes from your supplier to your customer, the less willing you are to spend money. One thing you will see when you walk through this facility, we put over $100 million into this facility over the last six years in expanding the facility. That's not counting buying the property. That's just improvements we make to the facility. We've invested about $400 million into vending over the last five years. Today, we have a business that does about $600 million a year in revenue. Frugal is about the things we don't spend. You come to my office, it's used furniture. That doesn't help our service to our customer. That doesn't help what we want to do at the store. You go to the store, you will see new vehicles. You look at our semi fleet going down the road, you will see new semis. You look at what we're willing to spend in adding energy to our stores. We're willing to spend dollars there because that affects our ability to serve our customers' needs. By being frugal, we can make money in a $50,000 a month store. That 8%-12% I talked about earlier, that is the industry norm, that's our profit level in a $50,000 a month store. Nobody else can go there and make money. That's why in $150,000 Onsite, with $50,000 in gross profit, we can make money. If you have inventory and people close by, you have great redundancy of resources to cover the unexpected things that come up and provide a high level of service to your customer. Thank you. Dan, we're running a little bit ahead. Maybe we should take a 15-minute break, and then we'll start at 20 minutes to, and it'll give us 50 minutes for Q&A. Perfect. If you can be back in your seat at 20 minutes to the hour, we would appreciate it. You're going to rise up singing. You'll spread your wings, you'll take to the sky. Feel that morning air. Nothing can harm you. Daddy and Mommy just beside you. Come what may. There's sure somewhere the cotton is high. Your daddy is rich and your mother's good looking. Hush, little baby, don't you cry. One of these mornings, you're going to rise up singing. You'll spread your wings, you'll take to the sky. Feel that morning air. Nothing will harm you. Hush, little baby. I don't want six-eyed critters with red-like spitters. I'm never satisfied. I want the same pram for 50 or 100 with your papa on the side. I don't want four-knobbed chickens that won't awaken my appetite inside. I want the same pram for 50 or 100 with your papa on the side. A fella's really got needs. A fella shouldn't gripe. By June 10, I'm going to feed myself right. I don't want fish cakes, do I, dear? You heard what I said. Waiter, please serve my bride. I want the same pram for 50 or 100 with your papa on the side. I don't want fish cakes, do I, dear? You heard what I said. Waiter, please serve my bride. I want the same pram for 50 or 100 with your papa on the side. Now, if you don't have it, just send me the check for the water. At this point, we'll start the Q&A. I guess what we'd ask is if you have a question, when we point you out, stand up and speak as loudly as possible. If it isn't real loud, we'll repeat it for folks that are listening online, so everybody knows what the question is. Ryan, I think you raised your hand over there. Actually, we weren't going to. Some of the initiatives that we talked about today, it seems focused on non-fasteners. Just talk about that first. Then second part to that question is, it seems the big growth opportunity for Fastenal going forward is in the non-fasteners. If that becomes 80% of sales, 90% of sales someday, how should we think about gross margins over the next, call it 5 to 10 years, what's the trade-off to EBIT margins in return? I'm going to take the first half of that question. This is not about non-fasteners. If you think about the initiatives, vending is mainly non-fasteners, I'll give you that. Onsite is predominantly fastener business. It's at least 50/50, if not more. The e-commerce, we believe if we build the right site, that will be largely fasteners. A lot of business that should be equally fastener business. There's no reason it won't be, because if we make it convenient to buy. Not a lot of fasteners are bought online today. We build a better system, we can move it that way. In a few minutes, you're going to see CSP 16. The products that we put in the front of the store are generally non-fastener products, but the idea is bringing the people in with those products so we do sell more products, get more fasteners. If you remember what Dan said, he talked about Fasteners, Inc. 50% of their business is fasteners in a store that looks just like a Fastenal store. They actually have a higher percentage of fasteners. As far as your margin, if I look at Fastenal and I look at where we think we're going to grow, we will probably see a lower gross margin. There's really three reasons. One is the product mix will pull away from fasteners because the other markets are much larger. It's just natural. Sorry, losing my mind here. Second is that the vending will continue to grow very rapidly. Oh, sorry. I'm thinking about products. The third one is the Onsite. Onsite's going to pull the gross margin down. Great growth, great return. Vending will push non-fastener products, overall, our average gross price gets bigger. The piece about EBIT, that's really a function of how the mix works out. As the average store size continues to grow, that benefit we've been seeing there in the past, that will continue to be there because that piece of business that's in the under 100, they keep moving up that profit curve. The real question is on EBIT, we've grown from 5% to about 16%. That's through that large customer segment, largely Onsite. If that were to double to 30, that would impact our gross margin, as Will mentioned, and it would impact our EBIT margin, but it'd be really attractive photo return, and we love the business. Rob. Hey, guys. Thanks. Just a couple of questions. First, Dan, your first observation on monthly sales was that October looked a lot like September. Is there any reason to interpret that as you seeing signs that we're bottoming here? I have a follow-up. I came out kind of strong on the October call. I found myself above the fold in The Wall Street Journal being quoted. Don't know that I necessarily needed to be there for that. One month is not a trend. Two months isn't a trend. We're going to hold off and see what. The market's going to do what it's going to do. We want to look at it and say, "What can we do to defeat some of the negativity of what the market's creating in our business?" The other thing, I didn't point it out earlier, that should also jump out, if you look at that slide that looked at the 2000, 2005, 2010. When that slide was first pulled together, I have an individual that works for me. She's worked for me for 10 years, the most polite, sincere person you ever met. I called her up and I said, "Mariam, I'm looking at the 2010 data, and the greater than $100,000 store dropped materially as a percent of our business. Your data's got to be wrong." She thought I'd double-check it, and she double-checked, and she came back and said, "No, it's correct." I said, "Mariam, it has to be wrong." She told me in a very polite fashion that I was full of something. You know what I learned when I really delved into it? That was because of 2009. 2009 hammered our business, and you saw it in that greater than 100,000 population. Some of those stores went backwards. Some of those stores went backwards enough that they moved down into the sub 100 group. It went down to like 40% of our business was there versus the 50-something we got today. You don't see that pattern emerging in today's business. The reason you don't see that pattern emerging in today's business is we're doing a whole bunch of things, vending being a big part of it, but we're doing a whole bunch of things that give us a different arsenal. I meant it when I said I believe the industrial marketplace is in a recession. I meant it when I said that. However, the impact on us is much different than we've seen in prior slow periods because we have more arrows in our quiver at the store level to defend our business. Yep. No, fair enough. The second question was really just about, I guess, paying for all of the very interesting things that you've outlined here today. Lots of compelling ways to potentially start growing or accelerating the revenue growth. As you invest to engender this growth, and that happens now, but the growth comes later. How should we be thinking about the contribution margins over the next year or however you wanted to mention it, the incremental growth investment, to do all of these things that you've outlined this morning? Sure. If I think of incremental margin, the things we talked about are probably not that horribly meaningful to where that number comes in at. At the end of the day, it's going to be how much growth do they create for us, short term and longer term. That's the real $128,000 question. If I think of the 200 people that Kevin talked about adding, for example, into vending, half those people are already added in our system, or 75%, excuse me, are already added in our system. That group is largely being funded by what we're seeing in early wins and what we believe we'll see in early wins with optimizing the machine. All the expenses of that business is already there. We have the vending machine in place. We're going to that vending machine multiple times a week. Sure. If I think of incremental margin, the things we talked about are probably not that horribly meaningful to where that number comes in at. At the end of the day, it's going to be how much growth do they create for us, short term and longer term. That's the real $128,000 question. If I think of the 200 people that Kevin talked about adding, for example, into vending, half those people are already added in our system, or 75%, excuse me, are already added in our system. That group is largely being funded by what we're seeing in early wins and what we believe we'll see in early wins with optimizing the machine. All the expenses of that business is already there. We have the vending machine in place. We're going to that vending machine multiple times a week. We have the supply chain built to bring the tote, you're going to see the totes that come off the line that are going to a vending machine. That's still going there, but you're putting in 10 more items into that tote, those costs are there. The only cost we're introducing is the 200 people to go out and help optimize those machines, and the added commissions and profit bonuses that we're paying. That one's covered by the optimization. If I look at the rest of them, they're really no different than the inherent growth drivers we've had in our business for years. They're just manifesting themselves a little bit differently. They're really no different because the Onsite expense comes when you sign the Onsites. It's not like you open a store and you wait until the store gets to 5,000 and 10,000 and 20,000 and 50,000 in revenue before you break even and start making money. If we sign 10 Onsites tomorrow, there'll be some ramp-up costs on that, just like there'd be ramp-up on any business, the business is there. You're putting in team to support the business as opposed to building a team to get the business. Hopefully, I covered that one. Yep, up in front here. Gene. Can you hear me? Yep. You mentioned that the proportion of sales going out the front door at Fasteners, Inc. is four times the typical Fastenal store. Just curious if you have any theories as to why that's the case and whether that is something you can control or whether it's really a function of location and geography, which would be harder to adjust for. Can you say that again? Wondering if that's a location-based discrepancy or whether it's something you have more control over. Why the company we bought has so much more walking out the front door. I think there are actually several reasons. One is they didn't have the other things to sell. As Dan mentioned, when the economy came back after the last major recession, we went on to vending and national accounts and a bunch of things, and that customer segment went away from us during 2009, 2010. The customers came back. They just didn't come back to us because we had refocused. That was a big mistake on our part. We're willing to acknowledge that. When we look at Fasteners Inc, and Dan and I have had the opportunity to look at some other businesses that are similar over the last year, that's what their focus is. They have better front-room inventories. They've worked very hard to get people in and out the door very rapidly. What we have to do is we have to learn. It's not that we don't know a lot about this. We have hundreds of stores that are very good at this. Unfortunately, we don't have thousands of stores that are very good at this. We have a good model, and we really have two big data points. One is what we're learning from the company we bought, and one is the other, is focusing on probably our best hundred stores and think, what are they selling? What's the traffic count? We think the CSP 16, I'm very confident that our investment in our stores is going to be a great decision. When we talk to our managers at a group in this week, they are also very confident, saying, "This is fantastic." Same day. We think we can duplicate it. Part of it is location, and some stores we're probably going to have to move. But most of our locations are actually quite good when we look around the entire population of Fastenal stores. Does that answer it, Dave? One thing I will throw out, when you're doing the tour of the CSP 16, I hope the store manager's going to be there for the tour as well. Make sure we ask the store manager to tell his story about the fastener sale he just got because of the expanded inventory. Because the item he was selling, we typically would stock two or 300, and a customer came in and needed over 1,000 of them, and we had them right there for that sale. And that's an example of the out-the-front-door business that we would not have gotten two months ago. The other piece of information we have is the person who's ran Fasteners, Inc. since 1993, whatever, 20 years, knows Fastenal extremely well, almost a little weirdly well from meeting with him. He's telling us a lot. He said, "Here's why your people aren't coming to your stores. I'm talking to my customers and saying, 'What can I do against these guys?' Because we're like the Darth Vader in the neighborhood, and so we have an inside resource now that's been selling against us, very bright guy, for 20 years, and now he's on our team. We do have some good knowledge. Again, it isn't just there, it's all over the country, talking to our people. Yeah. Thanks, guys. A few questions here. Number one, just in terms of the latest and greatest in terms of your Canada and energy exposure, did the recent October sales give you any further insight into the stabilization there, or any kind of narrative or information about those markets as we look into 2016 at all? I can't talk explicitly to Western Canada. Yeah. I can tell you, on previous earnings calls, I've talked about that Oklahoma, Louisiana, Texas market, when we lump those three regions together and we look at our sequential patterns, what we're seeing. We had seen stabilization in that business from June to August. The growth numbers were pretty ugly, but I'm just talking about the sequential patterns. We had seen stabilization there. In September, we took a big step down. In October, we got about a quarter of that step back. Again, to Bob's point earlier, one month isn't a trend, but it felt pretty good getting another piece back. The business there dropped 8.5% from August to September from what we would have normally expected, and we got 1.5 of that back. Okay. The next question is, in terms of long-term vending, I think you highlighted 10 industries that are going to be fertile for vending and some of which you are not in. Could you talk about the ones that you're not in that you're thinking in terms of proof of concept? We are actually in all 10 of those industries. Okay. We're in far more than 10 industries. Right. These are the 10 industries that we've had the greatest success. For Kevin's information that we presented today, we narrowed it down and say, "Let's make sure that we're really confident in these." We're in them all with a great deal of success, all 10. Okay. Just in terms of vending as a whole, could you comment on maybe your most potential or highest potential markets in terms of what are your highest vending returns or machine revenues per month? In other words, can we get a sense of what the potential could be for the existing vending fleet? We have one area of the country that stands out by like this much. It's the country of Mexico. If Terry's back, where's Terry? How many vending machines do we have in Mexico, Terry? We have a couple thousand machines in Mexico, and our revenue per machine is $2,600 a month. It's light years ahead. When I talk to Terry, who actually developed that business for us, it's because we went in with a different strategy from the beginning. Instead of going in and asking the customer, "What do you want?" Then it's kind of a free-for-all, we went in and said to the customer, "Here's what we can provide." I don't know if that was just good planning or if it's that we had a narrower product line in Mexico at the time. We went in and made it very focused. The result is that our average machine's revenue is almost two and a half times or at two and a half times. The other place where you can see a meaningful difference in the revenue per machine can be heavily influenced by what is the product you're dispensing. I visited a plant not too long ago, and we were doing about $4,200 a month per machine. A lot of welding tips, a lot of more expensive products rather than safety glasses and gloves. Hi, Will and Dan. Thinking about the market that we're in right now, if that were to continue in terms of the underlying demand fundamentals the next couple of years or so in this sort of slow growth environment, how should we think about the initiatives you have with vending Onsite and online in terms of the type of growth it can add to your top line over the next, call it, two to three years or so? I probably don't want to step too far into that answer, to be honest with you, other than to say, we identified a big chunk of customer opportunity for Onsite, for example. Let's say we can do the 200 a month or 200 a year that Chris talked about, and there truly is an additional $1 million in annual spend that we're going to drive in the first 12 months. After that, it becomes more of a steady state. If we make some advances, it's because we're making some more inroads. Other than doing the math and extending that out, I probably wouldn't want to get too deep into that. Sure. That's fine. My other question is just, I'm sorry if I missed this, but could you talk a little bit about, as a percentage of your revenue, what online is right now, the amount of sales are going through online? Is there a way of thinking about, is there a near-term or intermediate-term goal of where you'd like that to be going forward? We historically haven't disclosed it. It's a relatively small piece. It would be upper single digits. You have to start asking a question about should we measure it against the company? If I think of most of the companies that are out there, they're much more pure MRO businesses, you're comparing apples and apples. All of a sudden, if you look at our business and say, "Well, geez, 30% of the customers with vending is going through the vending machine." 13% of our sales is vending product going through a vending machine. That is electronics by definition. If you take that out, now you're talking about the other 87. You look at it and say, "Well, 18% of our sales are going into OEM fastener settings where we are by definition, that isn't eligible to be bought online because we're the supply chain." We're managing it through technology with barcodes and scanning and things like that. All of a sudden, you take that piece, now you're talking 65%, 70% that's left. You start going into bin stocks and walk-in business going out the front door, even though it's a smaller piece than I think it should be, still is a meaningful piece. You start carving those out, it's a question of, are you measuring it against 100% of our revenue, or are you measuring it against 50% of our revenue, which is really maybe eligible, or 40% that's really eligible for that channel? The numbers change quite a bit. As Onsite grows, which is lower gross margin, but I think you've said similar or higher returns on capital, is there a need to change the historical, very strong focus internally, internal messaging, on that 50% gross margin? Just changing the way you talk to employees about here's how we focus our financial targets to more of a return on capital than a laser focus on that gross margin. We just broke 20,000 employees in the month of October for the first time ever. If I think of those 20,000 employees, about 13,000, 14,000 of them are physically working in a store or Onsite. For the chunk of that population, 12,000 or so that work in a store, nothing's changed. For the subset of people that work on an Onsite, that's a fundamentally different business, and the message to them is fundamentally different. One of the reasons we brought Chris into his role was to help us understand it ourself from somebody who had lived and breathed it for many years, so we can craft that message. If you have 200 implants or Onsites and you double that to 400 or to 500, given the ones we've added this year, it's really what's the message going to those 400 locations and the people that work there, as opposed to the folks that work in the 2,600 stores. Structuring the pay plans. Structuring their pay plans to fit that is important. Just like structuring the pay plans in our traditional store to fit that business was important. To incent the store managers and the DMs to move some of that business potentially to an Onsite, they have to get the message as well. They have to get the message as well. The biggest message is going to come from that one slide that Chris had where it said, "Hey, districts that are doing a bunch of Onsites, here's how fast they're growing." They're up, I think it was 18% from January to October. 20. 20% year to date versus what's going on in the business. The district manager piece, I think is the easiest sell, if you will. The store employees, it's really looking at it and painting the picture of what we see happen in stores and then having a fair compensation program that addresses that. If I'm giving up $30,000 of my revenue and it's going to this Onsite, how will I be treated? The big issue is how will I be treated for the next 12 months because of the tiered program we have with commissions. Hi, Jamie Anderson, Credit Suisse. We saw a little bit of a deceleration in September in the average daily sales, and now that's continuing into October. Some of your competitors in the space are seeing a further deceleration in November. One of your competitors came out and said that they're expecting November to be down mid-single digits. Another industrial distributor came out, now they expect December to be worse tied to the lower oil field services spending. Looking out into the balance of the year, one, how are you seeing November shape up, given that we're only a few selling days into the month? How are you viewing December? Are you seeing the same thing in your business? What gives you the confidence looking into 2016 that we can start to see a pickup again in that growth? One thing, I think Will will agree with this. Years ago, a few times now, especially on the January call, we would actually respond to what we're seeing in the month of January when we're reporting fourth quarter. Every time we do it, we're wrong. The question is by how much. November, I guess I'll wait till early December when we report that. There's nothing we're seeing in the trends that tells us it's going to get better. We don't frankly know what's going to happen as we get into the new year. What we do know is that when I think of in early December, we'll have our annual employee trade show, our employee expo. In that room, you will see 2,000 Fastenal employees in a blue shirt. What I know is whatever the marketplace delivers to us in the next five months or the next 15 months, we're going into that market with that group of individuals in those blue shirts, I can't think of a better group to go with it in because they can react and adapt to what we're seeing today. Not in a few months, not in a few quarters. They're able to react and adapt very quickly because we manage in a very decentralized fashion. We have 280 district managers that are making decisions every day because they know what's going on in their business, and they are partnered and led by 24 regional VPs that have been stellar operators in their own right, both as a store manager, as a district manager, possibly as a hub manager. The best way to approach uncertainty is to have a great team you can count on. I know I didn't really answer your question, but I don't know if there is an answer. Hopefully. Hopefully in the last two hours, you saw that we're very optimistic in the industrial distribution business. We can't affect the economy. We can only affect our execution and first focusing on our growth. As Dan mentioned earlier, when we looked at our strategy, we started really thinking, okay, where do we invest? We also said at the same meeting, how do we pay for it? We had 200 vending reps. You know what? We can pay for every one of them with optimization. We wanted to do CSP16. We met with Nick Lundquist, who runs our supply chain, and said, "Nick, tell us how much you can take out of the hubs without hurting service." He came back, said, "I think I'm comfortable with $35 million we've had." The reason our inventories are higher is because our sales are down. You're projecting where to put it. He said, "I can take that out." We're going to pay for CSP16. We also went to the suppliers that are helping us to do this and said, "Hey, we need some help. We can't bear the whole load here. You need to help us transition this cost so we can do these store opening, not openings, but improvements without adding it." We went to Chris. Chris said, "Will, man, I could really use a sales force for my Onsite program. If I could get that like Kevin did." I said, "No, we have 280 district managers. You have to train them because we don't have any money to add." We pushed all these initiatives with really adding no expense. We believe if whatever happens with the economy, we will accelerate our growth out of whatever that would be because of what we're doing. We also communicated. Dan and I have worked hard on this, along with pretty much everyone in the blue shirt, at getting that word out to our field that we have to be tough on expenses. You look at the great job that Dan and the team have done over the last year. Basically, no sales growth or very low. We've still been leveraging. We're in a great position. It's not like we're spending like we're crazy. If it accelerates, to bring it to the bottom line. I'd like to say that the biggest reason we want to do that is for you. That's not true. The biggest reason we want to do it is for all the Fastenal people that are working with smaller bonuses this year. If they win, you win. That's a really important point, that we need to re-accelerate our earnings growth, our sales growth, our profit growth to pay the team. If we do that, everybody in the room is going to win. We're very focused on keeping these things going and not adding a lot of other expense. We're looking around the entire business going, "Maybe we could do without that for a while. Maybe we don't do this for a while to save that money to drive growth and profitability. With a historically fragmented industry and your balance sheet, very little debt, do you think there's an opportunity to leverage that more, use acquisitions for growth going forward? Just even without acquisition, just more opportunity to leverage the balance sheet in the future, and what are your thoughts around that? Historically, 100% of our energy has gone into creating and enhancing a beautiful business. We've never used any leverage on the balance sheet to speak of in that process. In the last 12 months, we've taken on some debt, whereas, as I mentioned on the third quarter call in October, we're expanding our line of credit from half a billion to $700 million. We want to be in a position if from a stock perspective, we've bought more stock back in the last four months than we've done in 50 years. That's more of a statement about 50 years than it is about the last 12 months, to be perfectly frank. We've demonstrated that we're willing to take some of that on because we didn't want to pull back on any of the investments we were making in the business. We decided to maintain our dividend in place and essentially buy all that stock back with leverage, and we're open to do more of that. As I mentioned in that CapEx discussion, one of the pieces we'll have to do more of is the fact that our inherent CapEx, our structural CapEx, is coming back down to a more normal level than it's been in the last four years. That means in quick math, about 5% more of our net earnings. Our net earnings last year, about a half a billion dollars. 5% of that number is now available to do some things with too. Relatively small in the scheme of what we're doing, but it's still a component. Thank you. Fastenal clearly has a good position in on-site sales. From your comments earlier, it seems like this business could have been nurtured sooner to take advantage of that position and get a greater head start on some of your competitors that are doing the same. Organizationally, what didn't filter up to the top to invest more resources in on-site earlier, and what will change communication-wise so that you can take advantage of that positioning better going forward? I'll throw a few things into that. One is over a 15-year period, we grew it from 5% of our business to 16% of our business. In that timeframe, we went from a billion-dollar distributor to a $4 billion distributor. We have been nicely investing in it. If you start putting the pieces together, it's about 30% of our national account business is going through an Onsite rep. We've made meaningful installments in that growth driver. At the same time, if you go back to the mid-1990s or late 1990s, we put a lot of energy into expanding our product line. In the last 20 years, non-fasteners have gone from 15% of our revenue to 60% of our revenue. We made a big investment into national accounts. In that timeframe, national accounts went from 2% of revenue to right now, it's approaching 50%. If I add government and large regionals on top of that, we have about 57%-58% of our business is large account. We've done a number of things. In the last 10 to 15 years, we did a bunch of very transformational things. We improved our ability to source product with our trading company we established in 2003. We started our initial CSP initiatives. We slowly tuned up the business and allowed the inherent profitability to shine through. We developed an industrial vending platform that was completely new to the industry. When Will made the comment earlier, well, maybe we didn't invest in this one heavily enough or made the stake here. He's talking about CSP 16, maybe we should've done this a couple of years ago. I'm not going to beat ourselves up too badly because there were a lot of things we were investing in. At the same time, it is 16% of our business today. I just want to add one thing to answer the end of your question, you said what's going to change? There's two huge points. One is that we build these tools that Chris talked about from looking at the structure, understanding the business, and the other is we take the hurdle down on the manager's pay. I'm a store manager. It's the largest customer I have. The old way of doing it, before we had the pay program, we'd say, "Oh, we'll pay on that account for a year or so." That's not enough because they're saying, "Hey, I'm going to be here for 10 years." We've developed a new program that we're going to write them out a big check. If they can take their biggest customer, hand it over, we're going to give them a lot more than they'd make off that over the next three, four, or five years. When I look at that expense, I say I would do that all day long for every manager in the company. If I can add a million and a half dollars or $2 million, look at what we would spend to open a new store over the last 25 years. We could write a big check and still be a fraction of that. We're structurally looking at our business differently, and that's going to be the difference. I believe that's part of the reason. This year, we went from averaging nine over five years to hopefully 80. That's without making these changes. You've been pretty steadfast about hiring sales personnel in the face of a tough macro environment this year. We've seen a big discrepancy in growth in your store FTEs versus daily sales. You've managed to do that without having a big negative impact on your margins. I'm wondering if that is a repeatable trick, if the macro environment remains, we'll say stagnant for next year, or did you benefit from things like lower variable compensation where that's sort of Are there one-time benefits, or is this something that you feel you can continue to do, this investment in this workforce now? If you look at 2015, we had a number of things that helped us out. As Will mentioned, we have a lot of individuals that are paid off incentive comp that are making less money in 2015 than they made in 2014. That allows you to still have the gunpowder to keep adding energy into your stores and defend your operating margin. That becomes more challenging once we anniversary a slowdown period. That'll become more challenging when we get into the new year. The other thing is, if you think about the headcount we've added at the store, we've added a lot of headcount, we've created a lot of capacity in our stores, and some of our needs for adding headcount are going to be dependent on next year, how fast we're growing to service some of that business. We haven't officially come out with what we plan to add for next year. We'll be talking about that internally with our employees when we're in our meetings in December. We are optimistic, as Will mentioned, about what these things we're talking about could mean as far as revenue growth, and that by extent will require we're adding people. Absent that, you probably wouldn't see the same kind of additions in 2016 that you saw in 2015. One thing we always have to remind ourselves and everyone is it's not that we aren't taking share in 2015, it's that our existing $3.8 billion from last year, that customer base shrunk. We're taking shares. If we could just get into an economic state where that business just stopped declining, even if it didn't grow, it would stack up much faster on top. That's something that, like I said, we all have to get our heads around because if the economy stays slow but not shrinking, we would be in a pretty good position with what we're doing with all of our growth drivers and offset what you're talking about. A quick example of that is if you look at our national account business, when we talked about what's happening in the top 100, that top 100 is about 40% of our national account business. If you look at the other 60% of our national account business, that business right now is growing at 10%. Our vending itself is at 17%. Do you have a follow-up? I have a follow-up. Yeah. Would you talk about some of the differentiators of your vending solution outside of just the ability to more efficiently restock and service those machines? Maybe touch on some of the technology and software involved. All right. I'm the vending guy. Some of the software things involved, probably the biggest one from a software standpoint is we developed very good software for inside the store to process the orders. Unfortunately, those of you that know me well, I'm willing to say what we don't do well, and what we haven't done well in this case is deploy it. Only about 20% of our stores use it 100% of the time. One of Kevin's initiatives with his new team is that he's going to take this software and deploy it throughout the organization. I'll give you a quick story, the best story I've heard on this. I was talking to a young district manager, manages a business with 70 vending machines. He went out and went through this process on his own, forward-thinking person. Not only did he add about $28,000 a month in incremental revenue, additional revenue, but the biggest thing that got me excited, well, that was nice, too, but he was able to take the replenishment of the machine from three times to two times per week. Which doesn't sound like a big deal. I'm driving home from this dinner, my mind's always spinning. This, he actually got $400 per machine. Our overall experience, we've done about 5,000 machines, is we're getting about $240. You do the math on those two things by deploying the software and using it to its full extent, everything looks much better overnight. We're looking at that. We're looking at a lot of new devices. We think there's a pretty big, or a very big opportunity, a large opportunity with lower cost items like fasteners through a simpler device. We have thousands of Onsite or thousands of bin stocks within our business, and every week somebody's out there scanning them with a hand scanner, which is a pretty good process. Think if we could develop a way that when that drops down, it would just send a signal, and so we don't have to go out there, we can just take the order already in our system and go out and deliver that order. Thousands and thousands of Fastenal hours would be saved overnight. Is that going to be an inexpensive solution? Probably not. Everything we've looked at, say the returns are fantastic, because all of you know the hardest thing to do is find talented people and keep them in the field. We have some great things going with vending, and Kevin has a wonderful team that's working hard on it to get these things out there. The sky's the limit. We're really in the early stages. Sean, if you could bring it up to Bruce. Yeah. After Bruce's question, we'll wrap up the Q&A. Two questions, if that's okay. They'll be brief. One, with acquisitions, there was the recent acquisition, and I was curious if this is something we should expect for us to see more of over time. Also just, another question, what degree of, if we were to see 2% additional revenue growth over the next five years on average from acquisitions, would that be unrealistic or might that be possible if a few things work out? The second question is with the branch, the new branches you mentioned for next year. I'd be curious if that's more geographic expansion or is it something where did you sign a deal, say, with Cargill, and they have a plant in a location where you don't have a presence, and so maybe you want to have a location where they are, but it's more customer specific. I'll take the last one first, and then I'll go back to the first one. If I think of the stores we're going to open, I don't necessarily see any geographic bias for those locations from the standpoint, they're not going to be in Minnesota, Wisconsin, and they'll all be out in California. I don't think there's a geographic bias to that. We see opportunities in all areas for opening additional locations, and I think only time will tell how that will play out. In the first half, remind me of the first half of the question. Pardon? Oh, acquisition. Could I see Fastenal having 1% to 2% of additional revenue over the next five years from acquisition? Sure. Could I see it being less than that? Yeah. Could I see it being more than that? Probably not. Never say never, but what was attractive in the Fasteners Inc. acquisition, as an example, we didn't acquire that business to acquire $36 million in revenue. We acquired that business because we wanted to learn a couple of things. One thing we want to learn is, can we play in the sandbox with somebody else? We want to be mindful of how we roll that into our business. Do we bring forth and bring across our 2,600 locations, a handful of things that we can learn from them that make us this much better in 2,600 locations? If we can do that, what we just paid for the business, it's an unbelievable return. The other question is, what we want to be mindful of too, is that we don't just rush to make it up and not nurture that growth opportunity in the process. This, I could see us doing a few acquisitions a year. I don't know that we're going to start becoming acquisition expert serial acquirers by any means, because we have so many, as you learned from these three gentlemen this morning, we have so many opportunities to continue growing the business organically, we always need to be open to fresh ideas. Thank you everybody for your time today, we'll break now for lunch next door. After lunch, we'll be breaking up into three groups. One group will be going to the store, another group will be staying here on the T Hub facility, another group will be going over to the I Hub facility. I do know for the group that's There are some folks that have to leave early, and those folks have been explicitly put in the CSP 16 tour first. If you're going to only make one thing.

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