Fastenal 2026 Q3 Earnings Results Conference Call - FASTENAL CO

Greetings. Welcome to Fastenal's 2026 Third Quarter Earnings Results Conference Call. At this time, all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. If anyone today should require operator assistance, please press star-zero from your telephone keypad. Please note that today's conference is being recorded. At this point, I'll now turn the conference over to Dre Schreiber. Thank you, Dre. You may begin. Welcome to the Fastenal Company 2026 Third Quarter Earnings Conference Call. This call will be hosted by Jeff Watts, our President and Chief Executive Officer, and Max Tunnicliffe, our Chief Financial Officer. The call will start with a general overview of our quarterly results and operations, with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenals presentation and is being recorded by FastenAL. No recording, reproduction, transmission, or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the internet via the Fastenall Investor Relations homepage, investor.fastenall.com. A replay of the webcast will be available on the website until December 1, 2026 at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations and we undertake no duty to update them. it is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company latest earnings release and periodic filings with the Securities and Exchange Commission and we encourage you to review those factors carefully. I would now like to turn the call over to Mr. Jeff Watts. Thank you, Dre. Good morning everyone and welcome to Fastenal's third quarter 2026 earnings call. I'm Jeff Watts, Fastenals Chief Executive Officer and and I appreciate you joining us all today. Also with me this morning is Max Tunnicliffe, our Chief Financial Officer. Before we get into the quarter, I would like to recognize our blue team. Every result we report today was earned by people in our branches, our onsites, our distribution centers, our trucks, and our support teams. They show up every day for our customers. They solve problems, and they keep finding better ways to help our customers run their operations. So to the blue team, thank you. This was a very strong quarter and one you should all be very proud of. Now, two quick housekeeping items before we get to the numbers. First, our slides look different this quarter. We've refreshed the format of the investor presentation to make the story easier to follow. The flow now goes from highlights to our objectives to what drove sales, financial results, and then some key takeaways. I want to be clear about what we didn't change. Our definitions are the same and our historical data is the same. The supporting detail you relied on is all still there. The sum of it is simply moved to the appendix. The first page of the appendice shows exactly what moved and where to find it. And second, we're targeting a 45-minute call today. We expect to keep the Q&A portion broadly consistent and take about the same number of questions as usual. Now on to the quarter. And for me, I think the headline is pretty simple. Sales grew 15.5%. Earnings grew faster than sales. Our net sales were $2.46 billion, up $330 million from last year. Operating margin was $21.5, up 90 basis points, and our return on invested capital reached $32.5 million, up 230 basis points. Operating income increased by $90 million from the beginning of this year. That's the largest year-over-year increase in a single quarter in Fastenal's history. But I think the three things that really stood out to me or stand out to be and drove the quarter, first, growth accelerated. Now, second, we converted that growth into higher operating margin and faster earnings growth. And third, the quarter was driven mainly by market share gains to our key account strategy and new contract wins. Now, on to slide five, and this really brings us back to our three strategic objectives. Now, these are the same pillars we've discussed before, and everything we do ties back to them. Now, first being the increasing sales effectiveness. We're gaining share with larger customers through our key accounts strategy and newer contract wins, And you can see that in our daily sales growth and in the growth of our largest customer sites. On the services, we continue to grow our FMI installed base. Our FastBin and FastBend technology, our digital footprint, these tools improve the customer experience. They strengthen retention and make both our customers and our own operations much more efficient. And then lastly, expanding our TAM. And we continue to reach revenue that we serve today through new products, new geographies, new business models, and new services. You can follow our international and non-fastener growth in our monthly sales releases. And really, the strategy is consistent. What changes quarter to quarter is the evidence, and this quarter, I believe the evidence was strong. Now, on to slide six and what really drove our sales. Our customer site data continues to show progress with our larger customers, both new and existing, all growing with us. Our contract count increased 6.4% from last year, with signings weighted toward multi-site national accounts. The number of sites spending $50K or more per month with us grew almost 19%, from approximately $2,800 to roughly $3,300, and sales from those sites increased roughly 28%. Contract customers now represent over 76% of sales, and their daily sales grew 18.8%. Pricing did contribute for the quarter approximately 2.4% to growth. That's a slower pace than earlier in the year because the year-over-year pricing contribution peaked between fourth quarter of 2025 and first quarter of 2026. We're now lapping some of the strongest pricing actions taken in 2025. Marketing conditions did improve in the first half, and that improvement continued in the third quarter. But, you know, our growth exceeded the growth rates in the industrial markets that we serve. To me, you Know, that's the clearest signal that we're taking share. Now, on to slide seven, you Now, our digital footprint was 61.4% of sales, and digital sales grew approximately 16% on a daily basis, faster than the company overall. Now, when customers transact digitally, orders are more accurate, there's less manual work on both sides, and the relationship becomes much more integrated. We signed approximately 7,500 weighted FMI devices in the quarter, or about 117 per day compared with 110 per day last year. And our install base passed 143,000 units, up 7%, and sales through FastBin and FastBan grew approximately 18%. We continue to expect 27,000 to 29,000 weighted device signings for the full year. We really believe that that opportunity for us, it's clear. We need to keep moving customers toward technology-enabled replenishment because it improves service, it strengthens the relationship, and it creates efficiency for both sides. Now, on to slide eight, and this is a little different from the past, but from time to time, we'll show you a real example of how we win. because I think it tells our story better than any statistic ever could. So today I want to take a couple of minutes to highlight our customer strategy and action and show how we identify a customer challenge and bring our supply chain capabilities to life. In this example, we had a new customer that was experiencing direct material stockouts, supply chain shortages, and limited control over product consumption. As their business grew, those challenges became even more significant. So after we signed the contract, we got to work. Our Lean Six Sigma specialists, they mapped the process, identified the root cause, which was a manual inconsistent system with limited automation, limited digital visibility, and physical organization. From there, we developed a roadmap to modernize their supply chain, and once approved, our team moved quickly. As you can see on slide 9, we reorganized their crib and storage areas for the direct materials. We installed clearly labeled barcoded bins, deployed our FMI technology, established planograms, and connected the customer to FAST360 to really provide greater visibility across their facility. We also established KPIs to measure ongoing performance. And the results are significant. Digital visibility increased from 0% to 99%. Replenishment is now automated, stockouts have been eliminated, inventory has been reduced, and employees spend less time searching and walking for product. You know, over time, we expect the solution to generate anywhere between 25% to 30% in overall cost savings. But I do want to emphasize that this is only the beginning. As we learn more about their operation and deepen the relationship, our local teams and industry specialists are going to continue to bring new products, new technology, new systems and saving opportunities to the customer. Now, that's the power of our model. The initial investment creates value, that value builds trust, and that trust creates opportunities to expand the relationship. Over time, those benefits compound for not only the customer, but for Fastenal as well. With that, I'll turn it over to Max to walk through the financial results. Thank you, Jeff, and good morning, everyone. Overall, this was a very strong quarter. demand improved, we continued to gain share, and management of our expenses helped us turn that growth into higher operating margins and earnings. Sales grew 15.5% while operating earnings and earnings per share grew roughly 20%. I'll start with the business and market trends on slide 10. Industrial conditions improved further in the third quarter. U.S. manufacturing PMI averaged nearly 55, then industrial production for our key end markets remained positive. This is consistent with the gradual improvement we've seen since late last year, although momentum remains stronger in select industrial markets than in the traditional manufacturing and automated area. Our daily sales grew, improved to 15.5% from 14.7% in the second quarter. The improvement was driven primarily by new customer wins, greater share of spending with existing customers, and improving industrial activity. Customer demand remained healthy overall. What we heard from the field was consistent with our results. Growth opportunities were strongest in data centers and other high-demand markets, while softness remained concentrated in a smaller number of areas. The slide shows how broad the improvement was. heavy manufacturing led the way again. It represented approximately 45% of sales and daily sales grew approximately 20%. Growth was strongest in key accounts, machined products, aerospace, and industrial equipment. Other manufacturing grew approximately 13%, showing that the improvement extended beyond the largest accounts and strongest verticals. Construction and other non-manufacturing markets also contributed. Non-residential construction continued to grow supported by infrastructure electrical and utility activity while transportation and reseller customers also posted solid gains by material type direct materials increased approximately 19% compared with approximately 14% in indirect materials this reflected stronger customer production activity large customer signings improved product availability and pricing actions several higher growth product categories also outpaced the company overall particularly electrical tools and other industrial products to summarize industrial activity improved during the quarter but our growth continued to significantly outpace the market the common thread was our continued progress with larger customers reflecting ongoing share gains from our key account strategy new contract wins and embedded supply solutions. Turning to the financial result on slide 11, the key message is that we converted strong sales growth into higher operating margin and earnings. Operating margin increased 90 basis points to 21.5%. As 130 basis points of SG&A leveraged, more than offset a 40-bit decline in gross margin. Gross margin was approximately 45%, down 40 basis points from last year, but 20 basis points above second quarter. Customer mix remained the primary year-over-year headwind, consistent with our strategy. Beyond mix, two items weren't discussed in this quarter, price cost, which we will continue to address until we return to neutrality, and favorable items that benefited the quarter but may not continue at the same level in the underlying rate. First, customer mix is approximately a 50 basis point headwind reflecting growth with large customers and continued execution of our strategy this mixed pressure reflects the continued success of our larger customer strategy these customers generally carry lower gross margins but there are higher volumes in more efficient service models support attractive operating margins and incremental operating profit price cost was approximately a 30 basis point headwind improving approximately 10 basis points from the second quarter marking another quarter of sequential improvement. The year-over-year pricing contribution is slowing after peaking between the fourth quarter of 25 and the first quarter of 26. We will continue to report on price cost while it remains a headwind, and we remain focused on disciplined pricing in returning to neutrality. Favorable items add an approximately 40 basis points to gross margin, including direct sourcing savings, supplier rebates, and tariff refunds. About 20 basis points of this 40 reflect timing across these items and should not be assumed to continue in the underlying gross margin run rate. SG&A provided 130 basis points of leverage, reflecting expense growth well below sales growth. Employee costs improved by 90 basis points as a percentage of sales, while total full-time equivalent headcount increased less than 1%. This reflects productivity, role specialization, and the benefits of technology and automation. Occupancy costs improved by approximately 50 basis points as higher sales were spread across our existing branch, on-site, and distribution network. All other SG&A increased slightly as a percent of sales, reflecting continued investment in tech, analytics, supply chain, and sales support. In total, SD&A leveraged, expanded operating margin by 90 basis points to 21.5%. This demonstrates how we are executing our strategy using our infrastructure, tech, and digital capabilities to scale effectively and efficiently while continuing to invest for growth. Return on invested capital increased 230 basis points to 32.5 on a trailing 12-month basis, comparing that with a 10-year average of approximately 28%. The improvement reflects stronger operating earnings and continued discipline in working capital and capital spending. Overall, the quarter demonstrates that we can grow with larger and more complex customers while continuing to invest in the business and improve operating margins and returns. Turning to cash flow and capital discipline on slide 12, operating cash flow was approximately $422 million, or 105% of net income. The year-over-year conversion was lower primarily because receivables increased with strong sales growth, particularly with larger customers who generally carried longer payment terms. Inventory increased approximately 3% over the past year, well above the growth in sales, while product availability remained high. That performance reflects more disciplined inventory positioning and better use of the inventory already in our network. Accounts payable increased as purchasing rose to support growth. Free cash flow is approximately 350 million, or 87% of net income, providing capacity to fund growth investments and return capital to shareholders. Third quarter capital spending was approximately 72 million, or 2.9% of sales. Spending was directed primarily toward HUB and facility capacity, automation, FMI equipment, information technology, and transportation assets. For full year 26, we continue to expect net capital spending of $310 to $330 million. The program includes HUB network capacity, FSI, and automation equipment, information technology projects, and transport assets. We returned $328 million to shareholders during the quarter, $298 of which was through dividends and $30 million through share repurchases. Together, that represented nearly 82% of net income. Over the trailing 12 months, we returned approximately $1.2 billion after funding our operating and capital needs. Our approach to capital is unchanged. We invest in the business where we see strong returns, return excess cash to shareholders, keep a conservative balance sheet. So overall, we delivered strong growth, expanded margins, and generated healthy cash flow while continuing to invest for the future. The quarter reflects disciplined execution across the business. With that, I'll turn it back to Jeff for the key takeaways. Thanks, Max. You know, before we open the line, I think I just want to leave everyone with three points. The first, our growth was broad-based, reflecting share gains across large accounts and embedded supply solutions. Second, we converted that growth into higher operating margin and earnings, while price-cost improved sequentially for the second consecutive quarter. And third, our model is compounding. New customer wins create embedded spend, technology deepens those relationships, and our scale allows us to grow profitably while continuing to invest. This quarter demonstrates the strength of our strategy. We gained share, expanded margins, generated strong cash flow, and improved returns. I think I'll close where I started, with our people. This business, it's always been built one customer and one relationship at a time by a blue team that takes ownership, and I'm very excited about where we're headed. With that, operator, I think we're ready for questions. Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you, and our first question today comes from the line of David Manthe with Baird. Please receive your questions. Yeah, hi. Good morning. A two-part question on gross margins. First off, number one, the 20 basis points of timing benefits. Could you give us your definition of timing? I mean, is that catching up for past accruals, or is it pulling benefits from fourth quarter back into the third quarter? And then second, if fuel prices stay at current levels, is it possible that the 30 basis point price-cost gap actually gets larger in the fourth quarter? Those two questions, please. Okay, Dave, two-part question. First of all, you asked about the bips of timing. Yeah, let me define that. But just candidly, part of that and roughly half of that was tariff refunds, very immaterial, but we don't see that coming through in any material level in Q4. So, first of all, the amount of 10 BIPs in that regard is quite small. And second, just because of the phasing and the type of IEPA tariffs we paid and the sequence of receiving those, that's going to be probably somewhere in the early part of next year. before we see that back in our run rate. The other half is a bit more of a timing element in regards to primarily volume rebates with suppliers. And so we did have to do a little bit of a catch-up on that benefit, knowing that we were going to start to trip into various tiers in the quarter. So that would be that, and that's why we want to talk about a trend that would exclude that from Q4. Fuel levels. Yeah, this one's an extremely interesting one. And the reason I say that is, first of all, you know our business in that we do a pretty good job offsetting that inflation in our business. It's not generally possible to offset all of it. But the impact on our business, it's real. I'd say in Q3, very flat-ish to what the impact was in Q2, but versus the first quarter versus last year, it's fairly significant. Now, to your point, we see enough traction in our price execution, enough traction in that space. We see enough attraction in the way that we handle fuel costs to feel comfortable that we're not going to be in a situation in Q4 where the price cost widens the gap to answer question directly. We had a pretty nice exit rate out of Q3, particular to net price cost, which we expect to continue. But I can't make a confident statement like that without suggesting that we all know that these types of elements, inflation, direct or indirect, regarding fuel, diesel, can have a pretty big consequence on our business. And I'll take a moment to just answer and make one more point around fuel that I think is it's more structural to Fastenal. So why why don't we have to refer to diesel costs and fuel costs as a major impact on our business? And a lot of it just has to do with our captive fleet. We choose our own routes. We were able to put a lot OF product that otherwise would need to be small parcel on our own vehicles. And so we're able to structurally mitigate a lot of the impacts of some of this inflation, albeit it still sits in our P&L to some extent. All right. That's perfect. Thanks, guys. I'll pass it on. Thank you. The next question is from the line of Steve Volkman with Jefferies. Please just use your questions. Great. Thank you, guys. I'm going to switch to the growth side of this and your helpful slide 21. It's just interesting to me that the September sequential change sort of underperformed normal seasonality based on your chart here. And that's the first time we've seen that for a number of months here. So I'm just curious. I think, Max, you might even have mentioned there was some very limited areas where you saw some weakness or something. I don't want to put words in your mouth, but anything to call out relative to sort of how the quarter progressed and maybe why September was a little bit lower than seasonality? Yeah, I'll take that, Max. You know, September still was a strong month at $14.4, but it was below July and August. And we're starting to lap some pricing, but I think I'm more focused on the two-year growth, 27%, and more importantly, the January to September sequential growth. And that's over 18%, which is well above our historic trend, and really, I think the most important number is we move into Q4 and, more importantly, into Q1. I think what also, when I look at those numbers, especially in September, what gives me a lot of confidence is really what's underneath that headline number. You know, contract sales grew at 19 percent. Our large customer sites continue to grow well, and we continue to gain share. I don't think I'd describe September. I think I would describe September as more of a moderation from very strong levels, not so much a change from the strategy or customer activity behind it. I don't know if you want to add anything to that. Steve, I'll add on just the point around where in our end markets are we seeing a bit more of a slower pace. And so even some of our, what we would call in quotes, weakest areas, albeit whether it's resellers, a little bit on the government side is still, our end market, we're still performing in the low double digits. A couple notable areas of weakness that we're just sensing more in the economy is more around ag and food. But we don't feel that that's clearly to us not an underperformance on our side. It's just part of the economy and what's happening there. Yeah. So as Jeff said, in September and looking ahead, we don'T see any change in our underlying share gains, the way that we calculate our impact or what we've called in the past self-help. We also don't see anything yet that would concern us from a macroeconomy perspective that we haven't already seen in the last couple of quarters. So yeah, a little below our sequential trends, but nothing that causes us to change our future perspective on our business. Super. Thank you. Very helpful. I'll pass it on. The next question is from the line of Tommy Maltwood-Stevens. Please receive your questions. Good morning, and thank you for taking my question. Good morning. Morning, Tommy. I wanted to start maybe to tie out the conversation on gross margin and then pivot to a strategic question as a follow-up. But on gross margins, in 3Q, 40 BIPs lower year over year, if we take away the 20 bps of timing help that gets us to down 60 is that the baseline assumption we should work with for q4 or are there any other cross currents that you want to call out for us thanks yeah yeah tommy so um you know our business well and that based on our strategy uh one of the elements that comes from that strategy is just a consistent mix negative impact on margin. And that's both big customer growth focused, which shows up in leverage. And it's also just where we grow geographically, especially internationally. And so, yes, the round 60 bps is a good underlying point on a year-over-year basis to consider. So your question was, beyond that known item, what else might we want to consider for Q4? And you can look at it a couple different ways. One is if you just take the sequential, you know, the mixed question doesn't impact, and we have a normal sequential pattern. Now, we don't provide guidance on a quarterly or annual basis, as you well know, but we do want to and do point out when there's something significant in our run rate. And so aside from the – if you take a sequential pattern, aside from The 20 Bips that I mentioned, there's nothing significant. We've talked about our goal of price-cost neutrality. Of course, delivering that goal would be a sequential benefit. If you flip to a year-over-year basis, same comment. If there's something really big, we would call it out. If your recall from Q4 of last year, we did talk about a significant amount of timing in our gross margin, and it was a negative 50 basis points the way we described it last year. So if you're doing a year-over-year comp, you want to take that into account along with the mix. So we'll have a positive tailwind coming from the timing elements from last – assuming no timing elements in Q4 this year. And then you'll have the offset mix component. And then as you read through our results and looked at our Q3 deeper and deeper, you'll notice also that we have a little bit of benefits in the run rate. Again, it's the 40 bits that we mentioned as a benefit offsetting mix and offsetting price cost. and around half of that was timing, that means 20 bits remain. And so that's the way I'm thinking about both from a sequential perspective and a year-over-year perspective on gross margin. Now, again, I don't want to escape that answer without saying we don't have the crystal ball everyone wishes everyone had, and some of these elements, a lot of our mix is dynamic. The inflation is dynamic, and our pricing conversations are dynamic. Yep. Understood and appreciated. And as a follow-up question, I wanted to ask about some press mentions recently of an AI-related acquisition. I don't think it was mentioned in the materials today, and my guess is this is pretty small, but could you just give us any details there and maybe explain how it ties into your broader strategy? Thank you. Yeah, I'll talk, maybe just scope it as size and why it wasn't mentioned publicly, and then I'll give it to Jeff. But first of all, just broadly, when we think about M&A for Fastenal in the near term, we don't see a need for anything large. but and we've made that clear in the past but at the same time we find opportunities and we look for opportunities to improve our capabilities and oftentimes those are not going to be large enough to even be disclosable and sometimes not large enough to speak to on the call but we look at the the roi on those as being in some cases a little bit in a way limitless so these are investments and this is an example of one and I'll turn it over to Jeff but yes small but we don't we wouldn't waste our time with something small that we didn't think have it has a has a positive coming in the future yeah I think on this acquisition we've known this company for quite some time what they kind of brought to us with some orchestration that we needed around our our AI and our technology as we move forward and it was an opportunity that you know again max was it's not maybe as material or maybe more in material but for us as a company when we see an opportunity like this obviously we jumped on it and it's going to help us grow a lot faster on the tech side thank you both i'll turn it back the next question is from the line of ryan merkel with william blair nice to see you through questions hey everyone thanks for the question and nice job on a new slide deck thank you ryan wanted to ask first on data centers you mentioned that was a strong market, so I'll leave it kind of open-ended. Just curious how you see that impacting demand, and in your answer, maybe talk about the data center pods. I think you're having a lot of success there. I mean, overall, obviously, the data centers are a meaningful contributor to our sale. Right now, internally, we look at about four to five percentage points of our growth. But, you know, the work really spans the data center that we're seeing. The impact we see comes from the construction contractors and manufacturers supplying the build-out. Excuse me. I mean, we really serve that through existing customer relationships. But it is difficult to really get a grasp between how much of the data centers is coming out. We should give you a stronger number as part of our growth. But on the pod side, I'll turn that over to Max. He can talk a little bit about that. Yeah, just to reiterate what Jeff said, we want to calculate the impact better than we can, but it's just, as you know, the fingers are all over the place on data centers, and it's a bit of a tough one to call on the impact. But it's big enough to call out. Yeah, the pods are more of a, if I get your question, just more of an approach on how we're innovating on thinking about how to service data centers. And in a way, I guess I think of it this way, and I haven't heard this internally, so hopefully I'm not off, but it's more like it's setting up shop almost like an onsite and being as close to the customer as possible, which is always our strategy. It's our winning strategy we've had. And so the team's innovated and found a way to service these growing customers in the best possible way. I think for us, it's a way of trying to keep up with the demand because it's coming so fast that having that onsite, that pod onsite is just helping us keep up the day-to-day demand, which is sometimes pretty overwhelming with the speed at which they need the product. Got it. All right. No, that's helpful. And then second question is just on price cost. Just curious, you know, what you think that looks like in 4Q. I think I heard you say the exit rate was better coming out of 3Q. And do you expect to be back to neutral and maybe 1Q of 27? I know it's a bit of a moving target. Maybe suppliers are raising prices, but just what are your thoughts? Yeah, you're exactly right. It's a moving target, but I wouldn't dispute. Our goal is as quickly as possible, as it always has been, and fortunately, we are making progress. But I think the way you articulated it, Ryan, feels very reasonable to me. Okay. All right. Thanks. Our next question is in the line of Christine Yao with Morgan Stanley. Let's just see what's your question. Thank you. One thing that stood out in the September print was the divergence between, I guess, heavy manufacturing, which continues to grow north of 20% on average for 3Q, and non-resley construction, which slowed quarter over quarter. Can you help us unpack what's driving that divergence? For example, is there something specific to certain projects or customer types, or are you seeing a broader change in activity? Yeah, I wouldn't say that there was a big slowdown in construction by any means. And construction, you know, it can move around with project timing. Growth did slow from a very strong Q2, but it still remained healthy. And year-to-date, you Know, our construction fastener growth remained extremely healthy. You know, we're watching it, but I don't know if we're seeing anything that changes our broader view on the construction side. The manufacturing side, yeah, continues to do very well. Very strong demand there. So, yeah, on the construction, I don't think we have anything that would change our broader view. Got it. That's very helpful. And September came in below typical seasonality. And I wonder, was there anything unusual in customer ordering patterns during the quarter that helped explain the softer exit rate? No, kind of like what I said earlier. I mean, if you really look at the numbers, the last five months previous to September, we outgrew our historic rate. I personally, we're lapping some pricing from last year. We don't really see anything out of the ordinary as far as demand goes, especially on the manufacturing side. I just think, you know, we have a very good sequential trend January through September, and I wouldn't read too much into it. Okay, got it. Thank you. The next question is in the line of Ken Newman with KeyBank Capital Markets. Please receive your question. Hey, good morning, guys. This is Zach on for Ken. Thanks for taking the question. Just two quick ones. So the comps get tougher heading into next year. First, is it fair to assume like a mid to high single-digit growth? And then if that is a fair scenario, what should incrementals look like for FAST? Yeah, Zach, I'll take the start on this, and then Jeff can add in if you'd like. It's a bit of a, you know, it's a forecasting kind of guidance question, and I'll just, I'll give a couple points of color. One that you'll want to keep in mind is just that we are, as we approach next year, the pricing tailwind, if you will, of course, will slow a little bit. And the way that we look at our business is we focus a lot of our gauge of our success on the share gains. And so just as we responded to September, we monitor that. And so we see a consistent share gain pattern ahead of us based on our potential and what we're driving. And so then the rest is, and we would assume, less pricing. And so then the market dictates the rest of our performance. And so without giving you the figures, yeah, that's probably going to, I mean, we expect our success, we think, in any environment should be 10 percentage point top line improvement each and every year. That's what we hold ourselves accountable for internally, but that's not a forecaster guidance either. So hopefully that helps put a little context there. And then you asked about incrementals, I think. So on the incremental operating margin level, we continue to believe that our business, when we're going double digits, should be in the mid-20s, if not higher, and that's what we goal ourselves to achieve. And so that, if you will, not guidance, but if that, what we've said consistently in the past holds, and I think it's proving itself out this quarter, even if you take out the one-time events, we're in that mid-20 range, and that's where we expect to be. That's the healthy point of our fast-growing businesses, to be in the mid-twenties. Yeah, I would just add, you know, as pricing rolls over, what really replaces it for us is its volume and share. I mean, price, I mean it did help this quarter, but I think the bigger story for us is our contract growth, our customer site expansion, a lot of the newer wins and deeper penetration. You know, As We Anniversary may be some of that pricing. Our reported growth is going to grow naturally, less help I guess from price, And I guess that's math, but it doesn't really change the underlying customer activity that we see. And even said it, just to illustrate what Jeff just said, if we just used pricing as a barometer looking ahead through the year we're walking through, there would be an expectation that we would have slowed down. And so we have picked that up with share gains. And, of course, the market has helped. Not significant, but its helped, even sequentially. So, hard to tell on the future on that piece, but we're going to keep driving for the largest growth, obviously, percentage that we can do and with the right incremental margins. Our sequentials are strong. Got it. Thanks. I'll turn it back. Our next question is in the line of Chris Stankert with DA Davidson. Please proceed with your questions. hey morning guys um hopefully we could focus in a little bit here on on SG&A um impressive leverage in the quarter I guess hard not to notice that you know sales force head counts down you know over 400 heads versus where we were in June can you kind of put that in context is this you know are there additional cuts planned is this just kind of a good hygiene reset maybe just kind of give us an update on heads there? Yeah, Chris, I'll take that to start. First, I wouldn't, I definitely wouldn't use the term cut because our business is a growth business. And we are, you know, there's no CFO or CEO sitting here putting a headcount cap on areas that are important to our business. And so this is really the output of a lot of the work that the teams have done, not just in months or quarters, but years, getting role specialization, putting the work in the right place, automating, using AI, and the focus on large customers. And so all of those lead to significant efficiencies. And so I wouldn't even call it a reset, but this is our ability to grow this business without growing headcount nearly as fast using the tools that are at our disposal. Yeah, I would add that we're not going to starve the business to create a better margin quarter, but just to add into what Max was saying, a lot of the decisions in the field, they're being made in the world, and instead of maybe in the past, before we were kind of getting all the digital tools and all the different things out to the field, you know, that natural reaction would be, hey, we landed this account, I need to add two or three heads. Now that those same managers, they're calling in saying, hey, мы don't need the two or три heads, we need this tool. Now that we have this tool, we can do it with half. And that's really what it's becoming. There's definitely no headcount or restriction on adding labor. We're going to add labor to help wherever we need it to continue to grow our business. That's really, really helpful, guys. I guess my surprise is just, I guess, historically, you sign onsites, you add contracts, you require just more labor energy. This seems like a material change. I guess is there a specific tool in particular that's helped you guys lever? Because it's a marked departure, it feels like. I mean, there's a number of tools, but a few years back when I was traveling to branches I was looking at how we were quoting business, and it upset me because, honestly, it was the same way I quoted business 30 years ago when I was in a branch, and at the time, 2024, that can't exist. So a lot of the new tools we've got in, instead of taking maybe five, six days of sourcing and quoting, that same tool now using AI and some of our internal technology, it may take 15 minutes. I mean, that time savings alone, that's just one example. But we really looked at the branch efficiencies first when we're developing the tools. And then we kind of went from there up. And it's having a real impact in the field and on our headcount. Got it. Well, thanks so much for the call, you guys. Appreciate it. Thank you. I know we started a little late. So we'll add one more question. I think we have time for one more questions. Sure. The question will be coming from the line of Guy Hardwick with Barclays. Please receive your questions. Hi, good morning. Sorry to go back to the gross margin, but if we think about it on a year-on-year basis, should we assume that Q4 and perhaps into next year you still have the mixed headwinds of large customers growing faster than small and mid-sized customers, the offset perhaps better price cost and some other tailwinds that you referenced in the Q3 press release? Yeah, Guy, I'll state the way I'm looking at it. So, we do expect to always, not always is hard to define, we expect over the coming years as we continue to deploy our strategy of really winning with the biggest customers, not ignoring the midsize, but focusing on the big ones, focusing on the customers that are mid-sized that can be big customers. That's a very deliberate strategy that will usually result in a year-over-year impact of around 60 basis points, 50 basis points in that ballpark. The other mixed components of our business are largely not material, whether it be product mix and things like that. Now, we'll have some geographic mix as we grow faster as I said earlier. So yes, you would on a year-over-year basis typically expect a starting point of a 50 to 60 basis point headwind on our gross margin. As you look at Q4, and if you look back at our materials from Q4 you would factor in what we described as 50 basis points of timing that we encountered in Q4 of 2025. And that would largely offset if not wash it completely away that mix impact in the quarter. Then of course we're always looking for opportunities, whether in margin, whether it's sourcing, of course, the pricing work, all those other things. But I give you just the mixed component as a baseline starting point with our margin profile. Thank you, Max. And Guy, if you had a second question, that's perfectly fine too. As Jeff said, I hung up on you all, so we don't want to end too early. But if there was a follow-up question, feel free. Otherwise, we'll move into the close. Yeah. Also, in the course So you did a really – there was very good spread between gross profit growth up 14 and OPEX up about nine and a half. I know you kind of answered it on the incrementals question, but to what extent was that less than double-digit growth in OPEx? I think it was approved for us as approved call to help by the headcount reduction or the natural reduction in headcount. And is that sort of a trend going forward, how we should think about headcount total OPEX growth and maybe headcount growth as well, if you have any thoughts on that? Yeah, the largest driver, you're right, was headcount. Second was occupancy expenses. And so we're not providing guidance on these elements is the thing, but this is not like As you can tell from our comments, Ron, what's driving this, there is a structural benefit to our headcount and, in fact, direct slash indirect impact on our occupancy that we see going forward. And so we've got a little more runway on getting better usage of tools, putting work in the right place, call it optimizing our footprint. Of course, we're going to keep adding hubs and doing those things. And some of that could be footprint changes from the branch side. So we're we're gonna constantly pursue cost opportunities and efficiency opportunities while focusing on number one, growing the business. And so, yeah, just I just want to reiterate, it's not a this is not a blip like a one time blip. It's more of a structural improvement and way of working within our sales force. primarily, and I shouldn't exclude it just to Salesforce. It's our labor. Okay, thank you. Thank you very much. Thank you. So it looks like we've come to the end of our time. I'll just kind of close it out with this. My thanks again to the Blue team. Q3 was strong, and it was led by share gains. Earnings grew faster than sales. Operating margin expanded, and returns on capital remained excellent. And we still have some work to do, I think, on the price costs and maybe some of our execution, but the strategy is working and the blue team is executing. So we're staying very disciplined and I just want to thank you all for your time today and hope you have a great rest of your week. Thank you. Thank You. This will conclude today's conference. Let me disconnect your lines this time. We thank you for your participation and have a wonderful day.