Fastenal : Q3 2022 Investor Teleconference Presentation

THIRD QUARTER

2022

INVESTOR TELECONFERENCE

OCTOBER 13, 2022

1

SAFE HARBOR STATEMENT

All statements made herein that are not historical facts (e.g., future operating results and business activity, as well as expectations regarding operations, including gross margin, future inventory levels, pricing, Onsite and weighted FMI device signings, the size of our U.S./Canada network of traditional branches, operating costs, capital expenditures, digital footprint, and supply chain difficulties) are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. More information regarding such risks can be found in our most recent annual and quarterly reports filed with the Securities and Exchange Commission. Any numerical or other representations in this presentation do not represent guidance by management and should not be construed as such. The appendix to the following presentation includes a discussion of certain non-GAAP financial measures. Information required by Regulation G with respect to such non-GAAP financial measures can be found in the appendix.

2

CEO MESSAGES ON 3Q22
			Daily Sales Rate (DSR) Growth			• We had a solid performance in 3Q22. Our 16.0% daily sales
					growth was leveraged to 19.1% operating profit growth and,
20%									18.4% 18.0%			ultimately, strong operating cash flow (54.1% growth). The
18%											16.0%		Blue Team continues to execute well.
16%								14.6%
											3Q22 demand was stable. September's 2.7% sequential
14%
12%		10.3%											DSR growth lagged the historic norm of 3.4%, impacted by
10%						10.0%						storms hitting the southeastern U.S. The storms likely
8%				6.4%									reduced our sequential DSR by 0.5%.
6%				5.3%
											However, Regional VP feedback was more cautious. Our
4%
2.8%		2.5%										growth driver signings, discussed on the next page, provide
2%
					(0.1%)							momentum to continue to outgrow our marketplace. That
0%
1Q20	2Q20	3Q20	4Q20	1Q21	2Q21	3Q21	4Q21	1Q22	2Q22	3Q22	4Q22	said, we are preparing for a softer 2023.

EPS

The business setting continued to feel more "normal":

$0.55

(Fully Diluted)

◦

I spent a week visiting employees in Europe, my first

$0.50

$0.50

international trip since pre-pandemic. Despite the

$0.45

$0.42

challenges of the last three years, our European year-to-

$0.40

$0.38

date distribution sales are up nearly 80% in 2022 when

$0.35

compared to the same period in 2019, a figure

$0.30

understated by U.S. dollar strength over that time;

$0.25

$0.20

◦ Our pre-pandemic margin profile re-emerged:mix-driven

$0.15

lower gross margin but strong expense leverage. Today,

$0.10

though, that is producing operating margin expansion;

$0.05

$0.00

◦ 3Q22 cash flow conversion grew over the prior year for

1Q20

2Q20

3Q20

4Q20

1Q21

2Q21

3Q21

4Q21

1Q22

2Q22

3Q22

4Q22

the first time since 1Q21, with an improving outlook.

3

3Q22 GROWTH DRIVER UPDATE
	Onsite Signings and Active Locations		• Onsites: We had 86 signings in 3Q22 and finished with
160		1,567	1,800	1,567 active sites, +14.6% from 3Q21. Daily sales,
140		1,600	excluding transferred branch sales, grew more than 20%
1,367
120		1,400	from 3Q21. Our 2022 goal remains 375 to 400 signings,
1,236
100		86	1,200	with the lower half of the range being more likely given
	1,000	year-to-date signings.
	75
80
62		800
60		• FMI Technology: We signed 5,187 weighted devices in
		600
40			400	3Q22 (81 per day), versus 4,813 in 3Q21 (75 per day),
20			200	with a final installed base of 99,409 weighted devices,
0			0	+9.9% from 3Q21. Activity through our FMI technology
	1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22		platform represented 36.9% of sales in 3Q22, versus
	Signings	Active Locations		33.0% of sales in 3Q21 and 25.0% of sales in 3Q20. Our
	Weighted FMI Device Signings and Installations (1)	2022 goal remains 21,000 to 23,000 MEU of FASTBin
	and FASTVend signings.

10
		90,493	99,409
8	82,261
6	4,791	4,813	5,187
4
2
0	1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22
	Signings		Installations

120

• eCommerce:Daily sales rose 50.2% in 3Q22. Large

100 customer-oriented EDI was up 50.8%, while web sales

80were up 48.6%.

60 • Sales through our Digital Footprint (FMI technology

40plus non-FMI-related eCommerce) was 49.5% of sales

20in 3Q22, versus 43.7% in 3Q21. We continue to anticipate we will hit 52% of our sales running through

• our Digital Footprint in 2022.
• 1. Data excludes ~7.5K non-weighted vending devices related to a locker lease program

4

3Q22 BUSINESS CADENCE

End Market Daily Sales Rate (DSR) Growth

•

U.S. Industrial Production rose 4.1% in July/August 2022 over 3Q21, and has been steady for the last five quarters.

40%
30%										28.9%
20%										22.6%
10%											•
0%											5.2%
-10%
-20%
1Q20	2Q20	3Q20	4Q20	1Q21	2Q21	3Q21	4Q21	1Q22	2Q22	3Q22	4Q22

U.S. PMI averaged 52.2 in 3Q22, consistent with further near term growth, albeit at moderating rates as the metric was only narrowly above expansion in September.

3Q22 business activity was steady with the prior period, while sentiment was mixed. Adjusting for storm impacts and a difficult government comparison, our September daily sales rate was healthy on strong manufacturing trends. However, feedback from the field suggests there are pockets of increasing customer caution.

		Heavy Equipment				Total Mfg		Construction

Product Category Daily Sales Rate (DSR) Growth

40%
30%
20%											18.2%
										15.4%
10%											12.4%
0%
-10%
-20%
1Q20	2Q20	3Q20	4Q20	1Q21	2Q21	3Q21	4Q21	1Q22	2Q22	3Q22	4Q22

		Fasteners		Safety Supplies				Remaining Products
		(34.1% of Sales)		(20.5% of Sales)				(45.4% of Sales)

• Price added 550 to 580 bps to growth in 3Q22, easing from 2Q22 (660 to 690 bps contribution) as expected. We anticipate further moderation in 4Q22, as our comparisons become more challenging. Spot transportation and material costs have declined from peaks. However, price levels in the marketplace remain steady.
• Daily sales for fasteners (+18.2%) and safety (+12.4%) rose, and we achieved double-digit daily growth in all nine major product categories in 3Q22, and in eight of nine in September. Freight daily sales were +30.6% in 3Q22.
• National Accounts' daily sales rose 20.8% in 3Q22, with 83 of our Top 100 customers growing. Non-National Account daily sales (excluding government) rose 11.9% in 3Q22, with 70% of our branches growing.

5