Turnaround and Growth Outlook
Q: Do you feel like you've turned a corner, and should we expect outgrowth to improve going forward?
A: Management believes they've turned a corner after making many changes in 2023 and early 2024, which were initially distracting. With new tools and leadership aligning everyone down the same path, they feel focused and expect outgrowth as they move into 2025.

Gross Margin Outlook
Q: How should we think about gross margin in Q4 given seasonality and recent noise?
A: Typically, gross margin declines about 30 basis points in Q4 due to seasonality. However, management expects to do a little better than traditional seasonality this year. The impact of lower rebates that affected Q3 gross margin won't be as significant in Q4, potentially adding a couple of million dollars to gross profit. While there will still be some decline, offsets should moderate the impact.

Sales Growth Needed for Margin Leverage
Q: What is the minimum sales growth needed to return to historical incremental margin levels?
A: Management believes that as they achieve revenue growth north of mid-single digits, they can begin to leverage the P&L and grow margins. Below mid-single-digit growth, it's difficult to leverage. Their overall profile hasn't changed; when revenue growth exceeds mid-single digits, they expect to leverage and improve margins.

Industry Headwinds and Outlook
Q: Can you provide color on impacts from heavy manufacturing sectors like automotive and aerospace?
A: Management notes weakness in agriculture due to expected extended shutdowns, softness in consumer durables, and challenges in pulp, paper, and lumber. They are seeing effects from Boeing in the aerospace sector due to the strike. Oil and gas remain stable and are performing decently. These sector-specific issues impact their business, but they anticipate potential stabilization or slight improvement moving into 2025. ,

September Performance and Market Share
Q: Was September's performance helped by the macro environment or market share gains?
A: The improvements in September are attributed more to market share gains and new customer additions than macro factors. Management emphasizes that the accumulated impact of signing new contracts, particularly in Onsite and Fastenal Managed Inventory (FMI), is driving growth. They observed that September ended stronger than it started, indicating positive traction from their initiatives.

Onsite Signings and Growth Strategy
Q: Can you provide more details on the maturity of initiatives to drive Onsite signings and regional insights?
A: Management is focusing on customer acquisition and maturity rather than just counting Onsite signings. They've built internal capabilities to manage customer relationships more effectively, targeting different customer segments with tailored strategies. They plan to communicate progress in terms of customer acquisition and growth across revenue segments, moving away from solely reporting the number of Onsite signings.

Branch Performance Outlook
Q: Have the branches started growing again, and what's the outlook for that?
A: Management expects branches to return to growth in 2025. Changes made previously had lingering effects, especially in the Western U.S., where sales have been slightly negative. However, the Eastern U.S. has shown growth of nearly 5%. They believe that as they anniversary these changes and with better alignment in sales leadership, branches will see improved performance.

Impact of Mexico Duties on Gross Margin
Q: What's driving the higher mix of duties from Mexico, and will this recur?
A: Mexico has become more active in charging duties on products moving across the border in the last 6 to 12 months, significantly impacting gross margin. These higher charges result from increased duty rates, not increased product volume. Moving products not natively from North America incurs these duties, and this has been a meaningful impact on the quarter. ,

CapEx and Working Capital Outlook for 2025
Q: How should we think about CapEx and working capital investments into 2025?
A: Management expects CapEx to decrease slightly from $250 million, estimating between $200 million and $225 million for next year. Significant investments this year include constructing a new automated hub in Utah. They anticipate less expenditure on such projects next year but continue to invest about 3% of sales into capital, focusing on areas like FMI, distribution, transportation, and IT.

Strategy to Add $1 Billion Revenue Annually
Q: What's the strategy to achieve adding $1 billion in revenue per year?
A: As they approach being a $10 billion organization, management aims to grow from adding $0.5 billion annually to adding $1 billion per year in revenue. They focus on customer acquisition, customer maturity, and executing strategies that drive significant revenue growth. They plan to share more details at an Analyst Day in April, aligning with their customer expo, to discuss guideposts and key performance indicators for achieving this goal.