Greetings, welcome to Fastenal 2019 Annual and Fourth Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll turn the conference over to your host Ellen Stolts, Assistant Controller. Ellen, you may now begin.

Welcome to the Fastenal Company 2019 annual and fourth 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 will start with a general overview of our annual and quarterly results and operations, with the remainder of the time being opened 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 March 1, 2020 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 those factors carefully. I would now like to turn the call over to Mr. Daniel Florness.

Thank you, Ellen, and thank you, everybody for joining us for our fourth quarter earnings call. Last -- will be filing our annual report here in the early part of first half of February. And so last weekend, I was drafting the letter to shareholders and employees for inclusion in that annual report. And one of the observations contained in that letter is a comparison of 2019 and 2015. Because when I was -- when I'm writing that letter, I typically will go back and reread a few letters. And one reason to do that is so you're not too repetitive. Another reason to do that to see what observations jumped out the time. Back in 2015, we started out the year with PMI Index 52.6% that's the average of the first three months of the year as we disclose back then, not sure if there's been adjustments to the PMI since then. We ended the year just shy of 49, I believe it was 48.6. And in 2019, we started a year a little bit higher at 55.4 in the first quarter, in Q4, we were at 47.9. So, and we've been sub 50 since August. If I look at it using an internal benchmark or an internal yardstick, I -- I looked at our top 100 customers and this group represents about 25% of our revenue historically. In the first quarter of 2015, about 72% of those 100 customers were growing. By the fourth quarter, that number was 49%. And, given our size or relationship with each of these customers, the change in trends in a window like that is usually more about their underlying business than Fast now gaining or losing market share with that customer. If I look at that same statistic in 2019, we started…

Great. Thanks, Dan. Good morning, let's just jump right into Slide number 5. Total sales were up 3.7% in the fourth quarter, which included a particularly poor December growth of just 1%. December was affected by holiday timing and extended customer shutdowns. But even setting these aside, business activity was generally soft throughout the quarter. This was reflected as well in the macro statistics with the leading U.S. Purchasing Managers Index averaging a contractionary 47.9% in the fourth quarter and printing a 47.2% in December. U.S. industrial production swung to a decline of 1.1% in October, November. Manufacturing was up 5.1%, heavy equipment lagged at 1.4% growth with weakness as well in oil and gas, metals and transportation. Construction was up 3.1% in the fourth quarter consistent with the third quarter. Our larger construction customers again outgrew smaller ones. So we have seen a moderation in the rate of contraction in those smaller customers. In the fourth quarter of 2019, we sustained the pricing that was implemented and realized in the third quarter of 2019, as a means of offsetting general inflation and tariffs. However, things could change, but as we enter 2020, weaker end market demand and a more encouraging tone around trade policy has reduced inflationary pressure. From a product standpoint, non-fasteners continues to lead but did decelerate with 5.1% growth in the third quarter, while our more cyclical fastener line was up 1.8%. From a customer standpoint, national accounts were up 8.2% in the quarter with 57 of our top 100 accounts growing. Non-national accounts sales actually contract in the period with just 54% of our branches growing in the fourth quarter. November and December can be difficult months from which to draw conclusions about the future and that is certainly the case this year. However, business…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question is coming from the line of Ryan Merkel with William Blair. Please proceed with your question.

Hey, thanks. Good morning, guys.

Good morning.

Good morning.

So first off, in terms of price capture, you said it was consistent with last quarter. So I just want to confirm, does this mean pricing was up 90 basis points to 120 basis points? And then sort of a related question, I recall that you thought you'd get some incremental price into fourth quarter, did this not materialize? And why was that? That's the case.

Yeah. So, what I --

What I would say is if -- the impact of price in the fourth quarter was probably the neighborhood of 70 basis points to 100 basis points, which would have backed off a little bit from where Q3 was. But again, much as we saw much of the year, that reflected having to grow above some increases from last year. If I look at the overall price level in our business and fourth quarter, it was slightly up from where we were in the third quarter. So, we look at the overall pricing activity from Q3. And then for the most part I would characterize Q4 is living up with our expectations as it relates to the price side.

Okay. So the bottom line is I was maybe picking up there was maybe a little price pressure starting to materialize, but that doesn't seem to be the case just yet?

We aren't seeing price pressure materialized. Now, what we're commenting on has more to do with inflation. Remember, what we've said is as we've had two things affecting us over the past 12 months. One was the generalized inflation, the second was the tariffs. And frankly, the generalized inflation was a much more significant impact on us than the tariffs were. What we are seeing is with some of the activity around tariffs of late and was the overall sort of slower demand level. Some of those inflationary pressures that have been a part of our business for the past 12 to 18 months have begun to moderate. But that shouldn't be ready to suggest that we haven't maintained our pricing that we achieved in Q3 because we have.

With that a slight color to that. When I -- first off, there's always price pressure. That's a constant life and it's, its intense now. If I -- but I make that comment again any quarter. The one element that does exist in the fourth quarter, that does exist in the first quarter is keeping the facts straight in the confusion at a minimum. And what I mean by that is we've talked in prior calls and we've talked internally continuously about the tariff and anti-dumping duties that are out in the marketplace, you have a 232 anti-dumping as relates to steel and aluminum that was put in place. And then you have the 301 tariffs. So the 301 tariffs and, and I get an update on this every two weeks and even that's not enough in many ways, because there's so many pieces that are flying around. I suspect if I'm in a branch in Fastenal, I'm going to have customer talking to me in December and saying, please the tariffs were just eliminated. Now the List 4 B that never went into effect that was had been postponed was cancelled on December 13. But that number went into effect and that was largely consumer goods, so that the impact of that is less than our world. Then the next comment might be we'll list, I thought I went from 15 to 7.5 well, it was just announced that List 4 A is going from 15 to 7.5 and it's taking through that piece. For us of the bigger one was frankly List 3, nothing's changed in list 3. So our biggest challenge internally is to make sure that an individual in a branch, a branch manager, a district manager, a regional leader, a national accounts person is familiar with these pieces as what I just laid out. Because when you're familiar with the facts, you can have a discussion. If you're not, it's very difficult to have a discussion about it. So that price, that pressures there primarily because of all the noise and confusion that can come into the marketplace. And a lot of the misinformation that can float around, but the fact is 4 B never went into effect. 4 A it was just announced that it's dropping and -- but List 3 is where the -- where the dollars are, at least for our marketplace. List 1 and List 2 were less meaningful.

Yeah. That's helpful color. Yes, I think we're all sort of interested to see how that materializes if tariffs are removed, what happens with pricing such, but guess TBD on that. And then on the Onsite, you mentioned the closings and you mentioned the economics. I'm curious, is the reason for the worst economics do this only economy? Or is this more of the local team didn't assess the opportunity correctly? And this is something you can face?

I think it's typically economic. I'm sure there's examples of ones that, that we, that we decided either to, to pull it back, because it dematerialized is what we thought. Keep in mind, I know -- and I've used this example before, I remember travelling with the district manager several years ago and he had an Onsite that when -- when we were driving to the Onsite, he said, yes, and this individual knows as much about Onsite as anybody in our company. He's based in Wisconsin, and he said, I'm thinking of this one, and I'm not really sure about if it's a good idea or bad idea, but here's why I did it. He talked about going Onsite, he talked about what the relationship was and he talked about where he thought he can get it to and he thought he can get it to 75,000 a month, which is a small Onsite for us. But we've had a real frank discussion with the customer that, I'm only going to be able to staff at this many days a week, but again the freedom to move to branch a little bit further north and -- it was a better location for the branch. There he was looking at it and saying, if it doesn't work out, I pulled that back into the branch. As it turned out, he got it to 75 and a couple months later, he sent me a message and said, hey, we picked up some OEM parts, and we were to get it over 100. That change occurred because the customer loved what we're doing. And they figured out ways to buy more from us. That doesn't always happen. And so sometimes, you might have one where you're going in on an Onsite and you think you can get it to X and you find out that you can only get halfway there that's 30 that's 80 but you can't get 130 and you pull it back. I don't consider them failure. We took a $30,000 relationship with the AD we're having a frank discussion with the customer. It's easier for us to service that from the branch. I consider that we're engaging with that customer and it's a win. And that's one of the 26, I'm fine with that.

I'll add a little color to that as well. I think, looking at the causes of the closures this quarter, there were really no differences versus the ones that we covered with you last quarter, right? So, it's all sort of the same reasons. And we have to remember that in those, as Dan alluded to, some of those are simply taking business that we had it Onsite and moving it to a branch. So, I -- we didn't see anything different in sort of the character of those closures. And I think you have to think about the larger installed base. Once you get to a certain level, you do review that base for underperformers. And again, as Dan was saying, I think that's a healthy transition. But I think you should also think a little bit about the culture of the business. I mean, if you think back to vending, I think we started that initiative in 2009 that really began to get legs in 2011. And in 2016, we sort of went through and we looked at all the machines we put in and said, should this machine really be here, right? And that year, we had a higher than normal sort of removal rate than we had seen in previous years as we sort of evaluated the installed base. And, we're in fifth year of this Onsite push. And, I think that our culture in some respects is to sort of find these growth drivers, run fast, grab ground, and clean up a little bit later. And at the end of the day, what you're seeing right now is we built a good installed base, we're evaluating what we have, the churns gone up a little bit, it's down from Q3, and frankly, I think we're expecting a lower rate of churn in 2020. We'll see how that plays out, but in the end, what you wind up getting much as he did was vending is a great business where we're ahead of the field in terms of being able to implement it, and it contributes to gaining market share. And we're looking at this very much the same way. The other thing to your point about opportunity, this past quarter, the Onsite team actually sampled 400 locations. I'm not sure which 400 those are, but they wanted to sort of get to the same question that you're asking. And, these were decently sized 400 Onsites in terms of the average, but they found that in the products that we currently deal in there's still more than two times the revenue potential than then we already have in those Onsited. And again, these are smaller Onsites. So, the potential, -- we don't see any diminishment in the potential for this business. And I think what you're seeing us transition to -- I would say is historically consistent with how we execute our growth drivers and leading just to have a great business.

It makes sense. Thanks. Pass it on.

Yes.

Our next question is from the line of Robert Barry with Buckingham Research. Please proceed with your questions.

Hey guys. Good morning.

Good morning.

Good morning.

Could you say or could you how much the freight was a headwind to gross margin?

It probably impacted us by 10 basis points to 20 basis points relative to the expectations.

And you think it now that just goes away or that persist as long as the sales growth is low-single digits?

Well, I think as long as sales growth is low-single digits there's going to continue be some pressure there, for sure. And that's not new and that's not necessarily unexpected. I think, Dan, also talked about, we just have some focus to bring to that, right? We spent a lot of effort in the last 12 months on pricing discipline on the product side of our business. And the degree to which you've seen us not really have to talk about price cost is a direct result of the success of that, right? We've been able to mitigate some of those inflationary pressures. We need to bring some of that discipline to the freight side of as well. And that's going to be a focus and a goal for 2020. And the degree to which it is or is not a drag will depends on our level of success. But again, we always have to put this into perspective. We're talking about 10 basis points to 20 basis points. We want those 10 basis points to 20 basis points, right? But, we're not talking about 100 basis points of riskier 150 basis points. And then we're also talking about something which is related to an asset, that being our capital fleet, which is a huge competitive advantage for us. So there's thing that we have to do better. It's -- focusing on that will be something we do in 2020. We do have to address the market that doesn't make it easier, but there are some things that we can do from a self-help standpoint. And that's probably how I characterize the situation free.

Yeah. Rob the only element I'd add to that is. Part of it is, is about year-over-year growth, a part of its about sequential. So if you think about where we were in October to November, December that delver that's occurs, because you have this infrastructure to support that and it falls off. History has shown where January is relative to October. And depending on with the start of January will be in that normal landscape will still come into play. But once you emerged from that slowdown that you get around the holidays, and you get further away from that and the dollar's climb back. Then that delivered occurs from our distribution, our trucking freight, the trucking fleet, that dissipates. Because we not only want that 10 basis points to 20 basis points back, message to our team is, here's when we expect to get it back.

And then to Dan's point, don't forget seasonality as well, right. Again, the crux of the issue is that you have relatively stable costs in your fleet. And seasonality, as you get into Q2 and Q3, you get a seasonal uptick as well on just naturally. So Dan's right. Part of this reflects simply the seasonal nature exacerbated by the cyclicality. So that is an element of it. But, we're going to work on executing it better as well.

Got it, I guess bigger picture, where do you see price costs going from here? It sounds like if the non-tariffs inflation was actually the bigger piece and we're seeing commodity deflation. I don't know, how do you think about the puts-and-takes because I think you said the tariffs inflation will peak in 2Q. But if you're seeing some meaningful commodity deflation like steel, I mean, could you see price costs I don't know even to be modestly positive? Do you see any line of sight to that or how should we think about it track?

Rob, I'll make a deal with you. If you can tell me what tariffs are going to do in the next six months, I'll tell you what I think our reactions going to be. I've had numerous times over the last year where I have a discussion on Friday. And by Monday, what we just talked about a completely changed in the discussion became irrelevant. So I'm going to respectfully declined answer that. Only because I don't know sometimes from week to week and month a month, what's going to happen with tariffs. The economy, I can look at trends and look at prior years in Fastenal and I can least give up an informed thoughts. On tariffs, we really can't. All I know is we focus every day on shedding the best light we can for our customers, and building the best supply chain for our customers. And we're appropriate moving sources of supply. And that we've done quite aggressively in the last 10 to 15 months.

And the only thing that I would probably add to that is, over the past six to nine months, the pricing teams the way they've been sort of structured, the work they've done to sort of surface, a lot of our challenges, the tools that they've deployed to allow us to react to events. We're in a far better position today than we were a year ago to manage whatever happens, right. So, to the extent that tariffs go up or go down, we'll be able to adjust to that in the way that we promised our customers that we would. And that would be within eye towards maintaining that price cost dynamic. Inflation, deflation again -- we'll have to see how that plays out. But I think that it really is, it's the other side of the same coin, right. I mean, many of our national account contracts have terms in it that are linked to specific steel price indices or what have you. And so those conversations get had. In the end, the question that we have to deal with our customers is what's the right action, to again be able to neutralize the impact on gross margin. We're not trying to take advantage of our customers. But at the same time, we're just looking to deploy the tools that we developed in the last few months, last couple quarters to essentially neutralize the impact. And that would be the intention, but again, we'll have to see how things play out as the year goes on.

Got it. Okay. Hey, just lastly could you say how December were...

Hey Rob [multiple speakers].

Yeah, okay. Up time, No problem. Yeah. No problem. Okay. Thanks, guys.

Yeah.

Our next question is from the line of David Manthey with Baird. Please proceed with your question.

Hey guys, good morning.

Good morning, Dave.

Over the past couple of years, your gross margins were pretty consistently been down 100 basis points year-over-year and some of that secular, some cyclical. And just as we look ahead to 2020, if the decline is less than that, what would be the factors you would see as is driving a better outcome?

Yeah. So I think there's two things to think about next year in terms of big sections and assuming that the price costs dynamic remains neutral as it has been in the last couple of quarters. And that's obviously it depends on anything that occurs that we have to react to, but we don't know what that looks like. Based on what we know today, I think that with the slower, small customer business where we have fairly good margins and expectations for growth on the Onsites, I think you're looking at mix probably being a 50 basis points, 60 basis points, 70 basis points drag next year. Now that could change depending on the relative growth between the small customer and the large customer, but that's, that seems like a decent range to me. I think that we also have to think just about the cadence of the price trend from 2019, right. I think in the first half, we did not do a great job addressing inflation and addressing tariffs, actually we did better job on tariffs we did inflation, but the -- in the second half, I think we did a very good job on that. And I think that success will carry over into the first half of 2020. You might have some easier comps in the first half of 2020 before that sort of normalizes in the back half. And, I think those are the two big things to think about when you're thinking about how to model our gross margin next year. And then, yes, I think those are the two big things to think about at this point.

The -- what I would add is if we're able to channel that out, it's some things that we're doing, specifically inside the organization related to some of the products. For example, we're challenging and this is ongoing, we're always challenging our folks from the standpoint. If I think of our vending platform, so that's highly repetitive transactions. How do we -- how do we channels much of the spend to our -- to a select group of preferred branded suppliers and our own exclusive brands our private labels from the standpoint of it, it's not just about the costs of product, it's about the cost of the whole supply chain. Because its product we have on the shelf, if it's on the shelf, our distribution centers operate more efficiently, our trucking network and our freight costs are more efficient, our local labor costs are more efficient. And the first two of those three pieces impact our gross margin. The third obviously is an operating expenses the branch labor. But it allows us to have a product offering in that machine or in our ongoing supply chain offering, where we can offer a better price to the customer, because our cost structures inherently lower, and that typically helps our gross margin. So we're sharing some of the benefit with the customer. So it's a win-win scenario, and we're driving more spend to our preferred suppliers.

Great. Thanks, guys.

Thank you.

Our next question is from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Thanks. Good morning, guys. Great color on the gross margins Holden. Just thinking about, you normally give forward quality guidance, we normally see gross margins in 1Q pretty flat, it feels like cubic units. It sounds like that holds true in 1Q '20. Any comments on that?

Well, a couple of things. First, I would dispute the idea that I normally give to our guidance. Dan, commented on how we rarely talk about the current month in the current month, because it's hard for us to know what's going to play out till it's all said and done. But sometimes things are moving in a direction where you deserve a little bit of guidance. And for the last two quarters, I've given you a little bit of forward guidance on the next quarter, because we had a lot of moving pieces as it related to the inflation to tariff a success around pricing, et cetera. And when your second quarter gross margin is down, I think it was 180 basis points. I think you all needed a little bit of guidance about what we were seeing and expecting. And so I provided a little bit of that color, but the idea that we usually provide that color, I would disagree with, and I'm not going to get into that game now that frankly, I think most of these moving pieces are kind of stabilizing out. So I'm going to remove myself from that game until a future period where there's -- where there's a lot of volatility that you need a little bit of guidance on. But, you asked me about the seasonality. At this point, if I assume that the trends in the back half of 2019 are sort of the ones that'll carry over into 2020 was sort of a neutral price cost dynamic. And then -- our usual mix piece and all that I think that judge what you think the seasonality is going to look like, and I think that's a reasonably -- that's a reasonable way to approach the cadence of the quarters.

Okay. Got it. I didn't mean from what the amount, but thanks for the color Holden.

No problem.

Just -- look my questions around the attrition on the Onside, so I'm just now that we've got to a base of over thousands, some level of attrition is normal and should we expected. So I'm just curious as if you can think about what you've considered to be, as a CEO, CFO, a normal rate of attrition going forward. Is it a 2% for the quarter the right number? Is it lower than that? But maybe also, if you just clarify the freight issue? It sounds like that's, -- I understand the seasonality and the absorption. But that -- this sounds like more of a price center obviously, we've seen LTL and TL rates, obviously down. So I'm just curious if we should be tracking price of freight volumes as a proxy for what's going on that side of the business. But my real question is on the attrition on the Onsites?

I'll touch on the Onsite attrition. And the second one and my count is a third so I'll let Holden to answer that. [multiple speakers] If think of --

I'm going to answer first in the context of vending, and then I'll transition to Onsite. So if I go back a few years ago, Holden mentioned in '16 the number of vending machines we were moving. It actually started before that. So in 2012, our vending really took off, and we pulled out -- if you look at the number we had again in 2012, and I'm going to pulled out 2013 it was 20%-some of the devices we pulled out. Because we've gone from a handful of district managers doing vending to a big chunk of district managers doing vending and a big chunk of our branch is doing vending and we didn't really have it doubt in where they should go and because it was a new industry we're creating. And that 20 some number was 20%-some percent the next year. And then it dropped I think to 17%. I don't have the stats in front of me, but then it dropped to 16%. We believe the long-term that number is going to settle in around 10%. Right now, we're at about 14%. So 14% of the installed base that 89,000 we said a few minutes ago, I would expect would get removed based on history in 2020. And our goal is can we get that down to 10%. If I looked at Onsite historically, just back when we had a couple of hundred a month, I think we would close about 10 a year. That's about 5%. I think if Chris Wundrow were sitting here and Chris leads our team that really drives and hones our Onsite model. The team that is involved with evaluate our Onsite. I think the number he typically thinks it is about 6%. So how that plays out quarter-to-quarter if anybody's guess? But it's probably in that neighborhood. History has said it's going to be -- it's probably 5%. A person who is more informed to me and he thinks it's going to be 6%.

In the interest Nigel, I was not encouraging people to ask one question with 12 parts. We'll address your second question when we talk after the fact.

Okay. Thanks Dan.

Thanks.

Our next question is from the line of Hamzah Mazari with Jefferies. Please proceed with your question.

Good morning. Thank you very much. My first question is just -- good morning. Dan, a number of years ago, you had something called pathway to profit and 23% up margin was sort of the goal. So maybe, do you view that is achievable still and any thoughts on that target as you look long-term?

Yeah. So that was pretty close to that one back in the day. I'll touch on that. In fact, I talked about pathway to profit in this year's letter to shareholders. So a little bit more insight you can gain from that in early February. But the pathway to profit was about our branch network. And about the fact that as our average branch revenue went from 70 to 80, and I'm talking about the revenue per month, so $70,000 a month to $80,000 a month, to $90,000 to $100,000 and beyond. As that number went up, we had a whole bunch of branches out there that were doing $120,000, $150,000, $200,000 a month. And we already know what the profitability is of that group. So we have talked about in 2007 when we introduced pathway to profit was, we're opening fewer branches today, which means the dilution factor is going to go away and the average revenue per month is going to keep climbing. And as its climbing, the inherent profitability of our branch-based model will shine through. We had a whole bunch of branches that were deep into the 20s. But a branch that does $50,000 a month doesn't have that kind of operating margin. A branch that does $70,000 or $80,000 a month doesn't have that kind of operating margin. So that 23 is still true for our branch network, but branches represent about 70% of our business today and the other 30% is Onsite. For Onsite that number is down in the upper teens from the standpoint of where the profitability is. There still a pathway to profit element of it. When we go from having 200 Onsites at the end of 2014 to having just over 1,100 Onsites today, that's a massive take off, and…

Got it. Very helpful. And my follow-up question, I'll turn it over is on freight, how much of a cost advantage is your captive fleet? And, do you view that cost advantages offsetting execution risk? Just any broad high level thoughts there? Thank you.

Look, well the cost advantage is a constant. So it doesn't offset execution risk -- execution risk stands on its own. But the cost advantage, we've always felt that, running on a highly utilized trucking network, where you have products going and by highly utilized I mean, there's products on both directions. The number we've often cited if you contrast what it costs to move it on our trucking network versus shipping industrial product small parcel. And industrial -- and shipping, a relatively low value products mall parcel is incredibly expensive. And that's where the e-commerce world lives. And that's why they keep trying to build different types of networks to change that dynamic. We've often cited the relationship with 10 to 1 that it's about 90% cheaper. But again, we're moving a relatively low product on a captive trucking network. A third of our products, so if I look at our Fastenal products, there's a big chunk of that product category that has secondary operations. So it isn't just that we're moving it from supplier to the branch to the customer -- from supplier to the customer with the Onsite. We might be sending that Fastenal product out for secondary operations, it's going to go get heat treated, it's going to go get plated. And what it means in our faster industry and the reason we built the captive network to start with is many of our competitors, because they're using a lot of LTL shippers and other parties don't have that advantage. And so their freight costs, in many cases can become equal to if not greater than their product cost. And so one of the reasons we enjoy the gross margins we do in fasteners. And the reason we built a trucking network is we've just built a better means to move product around. But execution risk, that they're disconnected in the standpoint of what you're doing and what are your habits -- your behaviors every day?

But I think it's fair to say Hamzah that the value that [affords] us because of our captive truck fleet is well in excess of a one quarter 10 basis points or 20 basis points lower result than we expected. We get huge dividends from the ownership of our captive fleets.

Speaking of dividends we've raised ourselves.

Good. Very good. Thank you very much.

Thanks.

The next question comes from the line of Joshua Pokrzywinski with Morgan Stanley. Please proceed with your question.

Hey, good morning, guys.

Good morning.

Good morning.

Dan, if you -- commenting on how we should think about mix in your kind of historical recovery. Dan you lead off talking about maybe the analog to 2015 that you saw. If I were to look at similar points in time or other, other periods where you think it feels like today. What is the mix on the way out? Is it that the Onsites recover faster because they're captive? Is it that the kind of the smaller customers or non-national accounts, where there's higher mix recover, faster. Just trying to calibrate how we should think about mix as markets eventually recover?

Yeah. So if I think about my comparison 2015 was more about just a trend and what we're seeing in the numbers. The other observation I'd made looking at 2015 is, in 2019, we started a higher point, and we finished at a higher point. And I really attribute that to the success we've enjoyed taking market share at a faster clip and the backlog we have in energy. I mean, in the last three years, we've signed either renewals or new contracts rough about 1,500. That's an incredible tear that we've been on. And that builds a certain level of just market share gains you get and consult. When I look at our relative outperformance to -- in 2019 versus 2015, in a similar PMI Index scenario, it's what the team's done to engage with our customers. And we have a massive footprint. So, to the extent that the percentage of our top 100 snaps back, and it moves into the 60s, and it moves into the 70s, because of there's a bit of a lift in the economy. That piece will snap back pretty fast and in our large account -- our accounts with a contract relationship would grow disproportionately faster because they've contracted disproportionately faster. And, but, and that's -- that's just a reflection of recovery in the underlying market. So, I would expect that to play out, the speed at which is going to be depending on what the markets doing and maybe holding us more insight.

Yeah. I mean, I think this is an area that I think can be over thought many times. I mean, the fact is, whether it's an Onsite, whether it's non-fasteners, fasteners, most of our businesses, essentially all of our businesses are cyclical. And so, when you see an upswing it's fun talking about an upswing by the way, I hope it happens. But if you see an upswing, what happens is, you see the growth rate at particularly our older Onsites to get better, just as you see the growth rate in our smaller customers get better, just as you see the growth rate in our fastest and non-fasteners get better. Now does non-fastener growth coming out typically maybe outpace or sorry -- does fastener growth coming out, outpaced non-fastener growth probably? Just like it outpaces it going in, but if you look at Page 5 and you kind of look at the non-fastener and fastener lines, there is not a difference in how they move, right. They really move in the same direction. The gap may narrow or widen depending on the cycle, but as long as we're successful with Onsites, as long as we're successful with vending, I don't think you're going to get a period where mix works in your favor frankly. And that's just how the math works out. This is always where I always feel a need as well to, however to point out that, if mix is going to continue to work against us, if we're successful or when we're successful with our Onsites and vending and our growth drivers, you have to remember that we get good leverage over SG&A. One piece of perspective I might offer you is, if you think about our gross margin, fourth quarter of '16, to fourth quarter '19, I think it's, is down something like almost 300 basis points. If you think about our fourth quarter operating margin over that same period of time is down 60 basis points. There is inherent leverage in Onsites, there's inherent leverage in the pathway to profit we talked about earlier. And so, I wouldn't expect that mix is going to start pushing our margins up. Because, I mean -- I expect it will really successful as our growth drivers. I wouldn't conclude from that, that our operating margins are at risk, because there's inherent leverage ability in the growth drivers at the operating expense line as well.

So, Josh, I'm going to -- we're coming up on the hour. So I'm going to bring the call to a close. I'll just close with one thought and that is and I often bring a personal touch into this and I apologize for those people that rolled their eyes right now. But, last weekend, I had the opportunity to go to a funeral, a funeral for a very dear individual. Her name was Lillian Petersen. She was known as Till to family and friends. For me she was both in a way while she was a neighbor, she was also my godmother and I consider that family. She was 88 years old. She's married to the -- to her husband for 67 years. She and her husband had six children, as you can appreciate a multiple that and grandchildren and a great grandchildren. She was my Sunday school teacher. She was a giver of a great advice and affection. She was the writer of many letters. Over the years, I've received many letters from her and as did many others. Said simply, she was a second mom. I alluded to earlier the top 10 suggestions I share with folks over the years. And, as I was at her funeral and hearing the story about her life and learning all much of things that I didn't know, it dawned on me that she was an incredible influence around three of them. Number eight on that list is trust people. My exposure, Bob Curtin put a little add on that is incubating serious ideas. Number Nine on that list is cherished embrace the special words. Say please, and thank you. Always say you're welcome. You willing to say you're sorry. And show respect for all. And finally, enjoy something outdoors and all four seasons. She loved to ride bikes, she loved to go for walks, and she loved to cross country ski in the winter. And if you're foolish enough to live in Wisconsin or Minnesota, you better do all -- you better enjoy all four seasons. I'll close on that note. Thanks, everybody.

Thanks, everyone.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.