Q4 2022 Applied Industrial Technologies Inc Earnings Call

Okay.

Welcome to the fiscal 2022 fourth quarter earnings call for applied Industrial technologies. My name is Ingrid and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

At that time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to we should all bear. Please press star Zero parts. You asked your question you lift your handset to ensure the best audio quality. Please note that this conference is being recorded I will now turn the call rights you slot director of Investor Relations and Treasury, Ryan you mean.

Begin.

Thanks, Ingrid and good morning to everyone on the call.

Morning, we issued our earnings release, and supplemental investor deck detailing our fourth quarter results.

Both of these documents are available in the Investor Relations section of <unk> Dot com.

Before we begin just a reminder, we will discuss our business outlook and make forward looking statements.

All forward looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings.

Actual results may differ materially from those expressed in the forward looking statements.

The company undertakes no obligation to update publicly or revise any forward looking statements. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents.

Our speakers today include Neil Schrimsher applied as President and Chief Executive Officer, Andy Welch, Our Chief Financial Officer.

I'll turn it over to Neil.

Thanks, Ryan and good morning, everyone. We appreciate you joining us I'll start today with some perspective on our fourth quarter results.

Current industry conditions, and our expectations going forward, David will follow with more specific detail on the quarter's performance and our forward outlook, including fiscal 2023 guidance and I'll then close with some final thoughts.

So overall very encouraged how we ended the year.

We achieved another quarter of record performance across sales and earnings.

EBITDA grew 27% and EPS was up 34% on 19% sales growth.

We also continued to expand EBITDA margins, achieving new highs above 11% for the second straight quarter, despite ongoing inflationary headwinds.

All these numbers include meaningful LIFO headwinds as well.

In total these are strong results the end of year that included significant progress on many fronts, including continuing to position the company for long term success through continuous improvement actions growth investments and reinforcing our balance sheet through debt reduction.

Also drove significant improvement in our return on capital metrics throughout the year.

I want to thank our applied team for their ongoing commitment and strong execution.

Our outperformance throughout the year validates our industry, leading position and strategy and we're very excited to build on this momentum going forward.

So several key points to highlight in more detail.

First underlying demand remains strong across both segments.

The quarter with trends accelerating during June .

Trends were positive in all our key industry verticals with particular strength in metals aggregate mining pulp and paper chemicals lumber and wood and other various heavy industries.

In addition, we believe we're capturing incremental growth opportunities from our industry position and service capabilities.

Combined with ongoing price contribution year over year organic sales growth of approximately 19% represented the strongest quarterly performance.

All of our physical 2022, even though we are facing more difficult prior year comparisons.

<unk> was also strongest in June and we're seeing mid teens year over year sales growth sustain into early fiscal 2023.

We never spend a lot of discussion and questions around broader macro uncertainty and that's impacting our business Needless to say, we're keeping a close eye on various crosscurrents, but we have not seen any meaningful signs of slowing in our business to date.

And one of the messages I want to reinforce here to date, we believe the results you're seeing from applied partially reflect our differentiated industry position and benefits from various initiatives. We've executed on in recent years, which has strengthened our internal capabilities and growth profile.

We have great confidence our strategy and company specific opportunities provide sustainable growth and margin catalyst going forward.

So to provide some more detail across the various areas of our business, we're seeing very encouraging trends within our service Center network.

Sales in our service Center segment were up 21% organically over prior year levels. This is one of the strongest quarterly growth rate. We've seen in this segment in some time.

Volumes continue to build as the quarter progressed, and we're now at a healthy double digit percentage over pre pandemic levels of physical 2019.

And the early physical 2023 positive momentum is sustaining and the shorter cycle area of our business with segment orders and booking rates remaining supportive.

We believe this performance highlight structural growth and earnings improvement that is materializing within our service Center network as we play an increasingly critical role across the industrial sector to date.

Part of this reflects greater required maintenance activity and technical support needs from our customers.

With U S manufacturing capacity utilization, you're a 20 year high our service center customers are increasing the frequency of maintenance and repair activity and releasing new capital spending and maintenance projects on production infrastructure.

Our scale local inconsistent service capabilities and technical knowledge of higher engineered motion control products and solutions are driving greater growth opportunities across both legacy and emerging end markets.

We're also seeing solid traction across our strategic initiatives focused on talent sales process optimization and analytics.

This is driving greater and more efficient capture of new business, which is contributing to solid cost leverage and operating margin expansion across the segment.

Overall, our service centers, we are in a solid position to sustain this favorable performance moving forward.

Positive underlying demand is also persisting across our fluid power and flow control segment.

Within fluid power, our backlog remains at historical highs with firm order trend sustaining within all three of our core application verticals, including industrial off highway mobile and technology.

Our design engineering and software coding expertise are in greater demand as customers focus on reducing power consumption and C O two emissions.

Navigated tight labor market and integrate more predictive maintenance into their equipment.

In addition, we're seeing smart machine technology accelerate at a rapid pace.

Our fluid power team is deploying some of the most advanced solutions tied to Iot telematics and electrification for fluid power systems.

Component delays in supply bottlenecks remain hurdles within the system build and assembly focused area of our business, but our team is doing a great job managing these dynamics and our backlog provides growth visibility into fiscal 2023.

In addition demand continues to expand for our higher margin process flow control products and solutions.

MRO activity and capital spending on process infrastructure remains positive in core end markets, such as chemicals refining petrochemical utilities and metals.

Our flow control solutions are increasingly used in applications tied to our customers' de carbonization efforts and other required infrastructure investments.

As in markets transition around new energy requirements.

Additionally, we're seeing notable progress in cross selling our flow control solutions through our service Center network as we connect strategic and local accounts to these leading process capabilities with.

We see further momentum building into fiscal 2023, as we execute on this meaningful opportunity.

As it relates to our expanding automation platform focused on next generation Robotics machine vision and digital solutions, we continue to see strong growth in orders and backlog.

Customer interest in new business opportunities are being reinforced by labor constraints and evolving production considerations post the pandemic.

These trends are expanding the need for automation and our leading engineering capabilities across functions such as material handling production inspection machine tending pelletizing and quality control.

We're making traction with our greenfield expansion initiatives and developing new approaches to best serve our embedded customer base and further enhance our market position.

Including through proprietary turnkey solutions and leading application expertise.

We see significant potential to further scale this platform into fiscal 2023 and beyond both M&A and organic initiatives.

Overall, the growth momentum sustaining across our core operations and emerging solutions is encouraging at the same time. Our teams remain focused on driving strong returns as this growth continues to manifest through both consistent execution.

And continuous improvement actions.

We saw this once again during the fourth quarter, where we responded well to inflationary pressures industry wide.

Implementing further price actions and other countermeasures.

Cost leverage also remained solid.

Combined these dynamics continue to drive strong EBITDA margin expansion, despite ongoing LIFO expense headwinds.

When looking at fiscal 2022 in total we recorded $26 5 million of LIFO expense.

Which represented in over 70 basis point headwind on our margin trends during the year.

Despite this meaningful hurdle, we held gross margins relatively unchanged and expanded EBITDA margins by over 90 basis points to new record levels.

This is a tremendous accomplishment by our team and provides strong evidence of the underlying margin and return improvement potential across applied as we continue to execute our strategy.

Lastly, we ended fiscal 2022 with a healthy balance sheet.

With net leverage at one two times and over 1 billion in balance sheet capacity.

We remain disciplined and focused on deploying capital that enhances our scale.

Growth profile and competitive position going forward.

This includes organic investment opportunities as well as through additional M&A with an active pipeline that we look to execute on during fiscal 2023.

While our capital deployment priorities have not changed we remain flexible to return capital through other avenues, if necessary, including opportunistic share buybacks.

Our long term earnings potential and the intrinsic value, we see across our company.

As you saw in our release today, our board approved a new $1 5 million share repurchase program that refreshes, our buyback capacity for future share repurchase activity.

Now at this time I'll turn the call over to Dave for additional detail on our financial results and outlook.

Thank you and just underlying before I begin as in prior quarters, we have posted a quarterly supplemental investor presentation to our Investor site. This is available for your additional reference as we discussed most recent quarter results and our fiscal 2023 guidance.

Turning now to our results for the quarter consolidated sales increased 18, 5% over the prior year quarter acquisitions.

Acquisitions contributed 30 basis points of growth, which was more than offset by a 50 basis point headwind from foreign currency translation.

The number of selling days in the quarter was consistent year over year. Many of these factors sales increased 18, 7% on an organic basis.

Average daily sales rates increased over 9% sequentially versus the prior quarter and were above normal seasonal patterns.

As it relates to pricing, we estimate the contribution of product pricing on year over year sales growth was approximately 500 basis points in the quarter.

Just as a reminder, this is something only reflects measurable topline contribution from price increases on Skus sold in both year over year periods.

Turning now to sales performance by segment as highlighted on slides six and seven of the presentation sales in our service Center segment increased 21% year over year on an organic basis, when you exclude the impact of foreign currency.

Growth was solid across all of our core end markets are strongest within 19 metals pulp and paper energy aggregates rubber and plastics and lumber and wood.

Segment growth also continues to benefit from traction with our sales process initiatives and ongoing pricing actions.

Within our fluid power and flow control segment sales increased 15% over the prior year quarter with acquisitions contributing one point of growth.

On an organic basis segment sales increased 14% year over year and over 30% on a two year stack basis.

Segment sales continue to benefit from strong demand within technology end markets as well as across metals chemicals, refining utilities pulp and paper and mining verticals.

Extending supplier lead times and inbound component delays weighed a bit on segment sales growth during the quarter, but the overall impact remains limited to date.

Moving to gross margin performance as highlighted on page eight of the deck gross margin of 28, 9% declined 47 basis points compared to the prior year level of 29, 4%.

During the quarter, we recognized LIFO expense of $10 $8 million compared to $3 $7 million of LIFO income in the prior year quarter.

There was already net LIFO headwinds had an unfavorable 136 basis point year over year impact on gross margins during the quarter and reflects supplier product inflation and ongoing inventory expansion year to date.

As a reminder, the LIFO income recorded in the prior year period related to year end adjustments for inventory of their liquidations.

Overall underlying gross margin trends were in line with our expectations during the quarter.

<unk> continues to respond well to block or inflationary dynamics, reflecting broad based channel execution pricing actions and ongoing margin countermeasures as well as solid trade expense management.

As it relates to our operating costs selling distribution and administrative expenses increased eight 5% compared to prior year levels.

G&A expense was 18, 6% of sales during the quarter down from 23% during the prior year quarter.

We are pleased with what was another solid quarter of cost control and operating leverage.

While we are facing ongoing inflationary headwinds, including higher employee related expenses, we continue to see strong cost discipline and efficiencies from our operational excellence initiatives.

Third services model and technology investments.

SG&A during the quarter also benefited from slight favorability tied to our self insurance performance as well as lower deferred compensation expense.

Overall, our solid sales growth gross margin improvement and cost leverage.

26, 5% increase in EBITDA over prior year levels, which represented over 43% increase when excluding the impact of LIFO in both periods.

In addition, EBITDA margin of 11, 3% increased 70 basis points compared to prior year levels.

This includes the unfavorable 136 basis point year over year adverse impact attributed to LIFO.

Including reduced interest expense reported earnings per share of $2 <unk> was up over 34% from prior year earnings per share levels.

Moving now to our cash flow performance cash generated from operating activities. During the fourth quarter was $53 $7 million, while free cash flow totaled $47 $3 million.

For the full year, we generated free cash of $169 million, which represented 66% of net income.

We continue to see solid cash generation across our business, despite greater working capital investment over the past year.

As it relates to capital deployment, we remained active throughout fiscal 2022, including reducing debt by $139 million or 17% from prior year period end levels. We also deployed $73 million towards dividends share buybacks and M&A during the.

Yeah.

We ended June with approximately $185 million of cash on hand, and net leverage at one two times EBITDA, which is below the prior year level of one eight times adjusted EBITDA.

Our revolver currently has approximately $490 million of available capacity and an additional $500 million accordion option.

We also have the incremental capacity on our AR securitization facility and uncommitted private shelf facility. So overall liquidity remains strong.

I'll turn now to our outlook, which is detailed on page 10 of our presentation. We.

We are establishing full year fiscal 2023 guidance, including EPS in the range of $6 65 to $7 30.

Based on sales growth of 3% to 7%.

And EBITDA margins of 10, eight to 11, 1%.

Our sales outlook takes into consideration the greater economic uncertainty that has manifested itself in recent months.

While we have not seen any meaningful signs of a slowdown to date, we remain constructive on our company specific growth opportunities.

And we believe it is prudent to take a balanced approach to our initial outlook given the current economic backdrop.

Of note our sales guidance assumes decelerating underlying sales growth trends as the year progresses at.

At the midpoint, we're assuming high single digit year over year growth in the first half of the year and low single digit growth in the second half of the year.

In addition, based on quarter day sales trends through early August . We currently project fiscal first quarter organic sales to grow by a low double digit percent over the prior year quarter.

From a margin and cost perspective, we assume ongoing inflationary pressures, including year over year LIFO expense headwinds as well as ongoing growth investments and the impact of our annual Merit pay increase on January 1st.

Our LIFO assumptions assume a sustained impact from supplier price increases and ongoing inventory investment.

Easing in LIFO expense into the second half of the year as these dynamics begin to tail off.

Combined with slower top line growth and lingering supply chain constraints guidance assumes more modest operating leverage relative to fiscal 2022 pending further transparency on broader economic and inflationary trends.

Lastly in regards to cash generation, we expect free cash flow to be higher year over year in fiscal 2023, we expect.

Ongoing investment in our operational inventory levels, but a more modest build relative to fiscal 2022. He couldn't some benefit from the conversion of work in process inventories as well as progress on other working capital initiatives.

With that I'll now turn the call back over to Neal for some closing comments.

Thanks, Dave So as we begin fiscal 2023, which is our 100th year as a company.

There's a strong sense of pride and excitement throughout applied.

Underlying this is our view that we're playing an increasingly critical role across the industrial space today.

Especially when you consider customers labor constraints.

Quitman optimization initiatives and increase manufacturing investment across North America.

We're also motivated by our ongoing evolution as a company as we enhance and leverage our core service center operations, while expanding across higher engineered solutions tied to advanced automation industrial power and process technologies.

Yes, we're making on this evolution is optimizing our growth and margin trajectory for the future.

We're keeping a close eye on the broader macro environment. The current backdrop is driving greater uncertainty as to how industrial activity might track in coming quarters as such we're taking a prudent initial approach with our fiscal 2023 guidance, we're focused on continuing to execute on our commitments.

<unk> and remained constructive given the positive momentum sustaining across our business today, which we believe partially reflects various structural demand tailwind within our core end markets and channels.

We also believe our diversification and expansion into verticals, such as technology life Sciences, and other higher growth areas combined with a greater mix of longer cycle markets has enhanced the breadth and durability of our growth trajectory.

Greater evidence of manufacturing reassuring and investment in U S production capacity or other encouraging signs and there remains significant potential to gain further traction with our cross selling initiative.

Long term, we see great potential to further scale, our industry position and EBITDA margin profile. Our multifaceted strategy is presenting many new and relevant catalyst, which which will drive an ongoing evolution at applied and further enhance our market position.

Given these dynamics and our team's operational discipline today, we're establishing new intermediate financial targets, including sales over 5 billion and EBITDA margins over 12%.

We believe these objectives are well within the company's capability and can be achieved within the next five years or sooner depending on broader macro macro conditions, the cadence of M&A and other factors.

For all our team is engaged and ready to execute on these next milestones, which we believe provides the framework for significant value creation for all stakeholders.

Once again, we thank you for your continued support and with that we'll open up the lines for your questions.

Thank you at this time if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach them up here. Please press star zero like monkeys for the first question.

Okay.

Our first question comes from the line of Ken Newman with Keybanc capital markets. Please proceed with your question.

Hey, good morning, guys solid quarter.

Hey, good morning.

So for my first question.

I'm trying to balance some of the optimistic comments you've made versus the guidance that you put out this morning, particularly for the first quarter in the second half.

I think you mentioned that sales were up mid teens through early August and the guy who's calling from organic to be up low double digits.

I just want to clarify whether that is really driven by higher conservatism or is there something you want to pull the reins and have it.

Well I I can start as we look for the continuing on the first quarter right and talk about what we're seeing in the mid teens now our guidance really around the first quarter would say organic sales would be up low double digits. We.

We think gross margins are.

Or are likely unchanged.

Perhaps slightly down to the to the fourth quarter that we closed and we think our incremental margins are would be like in the in the fourth quarter say around that that 17% and then as we look out further at the guide right, we could see if condition.

Is moderate.

Sales would be more high single digits for for the first half and potentially a little more softening in the second half. So today, we do not see that in our in our customer interactions and dialogue.

<unk> worked with suppliers and others.

But we're mindful as we said in the marks right crosscurrents and other things that could influence.

I'd just add Kevin that are you know, we do have a little bit tougher comp. When you look at the August September timeframe to round out the quarter, which gets us to that low double digit expectation for organic growth for Q1 I'd also add that you know on the three to seven you know.

Full year organic growth guidance, you know that does include in the back half of the year you know market contraction.

I went into that spectrum, you're looking at so we're offsetting that with deposits.

The positive momentum that we see coming into the year, a nice backlog position, particularly in our project oriented fluid power flow control automation businesses, you know some some positive price contribution carrying through as well as thinking about our flow control business and some of the the longer later cycle. That's you know like some of the other areas of the business that came back and it's going to continue.

To provide some momentum so that coupled with cross selling opportunity share gain momentum.

Offsetting what we're assuming is still be a you know kind of a negative trend in terms of market for the back half of the year.

Got it yeah. So it sounds like it's mostly conservatism and maybe a little bit more.

And the top end of the guide here.

Our crystal ball exactly the outcome yes.

Right.

For my follow up I'm, just curious could you talk a little bit about what's embedded in the current guide in terms of the pricing cadence, obviously price was up sequentially from the prior quarter.

Do you expect price contributions to be up sequentially from fiscal <unk>.

When do you think we start to see a peak in some of those prices just given that you are a little bit more exposed to some of these later cycle industries versus your competitors.

Yeah, I would tell you overall you know right now we're not going to guide on guide on price, but perhaps as color or start or we can say.

Price contribution overall for 23 could be similar to fiscal 'twenty two.

But as you would expect right the cadence will reverse so perhaps starts higher as we go into the first half when we finish this calendar year.

And then starts to moderate back in in the second half, but I think a starter or a guide would be similar for the full year.

In 'twenty three as it was in in 'twenty two.

Okay.

Got it thanks, I'll get back in queue.

Our next question comes from the line of Chris Dankert with Loop capital. Please proceed with your question.

Hey, good morning, guys. Thanks for taking the question.

On the intermediate term numbers you guys gave here that 12% EBITDA margin figure is that should we think about that as a cross cycle number just because if I look at the EBITDA margin you guys put up this year add back life or you're already pretty well into the 11th So just trying to get my arms around how to think about that that EBITDA margin outlook or target.

Time.

Yeah. So should we think about it over the cycle. The contributors would be we would grow mid single digits.

We would look to continue acquisitions, and so perhaps acquisitions create contribute 300 basis points.

Of growth.

We would have some gross margin expansion in that period and in the Incrementals would be and are in the mid to high teens that would go in and and so as we talk to the timing can be impacted by it just what are going to be.

The general market conditions and in the environment.

So if there is a pullback and a slowdown in that period, perhaps where in that that longer timeframe of five years.

If not or more just kind of a general recessionary modest pull back.

We will have the opportunity to get there sooner.

Got it that's very helpful. Thank you.

And then just to think about the guide for the year, a little bit more granularly.

Should we think about the growth rates across the business as being fairly similar or I mean, it seems like based on the performance to date that the distribution business would be growing a bit faster just any thoughts there would be great.

Yeah actually the guidance assumes the fluid power flow control automation segment slightly outpaced in servicing that growth just given the you know.

The strong 22 that we had in that piece of the business and just that group.

<unk> backlog position that we entered the year with so slightly outpaced growth out of the project oriented business.

Got you got you and then maybe just one quick kind of housekeeping question any comment on your corporate and other expense for the year, probably being near 100 million just kind of if you could size up there.

I'd say, yes, I would say nothing really different year over year, there kind of a boy in line with what you've seen historically.

Got you well thanks, so much for the color guys and congrats on the year end and really looking forward to a strong 23.

Thanks, Chris.

As a reminder, ladies and gentlemen to register for a question. Please press the one followed by the four on your telephone keypad.

Yeah.

Our next question comes the line of be Banoffee with Baird. Please proceed with your question.

Hey, Good morning, guys I was sitting here Mashing star one so.

Need to follow directions, I guess.

Rational outlook makes sense.

Dave maybe you could.

Describe gross margin outcomes, all else equal if inflation flattens out completely.

So for example, if if.

Inflation goes to zero in a given year you claw back some or all of the LIFO headwinds you're seeing right now.

It's not going to be flipping on a dime days, because you think about the kind of the.

The nature of this business and the randomness of some good demand good talked before you know it.

A third of the Skus and you repeated in any given period, there's going to be a longer tail of LIFO you gotta be placing their impact you know kind of scheme to all tomorrow, we'd socio longer tail as you do replacement parts that have not been replaced in the last year plus and hit the radar. So the guidance does assume that longer tail.

Now some of that inflationary impact if it didn't we'd really into the through the first half of the year until things cool effect. So you know you said the guidance generally assumes a LIFO impact similar to what we saw this year.

And then you know the opportunity does exist then obviously maybe to get out in the back half a year, but more likely some feature.

Future years to be able to realize either by some of the cooling of the inflationary impact or certainly rare liquidation like we saw in Q4 of our fiscal 'twenty. One some LIFO tailwind as a result of you know kind of a run up that we've seen but don't see a great deal of that materialize in our fiscal 'twenty three.

Mhm Yep makes lot of sense.

And then as a follow up the and in the release you mentioned cost leverage despite inflation and I guess, that's telling us that.

Revenue inflation is greater than your S DNA inflation.

Neil maybe you could help me with how do you know that you are operating more efficiently versus just benefiting from generalized inflation.

As it affects your model.

So I think one would look at where we focus in and that we've made investments and that we're seeing productivity and in the back of the house and whether that be continued opportunities around shared services warehouse man.

Each month.

Other initiatives that.

We are operating efficiently in support of the business and so our investments are more forward facing an engineering and technology as we expand into those solutions that are touching and impacting customers on the side. So you know that has been our balance.

Getting some natural inflation that comes through on medical and some other areas and but we think all in all we're doing a very effective job.

Managing those in in the model and going forward, it's been part of the improvement.

In our Incrementals and we think can contribute to us going forward.

When you condition the team to look at that overall staffing costs inclusive of overtime.

Temp labor and really do the benchmarking you know based on that that total cost of staffing is to you know.

Demonstrate where we're seeing that productivity and you know kind of set that expectation is to continue to move forward maintaining that efficiency.

Yeah.

Sounds good thanks, guys.

Thanks.

Our next question is a follow up from the line of Ken Newman with Keybanc capital markets. Please proceed.

Hey, Thanks for the follow up here.

I'm sorry, if I missed this in the prepared remarks, but did you give any color on how the automation business did in the call.

I'm curious could you just give some color on what run rate revenue is like for that business now and then maybe just talk a little bit about the M&A pipeline for some of those targets within that sector.

Sure in the <unk>.

Sales in the quarter for automation, we're up mid <unk> mid single digits, I think 6% plus or so in that side, we've talked about order rates and backlog expanding.

The automation group did prior quarter comp was a plus 40, so are competing against a high comp in that side.

The month of June was double digit so we remain highly pleased with the group and the opportunities that we're opening up.

Greenfield expansion continues to progress on that side.

And in.

In our M&A priorities.

Automation is one of those along with the fluid power and flow control.

So good good activity going in developing more turnkey solutions that we feel we can take across a lot of market segments from a discrete automation side that are underpenetrated. So we think that's going to be a nice contributor for us going in and as we think about the business going forward.

Obviously, there they're at or above the high end of the guidance that would be the expectations for fiscal 'twenty three.

And we did say to in the prepared remarks that you know maybe some of that growth opportunity.

In addition to the tougher comps was dampened just a bit by your supplier constraints and making too that the team's done a very nice job of you still.

So continuing that order trajectory and nice growth against those tougher comps, while managing through some of the supply chain initiatives.

Yes.

Yes.

I am curious are you running into any installation bottlenecks.

And we have heard about a couple of issues I think you know from one of your supplier partners.

Experienced a pretty big fire at their largest production line is that having an impact on deployments at all.

So I would say overall for us are limited to two.

No and I think some of that impact is more on logistics oriented market rather than engineered solutions as it goes across so we feel like it and our solutions, we're doing a a.

Nice job I mean, obviously, there's supplier engagements and expedites and doing it and you know things may move, but there are small period and move out so the the product range. The engineered range that we are more focused on.

Has not seen or had the.

At the same level of impact.

Yeah.

And maybe just one more for me you know obviously the leverage seems to be in a really strong place.

Youre expecting free cash generation to be better this year.

Any update how we should think about what are the price.

The primary priorities for capital deployment, whether it be for M&A.

This program or something else.

So I'd say priorities first or growth right and we can make our organic investments in that and M&A and so those would be the the first level of priorities.

We'll continue to be a dividend payer dividend increase or and then as we touched on I'm.

Share repurchase authorization.

In that.

It is an opportunity, but we think in the environment. We will have opportunities for continued growth in that side. We've said consistently we'll be mindful, we will not just stacked cash.

For long periods of time, and we can redeploy those.

You know back to back to shareholders, but we think best moves that we can take would be to further grow the business across and especially as we develop these.

These engineered solutions.

At this time.

Okay.

As a final reminder to register for a question first a one stop by the four on your telephone keypad.

Okay.

At this time I'm showing we have no further questions I will now turn the call over to Mr. Schrimsher for any closing remarks.

I'll just simply thank everyone for joining us today, we look forward to talking with our with you throughout the quarter. Thanks again.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

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