Earnings Transcript for FAST - Q2 Fiscal Year 2024

Operator: Good morning, and welcome to the Fastenal Second Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Taylor Ranta of Fastenal Company. Thank you. You may begin.

Taylor Ranta: Welcome to the Fastenal Company 2024 second quarter earnings conference call. This call will be hosted by Dan Florness, our President and Chief Executive Officer; and Holden Lewis, our Chief Financial Officer. The call will last for up to one hour and we'll start with a general overview of our quarterly results and operations with the remainder of the time being open for questions-and-answers. Today's conference call is a proprietary Fastenal presentation 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 Fastenal Investor Relations homepage investor.fastenal.com. A replay of the webcast will be available on the website until September 1, 2024, 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's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review these factors carefully. I would now like to turn the call over to Mr. Dan Florness.

Daniel Florness: Thank you, and good morning, everybody, and welcome to the second quarter 2024 earnings call. Before I start on the quarter, I just wanted to share a couple of things. First off, I wanted to share a story about an onsite of ours in Sweeny, Texas, and I was speaking with Steve Diekman, our Regional Vice President based out of Houston, and for those of you that -- I suspect most people on the call are aware that Houston periodically gets hurricanes and they had a hurricane. And on -- typically what happens when there's a hurricane and this might be Steve Diekman in Houston, it might be Bob Hopper down in Florida, oftentimes, they'll get a call from me or from Casey to see -- and this is before, to see how everything is going, and we often remind them of, we got their back, and what that means is, when you're in the chaos of the moment, you're forced to make decisions on-the-fly and there's a lot of things going on and somebody with 20

Holden Lewis: Great. Thanks, Dan, and good morning, everyone. I will begin my comments on Slide 6. I think Dan covered the current business conditions, I won't add a lot there, but I can add some additional color from regional leadership. We continue to experience sluggish business activity that has persisted long enough at this point to be spurring an uptick in layoffs and shift reductions. There were more and longer shutdowns around the July 4th holiday. Some of those frankly are continuing, and overall, industrial production continues to exhibit modest declines as we saw in April and May with the key machinery component being weaker than the overall index, and we're feeling that. If I look at our business, total manufacturing grew 2.7%. Our Fastener product line was down 3% with contraction in MRO and OEM products. All other end markets declined 1%, reflecting continued contraction in non-residential construction and reseller end markets. This was partly offset by strong growth in warehousing customers, which combined with good FMI installs went a long way to driving our 7.1% growth in safety products. The profile of the second quarter in terms of performance by end market, product, and customer size was largely unchanged from the preceding quarter. We did have negative pricing in the period of 30 basis points to 60 basis points. Fastener prices remain down, which is not new, but we also experienced some slippage in price from non-Fastener products. I don't want to overstate the impact, I mean, our price cost was very modestly positive in the second quarter of 2024, however, it did ease from where it was in the first quarter of 2024, that's partly from comparisons and the softer market has made things a bit more challenging. Even so, we believe we can improve our own discipline in this area and intend to address the matter in the third quarter of 2024. Setting aside the cycle, we are increasingly encouraged over efforts to accelerate customer acquisition. The first half of 2024 has produced strong onsite and FMI signings and a highly successful customer expo. We are also experiencing accelerating growth now in the double-digits and improved mix in a number of our national account contracts. Regional leadership attributes these improvements versus 2023 to better alignment between our teams, a sharpened focus on selling, and the relative stability of the business environment, which is allowing teams to focus on winning business. Given our traditional lack of forward visibility, it is unclear when business activity will improve. It's also unclear how impactful holiday shutdowns or the hurricane in Texas will be on July. Even so, barring further erosion in macro conditions, the strong signings activity of the first half of 2024 should benefit sales trends in the second half of 2024 and into 2025. Now to Slide 7. Operating margin in the second quarter of 2024 was 20.2%, down 80 basis points year-to-year. Recall in the April earnings call that we discussed a likely impact from the second quarter of 2024 from expenses related to our customer expo and actions taken to support certain warehousing customers in anticipation of additional future business. The combined impact was roughly 30 basis points in the second quarter of 2024 as expected. Some modest impact will carry into July, but the effect on margins in the third quarter of 2024 should be well below what we incurred in the second quarter. Gross margin in the second quarter of 2024 was 45.1%, down 40 basis points from the year-ago period. This was primarily due to product and customer mix. SG&A was 24.9% of sales in the second quarter of 2024, an increase from 24.6% from the year ago period. Total SG&A was up 3% due to deleveraging of employee related expenses, customer expo expenses, higher costs for selling-related vehicles as we refresh the fleet, and higher general insurance costs. We continue to believe we are effectively spending where we need to spend to support future growth and scrimping where we can scrimp and that as growth picks up, we will leverage the P&L. Putting everything together, we reported second quarter 2024 EPS of $0.51, down 2% from $0.52 in the second quarter of 2023. Now turning to Slide 8. We generated $258 million in operating cash in the second quarter of 2024 or 88% of net income. While below the prior period, when we were deliberately reducing layers of inventory, the current year's conversion rate is above historical second quarter rates. With good cash generation and a soft demand environment, we continue to carry a conservatively capitalized balance sheet with debt being 6.3% of total capital, down from 9.4% of total capital at the end of the second quarter of '23. Working capital dynamics were consistent with recent trends. Accounts receivable were up 2.8%, driven primarily by sales growth and a shift towards larger customers, which tend to have longer terms. Inventories were down 3.9%, which continues to reflect primarily the softer marketplace, the reduction of inventory layers built a year ago to manage supply constraints, and modest inventory deflation. While we will continue to focus on continuous improvement as it relates to inventory management, the rate of decline in our inventory balances will likely moderate going forward as the process of rightsizing our stock is now largely complete. Net capital spending in the second quarter of 2024 was $52.6 million, largely flat with $53.9 million in the second quarter of '23. For the full year, we have increased our anticipated net capital spending to a range of $235 million to $255 million, which is up $10 million from the prior range. We anticipate higher spending for vending devices where our mix of signings has been more heavily weighted towards higher cost and scaled units. The projected increase in net capital spending for the full year of 2024 is driven by higher outlays for hub automation and capacity, the substantial completion of an upgraded distribution center in Utah, an increase in FMI spend to support increased signings, and higher information technology purchases. Now before turning to Q&A, I want to offer a higher level perspective on the quarter. The market is tough and the various cyclical forces at play are impacting our growth and profitability, that's not something we control. What we do control is our ability to grow share in the marketplace. A year ago, we weren't as effective as we believe we could be. Today, it's becoming increasingly clear that the changes we made in leadership, approach, and focus are favorably impacting our ability to win new customers. Progress is not always a straight line, of course, but we believe we will build on the successes we've achieved in the first half of 2024 and that it brightens our short and intermediate-term outlook regardless of the cycle. Of course, we're most excited for what it means for our growth when activity levels among our existing customer base stabilizes. Before we turn it over to Q&A, I'm going to pass it back to Dan.

Daniel Florness: Thanks, Holden. And earlier this morning, as you all know, we put out our earnings release, and just before market opened, we put out a second release. Normally, we would have put that release out after the market closed, but it's a Friday and we didn't want to -- I'm not a politician, I don't bury news into the weekend, I aspire to be a leader and we put news out, good and bad, and this is good news. I mentioned earlier about the transition that we had with Jeff Watts stepping into the Chief Sales Officer role. One thing I've learned from Jeff being in that role, first off, the sales leaders have stepped up their game to support Jeff in that expanded role, but of equal importance, maybe more important, everybody else has embraced Jeff, and Jeff has embraced him back from the standpoint of he's not a salesperson trying to figure out his way outside of sales, he's a business leader who has always had a great relationship with our finance team, with our HR team, with technology, with supply chain. But what he did is he took a big step in the last year, a year and a half, and said, I want to embrace more and I want to learn more, and he humbled himself to listen and learn. And he challenged some things back, as a result, we're a better organization. And I'll give you an example. Tony Broersma and his team will oversee the -- our supply chain and distribution. A number of years ago, and we're always doing this, we did a very significant reclass, and what that is, is you're deciding what the stock and distribution, and we remove some stuff, and when Tony stepped into that role, we all challenged them, but Jeff continued to challenge them, but we all challenge them about think about supply chain, not as what we stock in distribution, a distribution center. Think about supply chain as how we get product to the customer and where we stage it because we'll be a better organization. I don't care if our inventory goes up or down in distribution. Holden cares about our total investment, so do our shareholders, but we really care about how to best serve our customer. And Tony went to work on it and again, was challenged by a lot of people, so we're doing actually a do-over reclass and we're adding about 18,000 SKUs into distribution in the next six months or so. Between now and year end, we will probably add around $17 million of inventory to our balance sheet. Once in place, some of that will start to burn through, we think that will drop by about a third by March. And we think ultimately 18 months from now, the net impact is zero because we're restaging, we're moving stuff around and we're normalizing the quantity on hand. We believe the annual improvement to cost of goods is more than the initial investment in inventory. So that $17 million, we think is worth about $20 million because when you buy it that way, you're not hurried, you're not scrambling, you buy it more effectively because you can decide where you're sourcing it as opposed to an emergency spend. From a branch perspective, not only will they have these 18,000 SKUs available, their workload will actually go down, we cut about three million POS a year at the branch and onsite level. 300,000 of those POs relate to this product. So we'll cut our PO workload by about 10% at the branch and onsite level and enhance our gross margin and our service to our customer at the same time. We think that's a winner. When I think about what Jeff's doing, a couple of years ago, I really sat down with the Board and said, I'm turning 60, November of 2023, you really have to be -- you have to get to know our entire team better. I challenged them to -- we scheduled some field trips. We've been doing field trips the last several years. I challenged them to come to our Employee Expo in December, our Customer Show in April and meet our leaders. And I really asked them to get to know Jeff Watts better. And we announced this morning that Jeff has been elevated to President of Fastenal. I'm excited for Jeff. I'm more excited for Fastenal because my motivation is simply this. I should say our motivation is simply this. It's a means to grow faster and I believe Jeff will help that happen. I also -- I sat down with John Soderberg. I talked earlier about some of the things John has done and his team have done as it relates to Fastenal Intelligence, not artificial intelligence. And I sat down with John and I said, John, Jeff and I are going to drive you crazy, and I apologize for that. We're going to punch you from both sides and we believe we can move even faster, and so I'm excited for everything. But Jeff, congratulations. John, will try not to drive you too crazy. And to everybody else supporting Jeff and the organization, thank you. With that, we'll turn it over to questions.

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Tommy Moll with Stephens. Please proceed with your questions.

Tommy Moll: Good morning, and thank you for taking my questions.

Daniel Florness: Good morning.

Tommy Moll: I wanted to start with a follow-up on the pricing commentary you provided. The deflation in Fasteners has been ongoing for some time and is well-known, but the news today I believe, is in the safety category. So I was just curious if you could give us any context for what you've seen there. And then when you referenced taking steps to be a little more disciplined in the coming quarter, if you could give any insight on that? Thank you.

Holden Lewis: Yeah. And again, bear in mind, I don't think it had a meaningful adverse impact in the second quarter, but we look at trends too, and the reality is our price cost was fairly neutral versus being somewhat positive last quarter and I think the pricing in the marketplace was a contributor to that. As you indicated, I'm not overly concerned about the Fastener side. Price is down, but so has cost, and frankly, I think the organization has done a nice job managing those two dynamics in that product line. And the reality is we have a unique value proposition there and that does make it easier. But we also have a unique value proposition in safety. And in light of that, we just -- I just don't think we were as disciplined about how we're thinking about price in a challenging market in the safety world, and then I would say, we weren't terribly disciplined in parts of our other product categories either. Now when I think about how we address that, the first step is just to elevate the issue. And I think Dan and I and Jeff and everybody involved in sales leadership have been raising the awareness of, as you're pursuing business in a soft market, we need to be fairly mindful of the solutions that we're bringing to the table and what we should be compensated for bringing those solutions to bear. And I think we've done a lot of talking about that and raising that awareness. But the second thing is to have tools that can provide insights into the field, real tangible financial tools. And over the last three, four, five years, we've spent a lot of time building and refining those tools, learning how to operate those tools and navigate them. And the -- that's intended to provide greater insight into what the market cost for something is, what pricing is, what costing is, etc. And we use those tools to try to incentivize behavior among our Blue team colleagues. And we're going to use those tools in the third quarter of 2024 to do exactly that, and so at the end of the day, I think that we need more discipline among our contract sellers and more discipline in our field personnel and they need to trust the tools because the tools are in great shape. And we're just going to use the levers that we have at our disposal to take an organization that's more aware of the challenge that this marketplace has given us and respond accordingly.

Tommy Moll: Thank you, Holden. As a follow-up, I wanted to ask about the nexus between some of the warehousing customers where you've been ramping and the gross margin trends. It sounds like the impact from the warehousing ramps was as planned in Q2 and should ease into Q3, but any other context or any way you can quantify that would be helpful. And then, if you set that against your typical gross margin trends, Q2 to Q3 and maybe even into Q4, how does that net out in terms of what you might forecast for this year versus the typical just given some of these new dynamics?

Holden Lewis: Now recall that I had indicated that some of the gross margin trends that were impacting Q2 were going to be largely contained to Q2 and some of those may have bled into July a bit, but for the most part, I think that statement remains true. If we remove that dynamic, then I think the gross margin on that product is unremarkable for safety products, frankly, going forward. Now, do I think the investments that we've been making and the actions we've been taking puts us on pace to get additional revenue from that customer set in the back half of the year? I do, but it shouldn't have an appreciable mix impact on the safety margin as a category. Does that answer the question?

Tommy Moll: Yeah. And maybe just to tie it all together, if you think about -- and this is consolidated results I'm talking to here, your typical progression for gross margins from Q2 to Q3, how would you characterize that typical progression? And is there anything this year where there's a noteworthy good guy or a bad guy?

Holden Lewis: It almost feels like a third question. I would tell you that the traditional gross margin pattern from Q2 to Q3 for the company is typically Q2 and Q3 looks fairly typical or looks fairly similar to one another. Now relating it back to the question that you originally asked on the warehousing side of the business, like I said, I think a lot of that impact that we talked about last quarter, very little of it is going to remain in the gross margin, and so I think that -- think about seasonality and maybe a touch better than that based on the absence of some of those expenses.

Tommy Moll: Got it. Thank you, Holden. I'll turn it back.

Operator: Thank you. Our next question is coming from the line of Stephen Volkmann with Jefferies. Please proceed with your questions.

Stephen Volkman: Hi. Good morning, guys. Maybe since we're on the P&L, I'll just -- I'll stick with it and go to the next level here. Holden, I think you said, maybe you both said several times, there's a real focus on SG&A control, and I know that some of the unusual SG&A expenses from the second quarter probably go -- trail-off. So I'm curious how you're thinking about sort of leverage on SG&A holding in the second half?

Holden Lewis: As I was looking through it, I'm going to dodge the question a little bit because what I've observed is, you've to tell me what you're going to build in for our revenue growth. If I look at Q2 and Q3 SG&A historically as an example, what I find is that when Q3 revenue growth accelerates versus Q2, our SG&A dollar -- the dollar growth of our SG&A accelerates as well, and vice-versa, right? And so it's hard for me to answer that question without knowing what you're going to build in or what each you're going to build in for your revenue growth and we don't have time for that in this form. And so -- I would encourage you to figure out what you can do with the revenue line, and traditionally, you will see SG&A growth between Q2 and Q3 kind of track that trend. Now, I do anticipate that we'll be tighter in Q3 than we were in Q2 with costs. That might mitigate that impact to some degree. But the reality is, I know everyone kind of wants to say, well, let's just look at the dollars in a vacuum and what has historically happened, but when 70% to 75% of your SG&A is labor and there's a significant component of your labor that is variable cost, I can't separate the analysis from the analysis of revenue. And so build in your revenue forecast, take a look at what historically Q2, Q3 has played out, make your assumptions, and on top of that, I would argue that we expect to be a little bit tighter on cost than perhaps seasonally we have been in the past, and that's how I think about our SG&A trajectory in the next quarter or two.

Stephen Volkman: Okay. Fair enough. And since you sort of teed me up on this, in terms of thinking about the revenue trend going forward, should we read anything into kind of the better cadence of the quarter, i.e., May better than April, June better than May, do you think there's any kind of an inflection happening or is it more just that your ability to outgrow is kind of starting to gain some traction or is it just kind of the numbers are still small and we shouldn't read too much into it?

Holden Lewis: Okay. I believe our ability to gain traction has improved. I think some of the underlying statistics I cited are evidence of that. I also said in April that we popped about 50 in ISM in March and that felt kind of good, and in three weeks later -- two weeks later, I was kind of like, well, that good ended really fast, but it's a noisy fall. Last I heard, there's a U.S. Presidential election and like most years, it's kind of a boring event. But I think there's going to be a lot of noise in the market and some of the stuff the Fed is looking at doing is positive. I don't know that that changes things in the next three to six months, but the fact that they're talking about it is positive.

Daniel Florness: If you're looking -- if the question is about green shoots, I don't have a lot of green shoots for you on the macro side. Where I do think we're accelerating though is on the self-help side, right, with the contract signings and the onsite signings and the FMI signings, the reality is, you sign an onsite today, it's not generating revenue tomorrow. There's a period of time it takes for those sorts of things to start to hit our results. In the first half of 2024, we were feeling the impact of relatively low signings in 2023. I think in the back half of '24, you're going to begin to feel the benefits of the stronger signings in the first half of 2024, whether that be FMI, whether that be onsites, whether that be contracts. And so I think we're very encouraged about what we're doing to acquire customers. But I don't have a lot of green shoots at the macro level.

Stephen Volkman: All right. Thank you, guys.

Daniel Florness: Sure.

Operator: Thank you. Our next question is coming from the line of Nigel Coe with Wolfe Research. Please proceed with your questions.

Nigel Coe: Thanks. Good morning, everyone.

Daniel Florness: Good morning.

Nigel Coe: I just want to go back to the -- yeah, good morning. I wanted to go back to the price deflation on the safety and other products. I mean, obviously, you addressed the question from Tommy, but is this a function of a more competitive environment? So you've seeing a bit more pressure from competitors maybe because they've got more products or excess inventories, or is this more elective from your RBPs (ph) to try and gain share? I mean, obviously, you've been very successful in contract signings, onsite, et cetera, so I'm just wondering if this is a bit more offensive or defensive.

Daniel Florness: I don't know that I have a great way to parse that out. We are in the marketplace trying to win business. I don't think that we need to compete on price. We historically haven't competed on price, but the reality is the marketplace is challenging and that introduces different stresses than would be the case when it's not, right? And so I can't tell you it's 60-40 one way or the other, I just -- I don't -- I'm not in those minds when they're having those conversations, but I don't have any reason to believe that the two things aren't related, to be honest. We are hungry to grow and that influences decisions. Our customers are hungry to save -- to save it -- save costs that influences decisions and that isn't necessarily a negative. Sometimes -- oftentimes we're the source of saving cost, and that helps us. Some of our traction with national account signings, some of our traction with FMI might be a customer that's a little bit slower right now and they're looking for ways to save costs and we're the ticket and we're seeing that in our success.

Holden Lewis: Now to the degree that part of the question is, is Fastenal consciously willing to accept lower margins in order to win business? I would tell you the answer is no. There's individual decisions being made in the field based on conversations that are being had and judgments that make sense to that individual and that situation at that time. So there's not a -- we aren't winning business because we said, don't sweat the margin. We think the margin and return on our business is very important. But there is nonetheless a challenging marketplace and different individuals react differently to that marketplace and I just think that you're getting to use someone else's word, a nexus between both the market and the conversations with customers.

Nigel Coe: Yeah. No, that's a great answer. Thanks for that. And my follow-up is on the onsite performance and the mature onsites. It looks like mature onsites sales are maybe down low-single digits in that sort of realm. Obviously, we saw this trend develop last quarter and you've made some management changes around that, just wondering, maybe just a bit more detail on what you've seen in these mature onsites and sort of the pathway to improved performance.

Holden Lewis: That's production. Dan said it, I think in this preamble, right? When you have one customer, the fate of your business hinges on what the experience of that one customer is, and as a business, we're 75% manufacturing. Within our onsite world, I bet you it's substantially above that level. And so if there's a manufacturing environment that's challenging, the onsites are going to feel it to a greater degree. The onsites are going to be more heavily oriented towards production, that's why you're seeing our OEM Fasteners grow in the mix along with onsites growing in our sales mix. And so -- I think you have a combination of the impact of macro on that particular customer category, combined with the fact that, again, it does take a little while for the signing success that we're having today to translate into revenues tomorrow. So I think you're bearing disproportionate burden of the macro in the first half of this year. It doesn't appear the second half of the macro is going to be a lot better, but I do think that some of the signings that we've enjoyed in the first half are going to begin to grow in that environment, and that's how I'd probably characterize it. On the mature onsite, I'll just throw in one little nugget, and that is, our East and Western United States business units have been separate business units since 2007, and a year ago, we pulled them together back into one, and Casey Miller oversees that $6 billion business in the U.S. Casey was a Regional Vice President in the Kentucky, Tennessee area. He's originally from Kentucky, lives in Nashville now. And he -- Casey's business and by extension, Eastern U.S., which he led for the last eight years, is great at customer acquisition, great at it. One observation he made as he's got into the Western business unit because the Western business unit wasn't as great at customer acquisition, but they were great at maturing and farming those relationships. And so the one benefit of combining the U.S. into one business unit, I think that East and Western halves of our business can really learn a lot from each other and I think that's a positive and win for our customers, our employees, and our shareholders.

Nigel Coe: Great. Thanks, Dan.

Daniel Florness: Thank you.

Operator: Thank you. Our next question comes from the line of David Manthey with Baird. Please proceed with your questions.

David Manthey: Thanks. Good morning, guys.

Daniel Florness: Good morning.

David Manthey: Yeah. And congratulations to Jeff on the new title. Just one question this morning. I'd like to zoom out and maybe ask you about some secular factors here. Could you refresh us on how you think about outgrowth versus industrial production and your contribution margin expectations? Here, I'm thinking not about the next year but long term over the cycle. Thanks.

Holden Lewis: I would say, historically, I'll say recent history, last decade or so, we have typically found that our outgrowth against industrial production has been in the 5 percentage point to 6 percentage point range. One of the reasons that we have made or that we made the changes that we made 12, 15, 18 months ago was because frankly, we had slipped in that regard and it's probably been running in the 3% to 4% range, which is below what we are typically accustomed to. The changes that we've made, we're very confident will move us back to that 5% to 6% range, but quite frankly, I think our objective over time -- and look, we have to prove to everybody that we can do this, but I think our objective over time is to increase that 5% to 6% to something greater than that because we think that the value we bring to the market warrants the ability to grow faster. And so what you're seeing in terms of the changes in personnel, the changes in approaches, it's really just the first step to kind of correcting something that maybe we weren't doing as well a year and a half ago, and then we're going to build on that, and I think from a secular standpoint, we'd like to do better than that 5% to 6% in excess of IP in future. From an incremental margin standpoint, a contribution margin standpoint, no, I think we've always said, 21%, 22% type operating margin is the business that's where we think we can operate effectively while still growing significantly and gaining market share. And in this environment of 2% growth, we've given up some of that margin. But I do believe that as the business gets better -- when the business gets better, I think we still have the capacity to leverage the P&L and return to that 21%, 22% range.

David Manthey: Appreciate it, Holden. Thanks for the update.

Holden Lewis: Thanks, Dave.

Operator: Thank you. Our next question is coming from the line of Ryan Merkel with William Blair. Please proceed with your questions.

Ryan Merkel: Hey, guys. Thanks for taking the questions. I just have one as well, and it's on the macro. So can you just level set us on the macro, is it fair that the industrial economy has just slowed sort of slightly versus 1Q or is it more pronounced? That's the first part of the question. And then I'm hearing that it could stay a little weak until after the election. I know that's crystal ball stuff, but what do you think about that?

Holden Lewis: Yeah. I will say that in terms of regional feedback, I probably got a few more comments about extended shutdowns, layoffs, things like that, it doesn't feel to me that the overall level of activity has changed. It does feel to me like our customers have decided to some extent throw in the towel on the near term and make some adjustments to their cost structures in light of what has been a fairly lengthy downturn. So like I said, I don't feel like the floor has fallen any further, but I feel like customers are saying this could last longer than we expect and making cost adjustments to react to it. That's how I'd probably characterize it. In terms of the crystal ball, I don't know. I don't have a good answer for you, I'm afraid. As you know, we don't have a lot of forward visibility, you know that, and I'm going to choose not to express an opinion about the election. Dan certainly can feel free to.

Daniel Florness: I'm not touching that one with a 10-foot pole.

Ryan Merkel: Yeah. I get that. I was just sort of hearing that from some of the feedback and was just curious, RVPs were hearing that -- it usually happens [indiscernible] in front of the election, I think is history.

Holden Lewis: Well, I can tell you that people say it does. And yeah, I can tell you, Ryan, that we are getting a lot of feedback from the regionals that people are holding their powder until something gets resolved on the election. I'll leave it to the listeners to determine how much they think that is true, not true, valid, not valid, will impact, will not impact.

Daniel Florness: I meant the election part, I won't touch the 10-foot pole. It's -- I suspect there aren't too many customers out there or players in the market that are expecting anything to rev up for, and so I think it'll be fairly subdued.

Ryan Merkel: You got a reputation for predicting things, so I thought maybe go down that path, but no.

Daniel Florness: I can't even predict that somebody is going to win the election.

Ryan Merkel: Well, thanks, guys. I appreciate the color.

Holden Lewis: You bet, Ryan. Thanks, Ryan.

Daniel Florness: Thank you. It is four minutes on the hour. Again, thank you for joining us on the call today. I want to extend to Jeff, his wife, Tuson, and their two children, congratulations on the new role and new opportunity. And thanks, everybody, have a good day.

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