Q1 2024 Applied Industrial Technologies Inc Earnings Call

Yeah.

Greetings and welcome to the fiscal 'twenty 'twenty four first quarter earnings call for applied industrial technologies. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.

Speaker 1: Greetings and welcome to the fiscal 2024 first quarter earnings call for Applied Industrial Technology.

Speaker 1: During the presentation, all participants will be in a listen only...

Speaker 1: Afterwards, we will conduct a question and answer session.

Speaker 1: At that time, if you have a question, please press the 1 followed by the 4 on your telephone.

At that time, if you have a question. Please press the one followed by the four on your telephone.

Speaker 1: If at any time during the conference you need to reach an operator, please press star zero.

If at any time during the conference you need to reach an operator, Please press star zero.

Speaker 1: As a reminder, this conference is being recorded Thursday, October 26, 2023. I would now like to turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Please go ahead.

As a reminder, this conference is being recorded Thursday October 26 2023.

I would now like to turn the call over to Ryan <unk> director of Investor Relations and Treasury. Please go ahead.

Okay. Thanks, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our first quarter results.

Speaker 2: Okay, thanks and good morning to everyone on the call. This morning we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the investor relations section of apply.com.

Both of these documents are available in the Investor Relations section of applied Dot com before.

Speaker 2: Before we begin, just a reminder, we'll discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations, subject to the certain risks and uncertainties, including those detailed in our SEC filings.

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 S. E C filings.

Speaker 2: Actual results may differ materially from those expressed in the forward-looking statement.

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 statement.

Speaker 2: the company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents.

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 applies President and Chief Executive Officer, and Dave Wells, Our Chief Financial Officer.

I'll turn it over to Neil.

Speaker 3: Thanks Ryan and good morning everyone. We appreciate you joining us. I'll start today with some perspective on our first quarter results, current industry conditions, and our expectations going forward. Dave will follow with more specific detail on the quarter's performance, as well as our updated outlook and guidance. I'll then close with

Thanks, Ryan and good morning, everyone. We appreciate you joining us I'll start today with some perspective on our first quarter results current industry conditions, and our expectations going forward, Dave will follow with more specific detail on the quarter's performance as well as our updated outlook and guidance.

I'll, then close with some final thoughts.

Speaker 3: So overall, we had a nice start to fiscal 2024. We delivered strong earnings performance, with EBITDA and EPS growing at respective 12% and 21% over the prior year and hitting new record first quarter level.

So overall, we had a nice start to fiscal 2024, we delivered strong earnings performance with EBITDA and EPS growing a respective 12% and 21% over the prior year and hitting new record first quarter levels.

Speaker 3: This was against a more modest sales growth backdrop that was largely in line with our expectations.

This was against a more modest sales growth backdrop that was largely in line with our expectations. The.

Speaker 3: The applied team did an outstanding job driving gross margin expansion during the quarter, reflecting ongoing internal initiatives, strong channel execution, and freight cost management.

The applied team did an outstanding job driving gross margin expansion during the quarter, reflecting ongoing internal initiatives strong channel execution and freight cost management.

We're also beginning to see LIFO expense normalize as inflation starts to moderate and inventory levels stabilize as.

Speaker 3: We're also beginning to see LIFO expense normalize as inflation starts to moderate and inventory levels stabilized.

Speaker 3: As highlighted in past calls, LIFO expense was a notable headwind of margins and earnings over the past several years. While we anticipate inflation to persist going forward.

As highlighted in past calls LIFO expense was a notable headwind to margins and earnings over the past several years, while we anticipate inflation to persist going forward.

Speaker 3: and there's a degree of uncertainty on the cadence of LIFO expense moving forward, we expect more normalized LIFO expense levels to provide a clearer view of the progress we continue to make along our initiatives as well as the ongoing evolution of our business mix and industry position.

And there's a degree of uncertainty on the cadence of LIFO expense moving forward.

We expect more normalized LIFO expense levels to provide a clearer view of the progress we continue to make a long our initiatives as well as the ongoing evolution of our business mix and industry position.

We also had another solid quarter of demonstrating cost control. In addition to lower variable expenses as sales growth normalizes, we continued to benefit from greater efficiencies and cost leverage following investments in talent and technology as well as an ongoing focus across our.

Speaker 3: We also had another solid quarter of demonstrating cost control. In addition to lower variable expenses as sales growth normalizes, we continue to benefit from greater efficiencies and cost leverage following investments in talent and technology, as well as an ongoing focus across our shared services model.

Our shared services model.

Speaker 3: Our operational discipline and execution commitment remain key guiding posts as we navigate an evolving demand environment and continue to invest across our business for future growth.

Our operational discipline and execution commitment remain key guiding post as we navigate an evolving demand environment and continued to invest across our business for future growth.

As it relates to the broader demand backdrop trends were largely in line with our expectations during the quarter as we highlighted in recent quarters and consistent with macro industrial indicators, we continue to see normalization in customer activity across areas of our business cut.

Speaker 3: As it relates to the broader demand backdrop, trends were largely in line with our expectations during the quarter. As we highlighted in recent quarters and consistent with macro industrial indicators, we continue to see normalization in customer activity across areas of our business.

Speaker 3: customer production facilities have settled into a steady cadence following a heavy utilization ramp in recent years.

Customer production facilities have settled into a steady cadence following a heavy utilization ramp in recent years.

In addition, we continue to face a headwind from slower activity across the technology sector, which we estimate negatively impacted our year over year organic growth by over 100 basis points in the quarter.

Speaker 3: In addition, we continue to face a headwind from slower activity across the technology sector, which we estimate negatively impacted our year-over-year organic growth by over 100 basis points in the quarter.

Speaker 3: A slower technology vertical has impacted our year-over-year sales growth for almost a year at this point.

A slower technology vertical has impacted our year over year sales growth for almost a year at this point.

Speaker 3: Our exposure to technology vertical has increased in recent years, both with strong organic growth and acquisition.

Our exposure to technology vertical has increased in recent years.

Both with strong organic growth and acquisition.

Speaker 3: This includes essential solutions integral to the production supply chains and infrastructure across semiconductor and electronics manufacturing as well as data center operation.

This includes essential solutions integral to the production supply chains and infrastructure across semiconductor and electronics manufacturing as well as data center operations.

Speaker 3: On a side note, orders within this vertical have stabilized, and we believe the year-over-year sales trends will begin to improve in coming quarters as comparison Zs and demand starts to rebound, considering the many secular and structural tailwinds within this growth vertical.

On a side note orders within this vertical has stabilized and we believe the year over year sales trends will begin to improve in coming quarters as comparisons ease and demand starts to rebound considering the many secular and structural tailwind within this growth vertical.

Outside of technology vertical underlying sales growth held in well during the first quarter against difficult comparisons 22 of our top 30 end markets were positive year over year, which is relatively stable with last quarter.

Speaker 3: Outside of technology vertical, underlying sales growth held in well during the first quarter against difficult comparisons.

Speaker 3: 22 of our top 30 in markets were positive year over year, which is relatively stable with last quarter.

Speaker 3: Growth was strongest in many of our top industry verticals and across our larger national account base.

Growth was strongest in many of our top industry verticals and across our larger national account base.

Trends were most favorable across food and beverage.

Speaker 3: Trends were most favorable across food and beverage, lumber and wood, mining, pulp and paper, energy, utilities, and refining verticals during the quarter.

Lumber and wood mining pulp and paper energy utilities and refining verticals during the quarter.

Speaker 3: In addition, we continue to capture incremental growth opportunities from our industry position, local service capabilities, and cross-selling initiatives.

In addition, we continue to capture incremental growth opportunities from our industry position local service capabilities and cross selling initiatives.

Speaker 3: We're also seeing more benefits both directly and indirectly from reshoring activity and investment in US industrial infrastructure, as well as projects tied to the ongoing energy transition.

We're also seeing more benefits both directly and indirectly from re shoring activity and investments in U S industrial infrastructure as well as projects tied to the ongoing energy transition.

Speaker 3: This includes demand for our technical products and solutions as the broader industrial economy supports incremental production activity from these investments.

This includes demand for our technical products and solutions as the broader industrial economy supports incremental production activity from these investments.

Speaker 3: We're seeing these benefits across many of our businesses in the US, including our service center and flow control operations.

We're seeing these benefits across many of our businesses in the U S, including our service center and flow control operations.

Speaker 3: as well as our core industrial and mobile fluid power business.

As well as our core industrial and mobile fluid power business.

Speaker 3: Related sales across these areas on a combined basis were up a high single digit percent over the prior year during the quarter.

Related sales across these areas on a combined basis were up a high single digit percent over their prior year during the quarter.

It's generally aligns with readings on U S industrial capacity utilization, which had been relatively firm at prior cycle highs in recent months.

Speaker 3: This generally aligns with readings on U.S. industrial capacity utilization, which have been relatively firm at prior cycle highs in recent months.

Speaker 3: These trends suggest that the current market easing is more reflective of a cooling and customer activity rather than a retrenchment or contraction.

These trends suggest that the current market easing is more reflective of a cooling in customer activity, rather than a retrenchment or contraction.

Speaker 3: While growing secular spending backdrop is providing incremental support.

Growing secular spending backdrop is providing incremental support.

Speaker 3: Within our service center segment, sales increased nearly 5% organically over prior year levels, on top of 20% growth during the first quarter of last year.

Within our service Center segment sales increased nearly 5% organically over prior year levels on top of 20% growth during the first quarter of last year.

Our core U S Service Center network led the way with relatively firm trends through the quarter, which is an encouraging sign considering the shorter cycle nature of our service center sales and related correlation with the underlying U S industrial production activity.

Speaker 3: We continue to see strong growth across larger national accounts and fluid power after market sales, as well as benefits from our sales force effectiveness initiatives.

We continue to see strong growth across larger national accounts and fluid power aftermarket sales as well as benefits from our sales force effectiveness initiatives.

As a reminder, these include greater use of prescriptive analytics system investments and ongoing talent initiatives.

Speaker 3: We continue to benefit from our ability to consistently serve our customers technical break-fix needs at a scaled but localized level while providing them direct access to solutions for their fluid power, flow control, consumables, and advanced automation needs.

We continue to benefit from our ability to consistently serve our customers' technical break fix needs at a scaled but localized level, while providing them direct access to solutions for their fluid power flow control consumables and advanced automation.

And needs.

The progress we've made on our strategy and market position has enriched and deepened our customer relationships within our service Center network.

Speaker 3: The progress we've made on our strategy and market position has enriched and deepened our customer relationships within our service center network.

Speaker 3: This is presenting a greater scope of business opportunities at all points of the business cycle.

This is presenting a greater scope of business opportunities at all points of the business cycle.

Speaker 3: as we are increasingly viewed as a strategic solutions provider for critical industrial infrastructure.

As we are increasingly viewed as a strategic solutions provider for critical industrial infrastructure.

We're also continuing to identify opportunities to further enhance our local service reach and accelerate our growth potential moving forward.

Speaker 3: We're also continuing to identify opportunities to further enhance our local service reach and accelerate our growth potential moving forward.

Speaker 3: This is reflected in the two Bolt-On Service Interac acquisitions we announced in early September , bearing distributors and Kang-Gro industry.

This is reflected in the two bolt on service center acquisitions, we announced in early September bearing distributors and can grow industries.

Speaker 3: Each company brings deep customer and supplier relationships, as well as strong technical talent that will strengthen our footprint and strategic growth potential across the US Southeast and Upper Northeast.

Each company brings deep customer and supplier relationships as well as strong technical talent that will strengthen our footprint.

Strategic growth potential across the U S South east and upper northeast.

Speaker 3: We welcome both bearing distributors and can grow to the applied team and look forward to seeing their capabilities. Buster our value proposition moving forward.

We welcome both bearing distributors and can grow to the applied team and look forward to seeing their capabilities bolster our value proposition moving forward.

Speaker 3: Within our engineered solution segment, cells were up close to 1% organically over the prior year. Segment growth has moderated from prior quarters, as expected, primarily reflecting more difficult comparisons, and reduced activity across the technology in market as highlighted earlier.

Within our engineered solutions segment sales were up close to 1% organically over the prior year segment growth has moderated from prior quarters as expected, primarily reflecting more difficult comparisons and reduced activity across the technology and market is high.

Right it earlier.

Automation sales were also slightly lower year over year on an organic basis during the quarter, partially reflecting the timing of more complex engineered solutions shipments as well as ongoing component delays and supply chain constraints.

Speaker 3: Automation cells were also slightly lower year over year on an organic basis during the quarter, though partially reflecting the timing of more complex engineered solution shipments, as well as ongoing component delays and supply chain constraints.

This was more than offset by positive sales growth across our off highway mobile and industrial fluid power verticals as well as our higher margin process flow control products and solutions.

Speaker 3: This was more than offset by positive sales growth across our off-highway mobile and industrial fluid power verticals, as well as our higher margin process flow control products and solutions.

Speaker 3: Our mobile and industrial fluid power OEM and the engineered solution cells are benefiting from a healthy backlog that expanded over the past couple of years.

Our mobile and industrial fluid power OEM in the engineered solutions sales are benefiting from a healthy backlog that expanded over the past couple of years.

Speaker 3: Part of the backlog growth reflects market penetration as we continue to leverage our leading capabilities in electronic controls, IoT, electrification, and autonomous systems.

Part of the backlog growth reflects market penetration as we continue to leverage our leading capabilities in electronic controls I O T electrification and autonomous systems.

This includes design engineering and software coding and the integration of these advanced features into hydraulic and pneumatic systems.

Speaker 3: This includes design, engineering, and software coding, and the integration of these advanced features into hydraulic and pneumatic systems.

Speaker 3: Our expertise in these areas is strengthening our value proposition as the fluid power space evolves and is providing a robust pipeline of long-term growth opportunities as we lead the fluid power distribution space towards these next-generation platforms.

Our expertise in these areas is strengthening our value proposition as the fluid power space evolves and is providing a robust pop pipeline of long term growth opportunities as we lead the fluid power distribution space towards these next generation platforms.

MRO activity and capital spending on process infrastructure also remains positive and our core flow control in markets with incremental support from backlog conversion and new business tied to our customers' decarbonization efforts.

Speaker 3: MRO activity and capital spending on process infrastructure also remains positive in our core flow control in Mark.

Speaker 3: with incremental support from backlog conversion and new business tied to our customers' decarbonization F.

In addition, despite more muted sales growth in the quarter overall customer interest and new business opportunities remained elevated across our automation operations with our sales funnel and pre sales engineering activity remaining at record highs.

Speaker 3: In addition, despite more muted sales growth in the quarter, overall customer interest and new business opportunities remained elevated across our automation operations. With our sales funnel and pre-sales engineering activity remaining at record high.

Speaker 3: We're very excited about the potential of our automation platform, including an active pipeline of strategic M&A opportunities that we expect a further scale and optimize our industry position going forward.

We're very excited about the potential of our automation platform, including an active pipeline of strategic M&A opportunities that we expect to further scale and optimize our industry position going forward.

Speaker 3: From a capital allocation standpoint, we remain very well positioned to drive ongoing organic investment as well as accelerate M&A going forward. We have flexibility to return capital through other avenues if necessary.

From a capital allocation standpoint, we remain very well positioned to drive ongoing organic investment as well as accelerate M&A going forward, we have flexibility to return capital through other avenues if necessary.

Speaker 3: This includes a potentially more active approach to share buybacks considering our positive long-term outlook and the underlying intrinsic value we see across our company as we progress along our strategy and toward our financial objectives.

This includes a potentially more active approach to share buybacks, considering our positive long term outlook and the underlying intrinsic value, we see across our company as we progress along our strategy and toward our financial objectives.

Lastly, I want to highlight a recent published ESG report, which I encourage you to spend time reviewing.

Speaker 3: Lastly, I want to highlight a recent published ESG report, which I encourage you to spend time reviewing.

We've expanded the report this year to include energy consumption detail.

Speaker 3: We've expanded the report this year to include energy consumption detail, broader information on our sustainability solutions and initiatives, and more insight into our ESG actions moving forward.

Rod or information on our sustainability solutions and initiatives.

And more insight into our ESG actions moving forward.

Speaker 3: We remain focused on advancing our commitment and opportunity around this important stakeholder area, both now and into the future.

We remain focused on advancing our commitment and opportunity around this important stakeholder area, both now and into the future.

Operator: Greetings and welcome to the Cisco 2024 first quarter earnings calls for Applied Industrial Technologies. During the presentation all participants will be in a listen only mode. Afterwards 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 reach an operator please press star zero.

This includes building on our legacy of being a responsible corporate citizen by implementing greener practices in our operations promoting diversity fostering continuous learning across our organization and supporting our communities.

Speaker 3: This includes building on our legacy of being a responsible corporate citizen by implementing greener practices in our operations, promoting diversity, fostering continuous learning across our organization, and supporting our community.

Speaker 3: At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

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

Operator: As a reminder this conference is being recorded Thursday October 26th 2023.

Thanks, Neil just another reminder, before I begin as in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for additional reference during the call.

Speaker 3: Thanks, Neil. Just kind of reminded before I begin, as in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for your digital reference during the call.

Ryan Cieslak: I would now like to turn the call over to Ryan Cieslak Director of Investor Relations and Treasury. Please go ahead. Okay thanks and good morning to everyone on the call. This morning we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the Investor Relations section of Applied.com.

Speaker 3: Certainly now that details of our financial performance in the quarter, Consolidate sales increased 3.1% over the prior year quarter.

Turning now to details of our financial performance in the quarter consolidated sales increased three 1% over the prior year quarter.

Speaker 4: Acquisitions contributed 110 basis points and for an accuracy at a positive 20 basis point impact.

Acquisitions contributed 110 basis points and foreign currency had a positive 20 basis point impact this.

Ryan Cieslak: Before we begin just a reminder we'll discuss our business outlook and make forward looking statements. All forward looking statements are based on current expectations subject to the 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 obligations update publicly or revise any forward looking statement. In addition the conference call will use non-gap financial measures which are subject to the qualifications referenced in those documents.

Speaker 4: This was partially offset by a 1.6% point headwind from one last selling day in the quarter.

This was partially offset by a one six percentage point headwind from one less selling day in the quarter.

Speaker 4: NetEED's factors tells increased 3.4% on an organic daily base.

Many of these factors sales increased three 4% on an organic daily basis.

Speaker 4: As it relates to pricing, we estimate the contribution of product pricing on year-of-year sales growth was in the low single digits for the quarter. And slightly below this code, 2020 and 23 fourth quarter level.

As it relates to pricing, we estimate the contribution of product pricing on year over year sales growth was in the low single digits for the quarter and slightly below fiscal 2023 fourth quarter levels.

Moving now to sales performance by segment as highlighted on slides seven and eight of the presentation sales in our service Center segment increased four 7% year over year on an organic daily basis, when excluding the impact of foreign currency. The initial contribution from our early September acquisitions, and the one less selling day in it.

Speaker 4: Moving out of sales performance by segment, as highlighted on slide seven and eight of the presentation, sales and our service center segment increased 4.7% year-to-year on organic daily basis, when excluding the impact of foreign currency, the initial contribution from our early September acquisitions and the one less selling day and a quarter.

Neil Schrimsher: Our speakers today include Neil's scripture applies president and chief executive officer and Dave Wells our chief financial officer. With that I'll turn it over to Neil. Thanks Ryan and good morning everyone we appreciate you joining us.

Neil Schrimsher: I'll start today with some perspective on our first quarter results, current industry conditions and our expectations going forward.

Order.

Growth was strongest across our U S Service Center network, partially offset by more modest sales trends across our international operations.

Speaker 4: Growth with strongest across our U.S. service that are networked, partially offset by more modest sales trends across our international operation.

David Wells: Dave will follow with more specific detail on the quarter's performance as well as our updated outlook and guidance.

Speaker 4: Saguant operating income increased 9% over the prior year, while Saguant operating margin of 13% was up 60 basis points.

Segment operating income increased 9% over the prior year, while segment operating margin of 13% was up 60 basis points.

Neil Schrimsher: I'll then close with some final thoughts. So overall we had a nice start to physical 2024. We delivered strong earnings performance with EBITDA and EPS growing a respective 12% and 21% over the prior year and hitting new record first quarter levels. This was against a more modest sales growth backdrop that was largely in line with our expectations. The applied team did an outstanding job driving gross margin expansion during the quarter reflecting ongoing internal initiatives.

Within our engineered solutions segment sales increased one 2% over the prior year quarter with acquisitions contributing 220 basis points of growth, which was partially offset by a negative 160 point headwind from the selling day impact.

Speaker 4: within our engineered solution segment, does increase to 1.2% over the prior year quarter with acquisitions contributing 220 basis points of growth, which was partially offset by negative 160 point headwind from the spelling day impact.

On an organic daily basis segment sales increased <unk>, 6% year over year.

Speaker 4: On an organic daily basis, segment sales increased 0.6% year-to-year.

Speaker 4: We continue to see solid sales growth within our industrial and off highway mobile fluid power solutions, as well as sustained customer MRO and cap expanding into process flow infrastructure.

We continue to see solid sales growth within our industrial and off highway mobile fluid power solutions as well as sustained customer MRO and capex spending into process flow infrastructure.

Neil Schrimsher: Strong channel execution and freight cost management. We're also beginning to see life of expense normalized as inflation starts to moderate and inventory level stabilized. As highlighted in past calls life of expense was a notable headwind of margins and earnings over the past several years while we anticipate inflation to persist going forward. And there's a degree of uncertainty on the cadence of life of expense moving forward. We expect more normalized life of expense levels to provide a clearer view of the progress we continue to make along our initiatives as well as the ongoing evolution of our business mix and industry position.

Speaker 4: Does however, within our automation operations decline 5% on an organic daily basis over the prior year, partially reflecting delayed customer shipment and install activity of engineered solutions, as well as the adverse impact of ongoing supply chain constraints.

However, within our automation operations declined 5% on an organic daily basis over the prior year, partially reflecting delayed customer shipments and install activity of engineered solutions as well as the adverse impact of ongoing supply chain constraints.

Speaker 4: In addition, as mentioned earlier, Segment sales trends continue to be impacted by slower activity within the technology and market, which negatively impacted Segment growth by approximately 400 basis points in the quarter.

In addition, as mentioned earlier segment sales trends continued to be impacted by slower activity within the technology end market, which negatively impacted segment growth by approximately 400 basis points in the quarter.

Speaker 4: Segment operating income increased 9% over the prior year, while segment operating margin of 14.2% was up 100 basis points from prior year level.

Segment operating income increased 9% over the prior year, while segment operating margin of 14, 2% was up 100 basis points from prior year levels.

Highlighting now our gross margin performance as detailed on page nine of the deck gross margin of 29, 7% increased 81 basis points compared to the prior year level of 29%.

Speaker 4: highlighting now our gross margin performance as detailed on page 9 of the deck. Gross margin of 29.7% increased 81 basis points compared to the prior year level of 28.9%.

Neil Schrimsher: We also had another solid quarter of demonstrating cost control. In addition to lower variable expenses as sales growth normalizes, we continue to benefit from greater efficiencies and cost leverage following investment in talent and technology, as well as an ongoing focus across our shared services model. Our operational discipline and execution commitment remain key guiding posts as we navigate an evolving demand environment and continue to invest across our business for future growth. As it relates to the broader demand backdrop trends were largely in line with our expectations during the quarter, as we highlighted in recent quarters and consistent with macro industrial indicators, we continue to see normalization and customer activity across areas of our business.

Speaker 4: During the quarter, we recognized LIFO expensive $4.6 million compared to $9.1 million in the prior year quarter.

During the quarter, we recognized LIFO expense of $4 $6 million compared to $9 1 million in the prior year quarter.

Speaker 4: This net length of tailwind had a favorable 41 basis point year-year impact on gross margins during the quarter.

This net LIFO tailwind had a favorable 41 basis point year over year impact on gross margins during the quarter.

Speaker 4: while directly in line with our expectation of easing life-alexpense near-term, the overall magnitude of decline was greater than anticipated, reflecting ongoing normalization of inflation and more stable inventory trends across our business.

While directionally in line with our expectation of easing LIFO expense near term. The overall magnitude of decline was greater than anticipated, reflecting ongoing normalization of inflation and more stable inventory trends across our business.

Speaker 4: That said, our underlying gross margin performance continues to reflect solid execution and our margin expansion potential. This is becoming more transparent as life or expense begins to moderate.

That said our underlying gross margin performance continues to reflect solid execution and our margin expansion potential. This is becoming more transparent as LIFO expense begins to moderate.

Neil Schrimsher: Customer production facilities have settled into a steady cadence following a heavy utilization ramp in recent years. In addition, we continue to face a headwind from slower activity across the technology sector, which we estimate negatively impacted our year-over-year organic growth by over 100 basis points in the quarter. A slower technology vertical has impacted our year-over-year sales growth for almost a year at this point. Our exposure to technology vertical has increased in recent years both with strong organic growth and acquisition.

Speaker 4: When excluding life, we expense gross margins were up nearly 40 basis points over the prior year and 20 basis points sequentially.

When excluding LIFO expense gross margins were up nearly 40 basis points over the prior year and 20 basis points sequentially.

We continue to manage kreider inflationary dynamics well through our ongoing focus on various gross margin counter measures and initiatives.

Speaker 4: We continue to manage prior to inflationary dynamics well through our ongoing focus on various gross margin countermeasures and initiatives.

Speaker 4: This includes enhanced analytics, bread expense management, and channel execution.

<unk> enhanced analytics, great expense management and channel execution.

Speaker 4: We also saw solid growth margin performance within our engineered solution segment during the quarter, helping both segment profitability and mixed dynamics during the quarter.

We also saw a solid gross margin performance within our engineered solutions segment during the quarter, helping both segment profitability and mixed dynamics during the quarter.

As it relates to our operating cost selling distribution and administrative expenses increased two 1% compared to prior year levels.

Speaker 4: As it relates to our operating costs, selling, distribution, and administrative expenses increased 2.1 percent compared to prior year levels.

Neil Schrimsher: This includes essential solutions integral to the production supply chains and infrastructure across semiconductor and electronics manufacturing, as well as data center operations. On a side note, orders within this vertical have stabilized and we believe the year-over-year sales trends will begin to improve incoming quarters as comparison z's and demand starts to rebound considering the many secular and structural tailwinds within this growth vertical. Outside of technology vertical, underlying sales growth held in well during the first quarter against difficult comparisons.

SG&A expense was 18, 7% of sales during the quarter down from 18, 8% during the prior year quarter.

Speaker 4: SDNA expense was 18.7% of sales during the quarter, down from 18.8% during the prior year quarter.

Speaker 4: and an organic constant currency basis, SDN expense would go up to be unchanged over the prior year period.

Organic constant currency basis, SG&A expense was relatively unchanged over the prior year period.

Speaker 4: We continue to leverage labor cost, reflecting talent and systems investments, as well as benefits from shared services deployment and operational excellence initiatives.

We continue to leverage labor cost, reflecting talent and systems investments as well as benefits from shared services deployment and operational excellence initiatives.

Speaker 4: Results also reflect the flexibility of our operating model, including the hearing adjustments as sales growth normalizes, as well as our ongoing operational focus.

Results also reflect the flexibility of our operating model, including inherent adjustments as sales growth normalizes as well as our ongoing operational focus.

Our ability to hold operating costs relatively flat in light of ongoing inflationary headwinds and growth investments is another highlight of our solid performance in the quarter and execution potential.

Speaker 4: Our ability to hold out-ring costs relative to flat, in light of ongoing inflationary headwinds and growth investments is another highlight of our solid performance in the quarter and execution potential.

Neil Schrimsher: 22 of our top 30 end markets were positive year-over-year, which is relatively stable with last quarter. Growth was strongest in many of our top industry verticals and across our larger national account base. Trends were most favorable across food and during the quarter. In addition, we continue to capture incremental growth opportunities from our industry position, local service capabilities and cross-selling initiatives. We're also seeing more benefits both directly and indirectly from reshoring activity and investments in U.S, industrial infrastructure, as well as projects tied to the ongoing energy transition.

Overall sustained sales growth gross margin management, lower LIFO expense and nice cost leverage drove a 12, 3% increase in EBITDA over prior levels during the quarter, while EBITDA margin of 12, 2% increased 100 basis points year over year.

This includes a 41 basis points year over year impact their ability due to lower LIFO expense.

Speaker 4: This includes a 41 basis point year-by-year impact of their ability due to lower life or expect.

Speaker 4: We also benefit from lower net interest expense during the quarter, primarily reflecting greater interest income from higher cash balances and investment yields.

We also benefited from lower net interest expense during the quarter, primarily reflecting greater interest income from higher cash balances and investment yields.

Speaker 4: Combined with a slight lower tax rate relative to prior year levels, reported 30 per share of $2.39 was up over 21% from prior year levels.

Combined with a slightly lower tax rate relative to prior year levels reported earnings per share of $2.39 was up over 21% from prior year levels.

Neil Schrimsher: This includes demand for our technical products and solutions, as the broader industrial economy supports incremental production activity from these investments. We're seeing these benefits across many of our businesses in the US, including our service center and flow control operations, as well as our core industrial and mobile fluid power business. Related sales across these areas on a combined basis were up a high single digit percent over the prior year during the quarter, which have been relatively firm at prior cycle highs in recent months.

Speaker 4: Moving to our cash flow performance, cash generated from operating activities during the first quarter was $66.2 million, while free cash flow totaled $61.9 million.

Moving to our cash flow performance cash generated from operating activities. During the first quarter was $66 $2 million, while free cash flow totaled $61 9 million.

Speaker 4: Compared to the prior year, free cash was up over 200%.

Compared to the prior year free cash was up over 200%.

Speaker 4: As a reminder, the first quarters typically are lowest cast generation quarter from a seasonal perspective.

As a reminder, the first quarter is typically our lowest cash generation quarter from a seasonal perspective.

Looking ahead, we expect easing working capital trends as the year progresses, including some benefit from the conversion work in process tied to our engineered solutions segment as well as continued benefits from our working capital initiatives.

Speaker 4: Look at head, we expect easy working capital trends as the year progresses, including some benefit from the conversion of work and process tied to our engineering solution segments, as well as continued benefits from our working capital initiatives.

Speaker 4: From a Valhisi perspective, we ended September with approximately $360 million of cash on hand, and that leverage at .5 times EBITDA, which is below the prior level of 1.1 times.

From a balance sheet perspective, we ended September with approximately $360 million of cash on hand, and net leverage at <unk> five times, EBITDA, which is below the prior year level of one one times.

Neil Schrimsher: These trends suggest that the current market easing is more reflective of a cooling and customer activity rather than a retrenchment or contraction while growing secular spending backdrop is providing incremental support. Within our service center segment, sales increased nearly 5% organically over prior year levels on top of 20% growth during the first quarter of last year. Our core US service center network led the way with relatively firm trends through the quarter, which is an encouraging sign considering the shorter cycle nature of our service center sales and related correlation with the underlying US service center.

Speaker 4: Our balance sheet is in a strong position to support our capital deployment in this dance moving forward as well as enhanced returns for all stakeholders.

Our balance sheet is in a strong position to support our capital deployment initiatives moving forward as well as enhanced returns for all stakeholders.

Our capital deployment priorities remain consistent with organic growth and acquisitions, our primary focus areas we remain disciplined.

Speaker 4: Our capital deployment priorities remain consistent with organic growth and acquisitions our primary focus area.

Speaker 4: We remain disciplined with our M&A approach, focus on targets, and valuations supporting our return requirements and strategic priorities.

Disciplined with our M&A approach.

On targets and valuation supporting our return requirements.

Strategic priorities.

Turning now to our outlook as indicated in todays press release and detailed on page 11 of our presentation. We are raising full year fiscal 2020 for guidance.

Speaker 4: To re now to our outlook, as indicated in today's press release and detailed on page 11 of our presentation, we are raising full year fiscal 2024 guidance to reflect first quarter earnings performance and modest accretion from our early September service center acquisitions, as well as lower assumptions for life expense and then interest.

Neil Schrimsher: We continue to see strong growth across larger national accounts and fluid power after market sales, as well as benefits from our sales force effectiveness initiatives. As a reminder, these include greater use of prescriptive analytics, system investments and ongoing talent initiatives. We continue to benefit from our ability to consistently serve our customers technical breakfast needs at a scaled but localized level while providing them direct access to solutions for their fluid power, flow control, consumables and advanced automation needs.

<unk> first quarter earnings performance and modest accretion from our early September service center acquisitions, as well as lower assumptions for LIFO expense and net interest expense.

Speaker 4: We now project EPS in the range of $9.25 to $9.80 per share based on sales growth of 1 to 4%, including a 0 to 3% organic growth assumption, as well as EBITDA margins of 12 to 12.3%.

We now project EPS in the range of $9 25 to $9 80 per share based on sales growth of 1% to 4%, including the zero to 3% organic growth assumption as well as EBIT margins of 12% to 12, 3%.

Speaker 4: Previously, our guidance assumed EPS of $8.80 to $9.55 per share. Those growth of 0 to 4% and even margins of 11.9 to 12.1%.

Previously our guidance assumed EPS of $8 80 to $9 55 per share sales growth of zero to 4% and EBITDA margins of 11 nine to 12, 1%.

Neil Schrimsher: The progress we've made on our strategy and market position has enriched and deepened our customer relationships within our service center network. This is presenting a greater scope of business opportunities at all points of the business cycle, as we are increasingly viewed as a strategic solutions provider for critical industrial infrastructure. We're also continuing to identify opportunities to further enhance our local service reach and accelerate our growth potential moving forward.

Our sales outlook continues to take into consideration economic uncertainty and easing price contribution as the year plays out.

Speaker 4: Our sales outlook continues to take into consideration economic uncertainty and easing price contribution as the year plays out.

Speaker 4: We also assume ongoing moderation and broader market activity as customers continue to normalize production levels near turnip.

We also assume ongoing moderation and broader market activity as customers continued to normalized production levels near term.

Speaker 4: In addition, based on month to date, CL trends are not tober, and our near-term outlook, we currently project this school's second quarter organic sales decline by a low single digit percent over the prior year quarter.

In addition, based on month to date sales trends in October and our near term outlook. We currently project fiscal second quarter organic sales declined by a low single digit percent over the prior year quarter.

Speaker 4: Please note, the second quarter represents our most difficult comparison for fiscal 2024. With prior year second quarter organic sales increasing over 21%, and nearly 40% on a two year stack base.

Please note the second quarter represents our most difficult comparison for fiscal 2024 with prior year's second quarter organic sales, increasing over 21% and nearly 40% on a two year stack basis.

Neil Schrimsher: This is reflected in the two bolt-on service center acquisitions we announced in early September, bearing distributors and can grow industries. Each company brings deep customer and supplier relationships, as well as strong technical talent that will strengthen our footprint and strategic growth potential across the US southeast and upper northeast. We welcome both bearing distributors and can grow to the applied team and look forward to seeing their capabilities bolster our value proposition moving forward.

Speaker 4: We're also assuming potentially more subdued scheduled maintenance activity within our core service center network into the seasonally slower late fall and winter months this year. At customers manage calendar year end budget spending in an uncertain macro empire.

We are also assuming potentially more subdued scheduled maintenance activity within our core service Center network. He did the seasonally slow or late fall and winter months of this year as customers manage calendar year end budget spending in an uncertain macro environment.

Speaker 4: Further, we're assuming the year of your life-leaf technology vertical headwind persists. And sales growth in our automation operations through a main muted near-term, partially reflecting the gains of system shipments and difficult comparison.

We're assuming the year over year likely license the technology vertical headwind persists and sales growth and our automation operations to remain muted near term, partially reflecting the cadence of system shipments and difficult comparisons.

Neil Schrimsher: Within our engineered solution segment cells were up close to 1% organically over the prior year.

Neil Schrimsher: Segment growth has moderated from prior quarters as expected, primarily reflecting more difficult comparisons and reduced activity across the technology in market as highlighted earlier. Automation Cells were also slightly lower year-over-year on an organic basis during the quarter, though partially reflecting the timing of more complex engineered solution shipments, as well as ongoing component delays and supply chain constraints. This was more than offset by positive sales growth across our off-highway mobile and industrial fluid power verticals, as well as our higher margin process flow control products and solutions.

Lastly, we expect second quarter gross margin declined sequentially. Following the strong performance we saw during the first quarter.

Speaker 4: Lastly, we expect second quarter gross margins to declines sequentially following the strong performance we saw during the first quarter.

Speaker 4: Lauri encouraged by our first Quartic Rose Marching performance, including ongoing traction with our internal initiatives. We believe it remains proved to assume a more balanced trajectory near-term, considering normalizing volume trends, ongoing inflationary pressures, and the potential for modest mixed headwinds.

While we are encouraged by our first quarter gross margin performance, including ongoing traction with our internal initiatives. We believe it remains prudent to assume a more balanced trajectory near term considering normalizing volume trends ongoing inflationary pressures and the potential for modest mix headwinds.

Speaker 4: Further, the trajectory of LIFO expense remains uncertain, pending greater clarity on supply of price adjustments, as well as considering the long LIFO tail impact that we can see given the reign of consumption nature of our SKU mix.

Further the trajectory of LIFO expense remains uncertain pending greater clarity on supply or price adjustments as well as considering the long LIFO tail impact that we can see given the random consumption nature of our SKU mix.

From an EBITDA margin perspective, our guidance assumes second quarter EBITDA margins to be flat to up slightly year over year, reflecting potential expense deleveraging on modest organic sales declines as well as ongoing inflationary headwinds and growth investments offset by lower LIFO expense compared to the prior year.

Speaker 4: From the EBITDA Marching perspective, our guidance assumes second quarter EBITDA margins to be flat to up slightly year-to-year, reflecting potential expense-de-labourging on modest organic sales declines, as well as ongoing inflationary headwinds and growth investments offset my lower life or expense compared to the prior year.

Neil Schrimsher: Our mobile and industrial fluid power OEM and the engineered solution cells are benefiting from a healthy backlog that expanded over the past couple of years. Part of the backlog growth reflects market penetration as we continue to leverage our leading capabilities in electronic controls, IOT, electrification, and autonomous systems. This includes design, engineering, and software coding and the integration of these advanced features into hydraulic and pneumatic systems. Our expertise in these areas is strengthening our value proposition as the fluid power space evolves and is providing a robust pipeline of long-term growth opportunities as we lead the fluid power distribution space towards these next generation platforms.

Neil Schrimsher: MRO activity and capital spending on process infrastructure also remains positive in our core flow control in markets, with incremental support from backlog conversion and new business tied to our customers decarbonization efforts. In addition, despite more muted sales growth in the quarter, overall customer interest and new business opportunities remain elevated across our automation operations. With our sales funnel and presales engineering activity remaining at record highs, we're very excited about the potential of our automation platform, including an active pipeline of strategic M&A opportunities that we expect to further scale and optimize our industry position going forward.

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Speaker 4: With that, I will now turn the call back over to Neil for some final comment.

With that I will now turn the call back over to Neil for some final comments.

Thanks, Dave so to wrap up and summarize we are encouraged by the sustained earnings growth into early fiscal 2024, we have many self help growth and margin opportunities that we expect to manifest in coming quarters.

Speaker 3: Thanks Dave, so to wrap up and summarize, we are encouraged by the sustained earnings growth into early fiscal 2024. We have many self-help growth and margin opportunities that we expect to manifest in coming quarter.

Speaker 3: That said, we remain cognizant of the uncertain economic backdrop near term, including the impact of higher interest rates on business investment globally, as well as increased geopolitical unrest.

That said, we remain cognizant of the uncertain economic backdrop near term, including the impact of higher interest rates on business investment globally as well as increased geopolitical unrest.

Speaker 3: Combined with gradual improvement in supply chain dynamics industry wide, our outlook continues to assume industrial activity remains more mixed near-term as customers realign production volumes to more typical seasonal patterns and take a more systematic albeit still constructive approach to capital spin.

And bind with gradual improvement in supply chain dynamics industry wide. Our outlook continues to assume industrial activity remained more mixed near term as customers realign production volumes to more typical seasonal patterns and take a more systematic albeit still can.

<unk> approach to capital spending.

Speaker 3: Importantly, the underlying fundamental backdrop within our core in markets and industry focus remains positive.

Importantly, the underlying fundamental backdrop within our core end markets and industry focus remains positive.

Speaker 3: This is underpinned by ongoing positive feedback from our customers, including planned growth investments as North American manufacturing activity, infrastructure spending, and industrial capacity continues to expand.

This is underpinned by ongoing positive feedback from our customers, including planned growth investments as North American manufacturing activity infra.

Infrastructure spending and industrial capacity continues to expand.

Speaker 3: from greater equipment, maintenance, activity, and system modernization to required investments in automation and IoT. Our comprehensive portfolio of technical solutions, engineering talent, and local service support are increasingly critical to our customers.

From greater equipment maintenance activity and system modernization to required investments in automation and Iot are comprehensive.

Neil Schrimsher: From a capital allocation standpoint, we remain very well positioned to drive ongoing organic investment as well as accelerate M&A going forward. We have flexibility to return capital through other avenues if necessary. This includes a potentially more active approach to share bybacks considering our positive long-term outlook and the underlying intrinsic value we see across our company. As we progress along our strategy and toward our financial objectives.

<unk> portfolio of technical solutions engineering talent and local service support are increasingly critical to our customers.

Speaker 3: This is evident in the resilience we see in our core U.S. Service Center network where booking activity is holding up well into the early part of our second quarter, despite normalizing in market demand.

This is evident in the resilience, we see in our core U S Service Center network, we're booking activity is holding up well into the early part of our second quarter. Despite normalizing in market demand.

Speaker 3: In addition, sales funnel activity across our automation business continues to grow with our increasing scale and application expertise, a significant value proposition for our customers and suppliers.

In addition sales funnel activity across our automation business continues to grow with our increasing scale and application expertise a significant value proposition for our customers and suppliers.

Neil Schrimsher: Lastly, I want to highlight our recent published ESG report, which I encourage you to spend time reviewing. We've expanded the report this year to include energy consumption detail, broader information on our sustainability solutions and initiatives, and more insight into our ESG actions moving forward.

Speaker 3: This is unlocking cross-selling opportunities and the development of new solutions and tools that we expect to supplement our automation addressable market and growth potential for years to come.

This is unlocking cross selling opportunities and the development of new solutions and tools that we expect to supplement our automation addressable market and growth potential for years to come.

Neil Schrimsher: We remain focused on advancing our commitment and opportunity around this important stakeholder area, both now and into the future. This includes building on our legacy of being a responsible corporate citizen by implementing greener practices in our operations, promoting diversity, fostering continuous learning across our organization, and supporting our communities.

Further feedback from our team and customers highlight growing demand from our core automation solutions, including accelerated adoption of collaborative and autonomous mobile robots to address structural labor shortages and optimize workflows.

Speaker 3: Further feedback from our team and customers highlight growing demand from our core automation solutions, including accelerated adoption of collaborative and autonomous mobile robots to address structural labor shortages and optimize workflow.

We're investing in industry, leading engineering talent.

Speaker 3: We're investing in industry leading engineering talent, premier supplier technologies, and production capacity to optimize our automation growth potential long-term.

David Wells: At this time, I'll turn the call over today for additional detail on our financial results and outlook. Thanks, Neil.

Premier supplier technologies and production capacity to optimize our automation growth potential long term.

David Wells: Just another reminder before I begin, as in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for your additional reference during the call. Turning now to details of our financial performance in the quarter, consolidate sales increased 3.1% over the prior year quarter. Acquisitions contributed 110 basis points, and four in currency had a positive 20 basis point impact. This was partially offset by a 1.6% point headwind from one last selling day in the quarter.

Speaker 3: Combined with an active M&A pipeline, we expect our automation platform to scale significantly over the next several years and be accretive to our organic growth profile as we continue along our company evolution.

Combined with an active M&A pipeline, we expect our automation platform to scale significantly over the next several years and be accretive to our organic growth profile as we continue along our company evolution.

Speaker 3: We're also excited by the growth potential we see developing around modernizing fluid power systems.

We're also excited by the growth potential we see developing around modernizing fluid power systems or capabilities and strategy and electronic control integration is providing a strong foundation to develop new and advanced hydraulic and pneumatic solutions.

Speaker 3: Our capabilities and strategy and electronic control integration is providing a strong foundation to develop new and advanced hydraulic and pneumatic solutions.

David Wells: NetEne's factors, sales increased 3.4% on an organic daily basis. As it relates to pricing, we estimate the contribution of product pricing on year-of-year sales growth was in the low single digits for the quarter, and slightly below fiscal 2020-23-4 quarter levels.

Speaker 3: This will be critical to addressing our OEM customers' needs around energy efficiency, autonomous systems, and electrification of industrial and mobile equipment.

It will be critical to addressing our OEM customers' needs around energy efficiency autonomous systems, and electrification of industrial and mobile equipment.

We have a strong industry position in this area, given our advanced and centralize engineering capabilities investments in research and development and broad scale across the U S.

Speaker 3: We have a strong industry position in this area given our advanced and centralized engineering capabilities, investments in research and development, and broad scale across the U.S.

David Wells: Moving now to sales performance by segment, as highlighted on slide 7 and 8 of the presentation, sales in our service center segment increased 4.7% year-to-year on an organic daily basis when excluding the impact of foreign currency, the initial contribution from our early September acquisitions and the one last selling day in the quarter. Growth was strongest across our U.S, service center network, partially offset by more modest sales trends across our international operations.

Speaker 3: We also see steady growth across our process flow control operations, reflecting the longer cycle nature of this area of our business, as well as expanding growth opportunities supporting the energy transition and a growing portfolio of business tied to the hygienic space.

We also see steady growth across our process flow control operations, reflecting the longer cycle nature of this area of our business as well as expanding growth opportunities supporting the energy transition and a growing portfolio of business tied to the hygienic space.

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Combined with a potential rebound across the technology sector recent step stabilization and broader industrial macro data points and easing comparisons beginning in the second half of fiscal 2024, we see a favorable sales growth set up building in coming quarters.

David Wells: Saga and operating income increased 9% over the prior year, while segment operating margin of 13% was up 60 basis points. Within our engineered solution segment, sales increased 1.2% over the prior year quarter, with acquisitions contributing 220 basis points of growth, which was partially offset by negative 160 point headwind from the selling day impact. On an organic daily basis, segment sales increased 0.6% year-to-year. We continue to see solid sales growth within our industrial and off-highway mobile fluid power solutions, as well as sustained customer MRO and cat-expending into process flow infrastructure.

Speaker 3: Combined with a potential rebound across the technology sector, recent stabilization in broader industrial macro data points, and easing comparisons beginning in the second half of fiscal 2024, we see a favorable sales growth setup building in coming quarters and into 2025.

And into 2025.

However, we're mindful of broader economic dynamics that can potentially influenced the timing and impact of these various tailwind near term.

Speaker 3: However, we're mindful of broader economic dynamics that can potentially influence the timing and impact of these various tailwinds near term.

Further as we've shown in the past our business model and operational discipline provides the playbook and flexibility to easily adjust if need be while simultaneously generating significant cash flow.

Speaker 3: Further as we've shown in the past, our business model and operational discipline provides the playbook and flexibility to easily adjust if need be. While simultaneous, we generate significant cash flow.

David Wells: Does, however, within our automation operations decline 5% on an organic daily basis over the year, partially reflecting delayed customer shipment and install activity of engineered solutions, as well as the adverse impact of ongoing supply chain constraints? In addition, as mentioned earlier, segment sales trends continue to be impacted by slower activity within the technology and market, which negatively impacted segment growth by approximately 400 basis points in the quarter. Segment operating income increased 9% over the prior year, while segment operating margin of 14.2% was up 100 basis points from prior year levels, highlighting now our gross margin performance has detailed on page 9 of the deck, gross margin of 29.7% increased 81 basis points compared to the prior year level of 28.9% During the quarter, we recognized LIFO expense at $4.6 million compared to $9.1 million in the prior year quarter.

Speaker 3: Our balance sheet and liquidity provide a strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment, as well as other capital deployment that could augment returns for all stakeholders going forward.

Our balance sheet and liquidity provide a strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment as well as other capital deployment that could augment returns for all stakeholders going forward.

Speaker 3: Once again, we thank you for your continued support and with that, we'll open up the lines for your questions.

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

Speaker 1: Thank you. If you'd like to register a question, please press the 1, followed by the four on your telephone. You will hear a three toone prompttech.

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If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three well.

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David Wells: This net LIFO tailwind had a favorable 41 basis point year-by-year impact on gross margins during the quarter. While directly in line with our expectation of easing LIFO expense near-term, the overall magnitude of decline was greater than anticipated, reflecting ongoing normalization of inflation and more stable inventory trends across our business. That said, our underlying gross margin performance continues to reflect solid execution and our margin expansion potential. This is becoming more transparent as LIFO expense begins to moderate.

One moment please for our first question.

Yeah.

And our first question comes from David Manthey with Baird. Please proceed.

Speaker 1: And our first question comes from David Manthee Woodbeard. Please proceed.

Hey, good morning, guys.

Speaker 2: Thanks very much for the overview and Neil. That was a great outlook on what we should expect as we look down the path here. So I'll refocus more on company specific items. Let's talk about the low leverage on the balance sheet right now.

Thank you very much for the overview and Neil that was a great.

Outlook.

And what we should expect as we look down the.

The path here so.

Refocus more on a company specific items. This let's talk about the low leverage on the balance sheet right now.

Speaker 2: There's only so many outlets for cash flow and we trust that you won't force an acquisition of course, but share repurchase maybe with the stock being somewhat thin is a little problematic.

There's only so many outlets for cash flow and we trust that you will force an acquisition of course, but.

Share repurchase maybe with.

With the stock being somewhat thing is a little problematic.

Speaker 2: Is there anything that you can do organically? It really mentioned the automation area. Is there a more aggressive strategy that you can take there that would drive some attractive shareholder returns for cash invested internally?

Is there anything that you can do organically Neil you mentioned the automation area is there a more aggressive strategy that you can take there that would.

David Wells: When excluding LIFO expense, gross margins were up nearly 40 basis points over the prior year and 20 basis points sequentially. We continue to manage broader inflationary dynamics well through our ongoing focus on various gross margin countermeasures and initiatives. This includes enhanced analytics, credit expense management and channel execution. We also saw solid gross margin performance within our engineered solution segment during the quarter, helping both segment profitability and mixed dynamics during the quarter.

Drive attractive shareholder returns for cash invested internally.

Speaker 3: Yeah, so Dave, I would say we are taking those steps and actions. I think we've talked about we've organically opened in some geographies. We have capital investment to augment or increase.

Yeah, So David I would say, we are taking those steps and actions I think we've talked about we've organically opened in some geographies.

We have capital investment in to augment or increase our facility space to allow greater project throughput and velocity will be doing things as you know as we assemble these groups and operations in technology systems and investments that we believe are really going to allow.

Speaker 3: facility space to allow greater project throughput and velocity. We'll be doing things as we assemble these groups and operations in technology systems and investments that we believe are really going to allow engineering speed and velocity to occur and that those engineering application engineering teams can leverage one another's work.

David Wells: As it relates to our operating cost, selling distribution and administrative expenses increased 2.1% compared to prior year levels. SDNA expense was 18.7% of sales during the quarter, down from 18.8% during the prior year quarter. On an organic cost and currency basis, SDNA expense was brought to be unchanged over the prior year period. We continue to leverage labor cost, reflecting count and systems investments, as well as benefits from shared services deployment and operational excellence initiatives.

All engineering speed and velocity are to occur and that those engineering application engineering teams can leverage one another's work.

Speaker 3: and also have engineering standards that can allow us to go faster. And as we touched on in the remarks, it remains a focus area for acquisitions along with the rest of our engineering solutions area. So we think we're gonna have numerous opportunities to deploy capital into the business and continue to profitable growth.

And also have engineering standards that can allow us to go faster and as we've touched on in the remarks it remains a.

Our focus area for acquisitions, along with the rest of our engineered solutions area. So we think we're gonna have numerous opportunities to deploy capital into the business and continue to profitable growth.

David Wells: Results also reflect the flexibility of our operating model, including the hearing adjustments as sales growth normalizes, as well as our ongoing operational focus. Our ability to hold operating cost relative flat, invited ongoing inflationary headwinds and growth investments, is another highlight of our solid performance in the quarter and execution potential. Overall, sustained sales growth, gross margin management, lower lipo expense and nice cost leverage, drove a 12.3% increase in EBITDA over prior year levels during the quarter.

Speaker 2: Yeah, and if memory serves, you've opened a couple of these green field locations. I've been interested in skinning an update there. And along those lines, Neil, I'm wondering, is it something where you can really lean into it? I know you're looking at M&A to augment that space as well, but...

Yeah.

If memory serves you opened a couple of these greenfield locations I'd be interested in just getting an update there and along those lines. Neil I'm wondering is it something where you can really lean into it I know youre looking at M&A to augment that space as well, but.

Speaker 2: could you open pan a year? I mean, is that outside the realm? It seems like a very rapidly growing area of people are interested in it. You have these secular themes lining up on labor and so forth. So any thoughts there that you can share with us?

Could you opened 10, a year I mean is that outside the realm. It seems like a very.

David Wells: While EBITDA margin of 12.2% increased 100 basis points year-by-year. This includes a 41 basis point year-by-year impact variability due to lower lipo expense. We also benefited from lower net interest expense during the quarter, primarily reflecting greater interest income from higher cash balances and investment yields. Combined with the slightly lower tax rate relative to prior year levels, reported 30 per share of $2.39 was up over 21% from prior year levels. Moving to our cash flow performance, cash generated from operating activities during the first quarter was $66.2 million, while free cash flow told 61.9 million.

Rapidly growing area of people are interested in any of these secular themes lining up on.

Labor and so forth so any.

Any thoughts there that you could share with us.

Speaker 3: Yeah, I don't know that there's a specific number at this stage we feel like we have to. Obviously we've proven that we can. We like the results that we're getting with the teams and the collaboration of the solutions that we're taking forward in that. And so we'll continue to evaluate what are best entry points into those geographies.

Yeah, I would say I don't know that there's a specific number at this stage, we feel like we have to obviously, we've proven that we can we like the results that we're getting with the teams and the collaboration of the solutions that we're taking forward in that and so we'll continue to evaluate water best entry points.

Into those geographies, but even with our served footprint today, which is growing in an expanded.

Speaker 3: But even with our serve footprint today, which is growing and expanded, we're able to reach into other ones, others with especially strategic accounts, customer driven, where they're looking for solutions, and we've had success with them in other geographies. They're pulling us into those areas, and so we're having success. So we touched on it. We think in time, this becomes 10% of ourselves.

We're able to reach into other one others with especially strategic accounts customer driven where they're looking for solutions and we've had success with them in the other geographies, they're pulling us into those areas and so we're having success. So we touched on it we think in time this becomes.

David Wells: Compared to the prior year, free cash was up over 200%. As a reminder, the first quarters typically are lowest cash generation quarter from a seasonal perspective. Look at head, we expect easing working capital trends as the year progresses, including some benefit from the conversion, a working process tied to our engineering solution segment, as well as continued benefits from our working capital initiatives.

A 10% of ourselves and if we think about the growing addressable market, that's $10 billion and perhaps getting higher.

Speaker 3: And if we think about the growing addressable market that's 10 billion and perhaps getting higher, there's more we can do, there's more we will do in this arena.

There there's more we can do there is more we will do in the in this arena.

David Wells: From a balance sheet perspective, we ended September with approximately $360 million of cash on hand, and net leverage at 0.5 times EBITDA, which is below the prior year level of 1.1 times. Our balance sheet is in a strong position to support our capital deployment initiatives moving forward, as well as enhanced returns for all stakeholders. Our capital deployment priorities remain consistent with organic growth and acquisitions, our primary focus areas. We remain disciplined with our M&A approach, focus on targets, and valuations supporting our return requirements, and strategic priorities.

Speaker 4: You're seeing some of that, you know, forward aspect of the Yucament Organic Investment Reader Dave in the higher CAPEX, you know, can I still, 27 and 29, you know, figure in terms of the full year outlook on CAPEX spend. So, the end of the day, just not terribly capital intensive, too, as you think about greenfielding some of these sites, leveraging our service center footprint and the investment that goes in behind that. So...

Seeing some of that forward aspect of the jacobina organic investigated read-through, Dave and and the higher Capex you guys still 27% 29 figure in terms of the the full year outlook on Capex spend so the end of the day, just not terribly capital intensive too as you think about Greenfield and some of these sites leveraging.

Our service center footprint and the investment that goes in behind that so.

Speaker 2: Now, you're doing stuff up your organic investment, but once again, just, you know, kind of fits in the nature of this business and not as capital intensive, so not big dollars committed to that. Yup, it's a great problem to have.

Could you would you step up your organic investment, but once again, just you've kind of fits the nature of this business and not not as capital intensive so not big dollars committed to that.

Yeah, it's a great problem to have.

Alright, guys. Thanks for the overview and good luck.

David Wells: To be now to our outlook, as indicated in today's press release and detailed on page 11 of our presentation, we are raising full year fiscal 2024 guidance to reflect first quarter earnings performance and modest accretion from our early September service center acquisitions, as well as lower assumptions for life expense, and then interest expense. We now project EPS in the range of $9.25 to $9.80 per share, based on sales growth of 1 to 4% including zero to 3% organic growth assumption, as well as EBITDA margins of 12 to 12.3%.

Thank you.

Yeah.

Speaker 1: Our next question comes from Chris Dancert with Loop Capital Police Proceed.

Our next question comes from Chris Dankert with loop capital. Please proceed.

Hey, good morning, guys.

Good morning, I guess openness to dig in a little bit more on gross margin here I mean really impressive beat in the quarter versus what we were looking for I mean can you kind of maybe parse apart.

Speaker 5: I guess I hope in the big and a little bit more on gross margin here. I mean really impressive beat in in the quarter Versa what we were looking for. I mean can you kind of maybe parse apart? What was really really driving that? I mean was it freight was a price cost is kind of the internal execution you've been been going through here any other color You can kind of give us on what really drove gross margin the first quarter here

What was really driving that I mean was it freight was a price cost was just kind of the internal execution, you've been been going through here I mean, any other color you can kind of give us on what really drove drove gross margin in the first quarter here.

Speaker 2: Yes, beyond the 41 basis point year, we are benefit from light field that we broke out. You know, you're still up 40 basis point year for year. So Q1s typically are seasonally stopped as gross margin quarter, as some rebate programs, et cetera, reset. But...

So beyond the 41 basis point year over year benefit from LIFO that we broke out you're still up 40 basis point year over year. So Q1 is typically our seasonally softest gross margin quarter. As you know some rebate programs et cetera, reset, but could you just really solid execution across all aspects thinking about some of our.

David Wells: Previously, our guidance assumed EPS of $8.80 to $9.55 per share, sales growth of zero to 4% and EBITDA margins of 11.9 to 12.1%. Our sales outlook continues to take into consideration economic uncertainty and easing price contribution as the year plays out. We also assume ongoing moderation and broader market activity as customers continue to normalize production levels near term. In addition, based on month-to-date sales trends in October and our near-term outlook, we currently project fiscal second quarter organic sales declined by a low single digit percent over the prior year quarter.

Speaker 4: It really saw an execution across all aspects. Thinking about some of our margin enhancement initiatives focused on freight recovery.

Margin enhancement initiatives focused on freight rate recovery.

Speaker 6: Uh, you know, kind of the work around operations excellence there, you know, really all the levers hitting there. Uh, so nice work by the team, you know, despite engineer solutions, you know, growth being

The work around operations excellence, there you know really all of the levers hitting there. So nice work by the team despite engineered solutions growth being.

Speaker 6: more modest, nice contribution still from the mixed standpoint there and that we talked about it.

More modest a nice contribution is still from the mix standpoint, there and that we talked about it.

Speaker 6: You know, segment, you know, gross margins and obviously the even margins up very nicely. So even on that lower volume, driving a nice mixed contribution there. So, you know, really that 40 basis points year by year operational improvement, 20 basis points sequentially.

Segment gross margins and obviously, the EBIT margins up very nicely so even on that lower volume driving a nice mix contribution. There. So you know really that that 40 basis points year over year operational improvement of 20 basis points sequentially. There. There's no one factor that just sticks out kind of price cost Joe a neutral.

David Wells: Please note, the second quarter represents our most difficult comparison for fiscal 2024, with prior year second quarter organic sales increasing over 21% and nearly 40% on a two-year stack basis. We are also assuming potentially more subdued scheduled maintenance activity within our core service center network into the seasonally slower late fall and winter months this year. As customers manage calendar year and budget spending in an uncertain macro environment. Further, we're assuming the year-of-year lifelike technology vertical headwind persists and sales growth in our automation operations to remain muted near term, partially reflecting the gains of system shipments and difficult comparisons.

Speaker 6: There's no one back there that just sticks out. Kind of price, cost, drill, and neutral. And as we think about, you know how that's reading through the P&L.

We think about you know how that's reading through the P&L and you know just really continue solid work by the team and thinking through all of the levers continuing to focus on that.

Speaker 6: and just really continue solid work by the team and thinking through all the yellowers, continuing to focus on the pricing for the value that we're driving on the engineers' solution side of the business.

The pricing for the value that we're driving on the engineered solutions side of the business.

Speaker 6: and makes it really hitting on all cylinders on that front. Yeah, Chris.

And like I said, you know really really hitting on all cylinders on that front.

Yeah, Chris I'd say.

Speaker 3: pleased with the execution and the performance in it. I think Dave covered.

Pleased with the execution and the performance and then I think Dave covered from a LIFO standpoint, we would expect similar.

Speaker 3: from a life-host standpoint, you know, we would expect similar.

David Wells: Lastly, we expect second quarter gross margins to declines sequentially following the strong performance we saw during the first quarter. While we are encouraged by our first court of gross margin performance, including ongoing traction with our internal initiatives, we believe it remains proved to assume a more balanced trajectory near term, considering normalizing volume trends, ongoing inflationary pressures, and the potential for modest mixed headwinds. Further, the trajectory of life will expense remains uncertain, pending greater clarity on the plight of price adjustments, as well as considering the long life of tail impact that we can see given the reign of consumption nature of our SKU mix.

Speaker 3: perhaps the 4.5 to 5 million in the next quarter as we think.

Perhaps the four and a half to 5 million Hum in the next quarter as we think I do so you know a couple of things did in line in the quarter. So if I think about it for the second quarter I think perhaps we may be down sequentially in that side.

Speaker 3: I do, you know, a couple of things did it line in the quarter. So if I think about it for the second quarter.

Speaker 3: You know, I think perhaps we may be down sequentially in that side, you know, perhaps more at the 29 and a half or so in that area, but still good strong performance as we'll operate in the second quarter.

Perhaps more at the 29 and a half or so in in that area.

But still good strong performance as we will operate in the second quarter.

Speaker 5: Thanks so much for the call to the other guys, and get a really nice execution by the team. I guess to move to service center here, I know you don't typically comment on the month, I may just any comments on October to date there. I mean, is service center kind of down in line with the overall guide for kind of loosing of the pullback here in Tukue?

Got it thanks, so much for the color there guys I'd really nice execution by the team.

I guess to move to service Center here I know you don't typically comment on the month of May just any comments on October to date. There I mean is service center kind of down in line with the overall guide for kind of low single digit pullback here in <unk>.

David Wells: From the EBITDA margin perspective, our guidance assumes second quarter EBITDA margins to be flat to up slightly year by year, reflecting potential expensive leveraging on modest organic sales declines, as well as ongoing inflationary headwinds and growth investments offset by lower life will expense compared to the prior year.

As we think about it and in the quarter performance. So I think the service Center segment.

Speaker 3: As we think about it in the quarter performance, I think the service center segment has performed well. And so we think about flatish overall, we gotta have in October , we gotta have service centers probably being a little better than that at this stage.

Formed well.

Neil Schrimsher: With that, I will now turn the call back over to Neil for some final comments. Thanks, Dave, so to wrap up and summarize, we are encouraged by the sustained earnings growth into early fiscal 2024. We have many self-help growth and margin opportunities that we expect to manifest in coming quarters.

And so we think about flattish overall, we gotta have in October.

Are we gonna have service centers, probably being a little better than that at this stage.

Got it got it and then if you indulge one more I'm curious just backlog in engineered solutions has been pretty elevated.

Speaker 5: Got it, got it. And if you didn't dull just one more, I'm curious, just on, you know, backlog and engine solutions has been, you know, pretty elevated. Is that kind of back to normal levels here? Have we seen any cancellations? Just any commentary on backlog would be great.

Neil Schrimsher: That said, we remain cognizant of the uncertain economic backdrop near term, including the impact of higher interest rates on business investment globally, as well as increased geopolitical unrest. Combined with gradual improvement in supply chain dynamics industry wide, our outlook continues to assume industrial activity remains more mixed near term as customers realign production volumes to more typical seasonal patterns and take a more systematic albeit still constructive approach to capital spending. Importantly, the underlying fundamental backdrop within our core in markets and industry focus remains positive.

That kind of back to normal levels here have we seen any cancellations just any commentary on backlog would be great.

Speaker 3: Yeah, it's a overall backlog as we think about it. We're still pleased. We think back pre pre pandemic to those levels as quote historical norms.

Yeah, I'd say overall backlog as we think about it we're still pleased if we think back pre pre pandemic to those levels as quote historical norms.

Speaker 3: We're still going to be operating at 2x plus from a backlog standpoint. So that's encouraging for us as we think forward. You know, in the quarter we did have some conversion of that as expected. We would expect further of that in the side. But teams are doing a nice job. And uh...

We're still going to be operating at two.

<unk> plus from a backlog standpoint, so that's encouraging for us as we think forward.

In the in the quarter, we did have some conversion of that as expected. We would expect further of that in the side, but our teams are doing a nice job in awe of how we're working to engineer new solutions and add add to that anytime that are including in technology. If there's a slow.

Speaker 3: of how we're working the engineer new solutions and add to that anytime that including in technology. If there's a slowing or a little bit of loss, it allows teams to work on solutions.

<unk> are a little bit of lull. It allows teams to work on solutions, but we're encouraged especially in industrial off highway mobile that backlog that level and what we're doing to convert so still remains at a a good healthy level.

Neil Schrimsher: This is underpinned by ongoing positive feedback from our customers, including planned growth investments as North American manufacturing activity, infrastructure spending, and industrial capacity continues to expand from greater equipment maintenance activity and system modernization to required investments in automation and IOT. Our comprehensive portfolio of technical solutions, engineering talent, and local service support are increasingly critical to our customers. This is evident in the resilience we see in our core U.S. Service Center network where booking activity is holding up well into the early part of our second quarter, despite normalizing in market demand.

Speaker 3: We're encouraged, especially in industrial off highway mobile, that backlog, that level and what we're doing to convert. So still remains at a good, healthy level.

Speaker 6: And the answer to the cancellation question, yeah, no, you typically wouldn't see cancellations in, you know, that engineered solutions piece of the business, given the nature of that business. You may see some rephrasing of OEM shipments based on demand, but that's pretty modest.

And the answer to that cancellation question. Yeah. No you typically wouldn't see cancellations in that engineered solutions piece of the business given the nature of that that does as you may see some re phasing of OEM shipments based on demand, but that's pretty modest really that that two times backlog just continues to be driven by you know kind of strong order trends and.

Speaker 5: Really that two times backlog just continues to be driven by, you know, kind of strong order trends. And we are still seeing ongoing supplier constraints that are impacting adversely some of that shipment timing and getting those projects out the door. So continuing to see that, you know, impact the engineer solutions side of the business. Some of that reading through to the lower growth for the quarter. Got it. Thank you so much.

We are still seeing ongoing supplier constraints that are impacting adversely some of that shipment timing in getting those projects out the door. So continuing to see that impact the engineered solutions side of the business some of that reading through to the lower growth for the quarter.

Neil Schrimsher: In addition, sales funnel activity across our automation business continues to grow with our increasing scale and application expertise, a significant value proposition for our customers and suppliers. This is unlocking cross selling opportunities and the development of new solutions and tools that we expect to supplement our automation addressable market and growth potential for years to come. Further feedback from our team and customers, highlight growing demand from our core automation solutions, including accelerated adoption of collaborative and autonomous mobile robots to address structural labor shortages and optimize workflows.

Got it. Thank you so much for the detail and congrats on the quarter here guys.

Thanks.

As a reminder to register for a question. Please press the one followed by the floor and your telephone.

Speaker 1: As a reminder to register for a question, please press the one followed by the four on your telephone.

Speaker 1: And our next question comes from Ken Newman with Keybank Capital Markets. Please proceed.

And our next question comes from Ken Newman with Keybanc capital markets. Please proceed.

Hey, good morning, guys.

Good morning.

Speaker 7: Maybe we should just start off with the automation demands and just how you're thinking about the cadence of that coming back in the back cap. You know just touching on the last comment and kneel some of your comments and your prepare remarks. You think he talked about some timing of more complex shipments maybe being pushed out a bit.

Maybe just start off with the automation demand.

And just how youre thinking about the cadence of that coming back in the back half.

Just touching on the last comment and Neil some of your comments in your prepared remarks, I think you talked about some timing of more complex shipment, maybe being pushed out a bit.

Speaker 7: Can you just expand on that a little bit? I mean, what is, what is still tight?

Just expand on that a little bit I mean, what is what is still tight.

Neil Schrimsher: We're investing in industry leading engineering talent, premier supplier technologies and production capacity to optimize our automation growth potential long term. Combined with an active M&A pipeline, we expect our automation platform to scale significantly over the next several years and be accretive to our organic growth profile as we continue along our company evolution. We're also excited by the growth potential we see developing around modernizing fluid power systems. Our capabilities in strategy and electronic control integration is providing a strong foundation to develop new and advanced hydraulic and pneumatic solutions.

Speaker 7: in those orders and then again just how do you think about the cadence of those shipment for that vertical

In those orders and then.

Again, how do you think about the cadence of those shipments.

Boy that vertical into the second half.

Speaker 3: Yeah, so as I think about it, kind of a, or a first I'll start with kind of what's holding up. Two things, at times it can be small components, small things.

Yeah, So as I think about it kind of well first I'll start with kind of what's holding up two things at times. It can be small components small things holding it up would be cabling or connectors or inter.

Speaker 3: holding it up would be cabling or connectors or

Speaker 3: interface PLCs in that area that can create. And then sometimes these projects are part of a larger project that the customer is working on. So those project managers will work their extended Gantt charts on managing that project. And if something else that we're not related to extends out, it impacts that window or that timing.

Interface plc is in that area that can create and then sometimes these projects are a part of a larger project that the customer is working on so those project managers will work their extended gantt charts on.

Managing that project and if something else that we're not related to.

Extends out it impacts that that window of that timing and so as I think on some of those projects, we're going to see them move beyond our Q2 into the start of the calendar year, perhaps in some of those so as.

Neil Schrimsher: This will be critical to addressing our OEM customers needs around energy efficiency, autonomous systems, and electrification of industrial and mobile equipment. We have a strong industry position in this area given our advanced and centralized engineering capabilities, investments in research and development, and broad scale across the U.S. We also see steady growth across our process flow control operations, reflecting the longer cycle nature of this area of our business as well as expanding growth opportunities supporting the energy transition and a growing portfolio of business tied to the hygienic space.

Speaker 3: And so they think on some of those projects, we're gonna see them move beyond our Q2.

Speaker 3: into the start of the calendar year perhaps in some of those. So as I think about overall for the back half, we would expect growth to resume in our automation business and that side. But if I look at that window, it could set up that it might be similar in Q2 from a demand or a sell standpoint.

As I think about overall for the back half, we would expect our growth to resume in our automation business in that side, but if I look at that window. It could set up there.

It might be similar in <unk> in Q2.

From a demand or sell standpoint.

Speaker 7: Got it. Is there a way to, from a high level, kind of, arst out the magnitude of what is more, is it evenly split between the small components versus big project timing, or is one in a larger impact?

Got it.

Is there a way to from.

From a high level kind of parse out the magnitude of what is more is it evenly split between the small components versus big project timing or is one in a larger impact than the other.

Neil Schrimsher: Combined with a potential rebound across the technology sector, recent stabilization in broader industrial macro data points, and easing comparisons beginning in the second half of fiscal 2024, we see a favorable sales growth setup building in coming quarters and into 2025.

Well, it's hard to it's hard to parse out the you know each each contributing factor to that is it external with our with projects or inputs or suppliers or components in that but oh.

Speaker 3: Well, it's hard to parse out each contributing factor to that, is it external with projects or inputs, or suppliers or components in that. But...

Speaker 3: You know, the teams are working it. You know, I would cover it in our operating reviews with them in the side. So...

The teams are working at a you know hey, we covered in our operating reviews with them in the side. So we feel like we have a good line of sight in the other that's encouraging by the amount of sales collaboration and what the sales engineers are doing and the advanced work by the application Engineers I think it's building a good.

Neil Schrimsher: However, we're mindful of broader economic dynamics that can potentially influence the timing and impact of these various tailwinds near term. Further as we've shown in the past, our business model and operational discipline provides the playbook and flexibility to easily adjust if need be, while simultaneously generating significant cash flow. Our balance sheet and liquidity provide a strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment, as well as other capital deployment that could augment returns for all stakeholders going forward.

Speaker 3: We feel like we have a good line of sight. And the other that's encouraging by the amount of sales collaboration and what the sales engineers are doing and the advanced work by the application engineers, I think it's building a good funnel of conversion opportunities. You know, we touched on the setup to address needs and problems around labor and material movements. So for collaborative robots. And.

Good funnel of conversion opportunities, we touched on the set up to address needs and problems around labor and material movement. So for collaborative robots and and mobile, but we're also seeing it in vision opportunities of how that can positively impact quality and performance.

Speaker 3: but we're also seeing it in vision opportunities at how that can positively impact quality and performance plus.

Plus address some labor challenges that could exist from a customer's operation standpoint, So hey, we remain encouraged and that can't control perfectly the timing on some of this project are released in the side, but.

Speaker 3: address some labor challenges that could exist from a customer's operation standpoint. So hey, we remain encouraged in that, can't control perfectly the timing on some of this project release in the side, but again, we like where we're at, we know as we go into the second half and especially look forward into 25, we're gonna expect continued.

Operator: Once again, we thank you for your continued support, and with that, we'll open up the lines for your questions. Thank you. If you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for our first question.

Again, we like where we're at we know as we go into the second half and especially look forward into 25, we're going to expect.

Continued outsized outgrowth contributions from the automation space.

Speaker 3: outsized outgrowth contributions from the automation space.

Right.

Yeah, you know last quarter I think you gave us.

Speaker 2: You know, last quarter, I think you gave us, and sorry if I missed this, but I think you gave us, you know, just the size, the opportunity funnel and automation. I think there were over 100 open projects last quarter.

And sorry, if I missed it but I think you gave us.

David Manthey: And our first question comes from David Manthey, with Beard, please proceed. Hey, good morning, guys. Thanks very much for the overview and Neil. That was a great outlook on what we should expect as we look down the path here. So I'll refocus more on company-specific items. Let's talk about the low leverage on the balance sheet right now. There's only so many outlets for cash flow, and we trust that you won't force an acquisition, of course.

Size the opportunity funnel in automation I think there are over 100 open projects last quarter.

Speaker 7: Did you provide an update to that funnel this quarter or are you willing?

Did you provide an update to that funnel this quarter or are you willing to.

Speaker 3: No, I didn't. I would say it's in a similar realm higher in that as it would go along. So there's some consistency in that. Obviously, many of those projects are moving to the next stage of the funnel. Plus teams are looking in areas to add to that. So if I draw the comparison to the last quarter, it would be greater.

No I didn't I would say, it's a and a similar ramp higher in that as it would go along so there is some consistency in that obviously many of those projects are moving to the next stage of the funnel a plus teams are looking in areas too.

To add to that so if I draw the comparison to last quarter it would be greater.

David Manthey: But share repurchase, maybe with the stock being somewhat thin as a little problematic, is there anything that you can do organically? Neil, you mentioned the automation area. Is there a more aggressive strategy that you can take there that would drive some attractive shareholder returns for cash invested internally? So Dave, I would say we are taking those steps and actions. I think we talked about we've organically opened in some geographies. We have capital investment to augment or increase facility space to allow greater project throughput and velocity.

Understood.

Speaker 7: One more thing that I can just squeeze one more in, you know, obviously it seems like the biggest headwind, or the only headwind really that you saw this quarter, was primarily in the technology sector outside of the tough coms. But I'm just curious if you could just give any kind of other end market information on where you've seen, you know, any outside acceleration, if any, and in some of the other verticals you serve.

If I can just squeeze one more in.

Obviously, it seems like the the biggest headwind there the only headwind really that you saw this quarter was primarily in the technology stack you are outside of the tough comps, but I'm. Just curious if you could just give any kind of other end market information on where you've seen.

Any outside deceleration if any and in some of the other verticals you serve.

Speaker 3: Yeah, so we touched on technology. I think the only other one that could be presenting some headwinds, aggregates that we could see in some areas and around construction and building materials on that side. I think the stack up, as we talked about on the top 30 industries, all in all favorable, right?

Yeah. So we touched on the technology I think the only other one that could be presenting some headwinds aggregates that we did see in some areas and you know around the construction and building materials on that side I think the stack up as we talked about on the top 30 industries.

All in all favorable right.

David Manthey: We'll be doing things as we assemble these groups and operations in technology systems and investments that we believe are really going to allow engineering speed and velocity to occur. And those engineering, application engineering teams can leverage one another's work and also have engineering standards that can allow us to go faster. And as we touched on in the remarks, it remains a focus area for acquisitions along with the rest of our engineering solutions area.

Speaker 3: as it compared to last quarter and many of those that are in the top half of the 30 doing well. But along with the technology, I think that aggregate side on the ones that would be a declining year over year.

As it compared to last quarter and many of those that are in the top half of the 30 are doing well, but along with the technology I think that aggregate side on the ones that would be a declining year over year.

Understood very helpful. Thanks again.

Thank you.

And there are no further questions at this time I will turn the call back to you for closing remarks.

Speaker 1: And there are no further questions at this time. I'll turn the call back to you for closing remarks.

I just want to thank everyone again for taking the time to join US today, and we look forward to talking with you throughout the quarter.

Speaker 3: I just want to thank everyone again for taking the time to join us today and we look forward to talking with you throughout the quarter. Thanks.

David Manthey: So we think we're going to have numerous opportunities to deploy capital into the business and continue to profitable growth. Yeah. And if memory serves, you've opened a couple of these greenfield locations. I'd be interested in just getting an update there. And along those lines, Neil, I'm wondering, is it something where you can really lean into it? I know you're looking at M&A to augment that space as well, but could you open pan a year?

Thanks.

Speaker 1: That does conclude the conference call for today. We thank you for your participation in that. Thank you. Please disconnect your lines.

That does conclude the conference call for today, we thank you for your participation and I. Thank you. Please disconnect your lines.

Yeah.

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Speaker 8: The.

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David Manthey: I mean, is that outside the realm? It seems like a very rapidly growing area. People are interested in it. You have these secular themes lining up on labor and so forth. So any thoughts there that you can share with us? Yeah, I would say I don't know that there's a specific number at this stage we feel like we have to. Obviously, we've proven that we can. We like the results that we're getting with the teams and the collaboration of the solutions that we're taking forward in that.

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David Manthey: And so we'll continue to evaluate what are best entry points into those geographies. But even with our serve footprint today, which is growing and expanded, we're able to reach into other ones, others with especially strategic accounts, customer driven, where they're looking for solutions. And we've had success with them in other geographies. They're pulling us into those areas. And so we're having success. So we touched on it. We think in time this becomes 10% of ourselves.

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David Manthey: And if we think about the growing addressable market that's 10 billion and perhaps getting higher, there's more we can do. There's more we will do in this arena. And you're seeing some of that, you know, forward aspect of the incremental organic investment, read through Dave and the higher catbecks, you know, can still 27 and 29, you know, figure in terms of the full year outlook on catbecks then. So the end of the day, just not terribly capital intensive too, as you think about greenfielding some of these sites leveraging our service center footprint and the investment that goes in behind that.

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David Manthey: So you're doing stuff up your organic investment, but once again, just kind of fits the nature of this business and not not as capital intensive, so not big dollars committed to that. Yeah, it's a great problem to have. All right, guys. Thanks for the overview. Good luck. Thank you.

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Chris Dankert: Our next question comes from Chris Dankert with Loop Capital Police Proceed. Hey, morning, guys. I guess I'll open it to dig in a little bit more on on gross margin here. I mean, really impressive beat in in the quarter versus what we were looking for. I mean, can you kind of maybe parse apart what was really really driving that? I mean, was it great? Was it price-cost? Is it kind of the internal execution you've been going through here?

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Chris Dankert: Any other color you can kind of give us on what really drove gross margin in the first quarter here? Yeah, so you're beyond the 41 basis point year of year benefit from blind field that we broke out. You know, you're still up 40 basis point year for year. So Q1s typically are seasonally stop this gross margin quarter as you know, some rebate programs, et cetera, reset. But it really saw an execution across all aspects thinking about some of our margin enhancement initiatives, you know, focused on freight recovery, you know, kind of the work around operations.

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Chris Dankert: Excellence there, you know, really all the levers hitting there. So nice work by the team, you know, despite engineered solutions, you know, growth being, you know, more modest, nice contribution still from the mixed standpoint there. And that we talked about it, you know, segment, you know, gross margins. And obviously the even margins up very nicely. So even on that lower volume, driving a nice mixed contribution there. So, you know, really that that 40 basis points year-by-year operational improvement, 20 basis points, sequentially, there's no one factor that just sticks out, kind of price, cost, drill, and neutral.

Chris Dankert: As we think about, you know, how that's reading through the P&L. And, you know, just really continue solid work by the team and thinking through all the levers, continuing to, you know, focus on the pricing for the value that we're driving on the engineered solutions side of the business. And like I said, you know, really, really heading on all cylinders on that front.

Chris Dankert: Yeah, Chris, I'd say, you know, I'm pleased with that execution and the performance ended. I think Dave covered from a LIFO standpoint. You know, we would expect similar, perhaps the 4.5 to 5 million in the next quarter, as we think. I do, you know, a couple things did align in the quarter. So if I think about it for the second quarter, you know, I think perhaps we may be down sequentially in that side, you know, perhaps more at the 29 and a half or so in that area, but still good, strong performance as we'll operate in the second quarter. Got it. Thanks so much for the color of the guys. And again, a really nice execution by the team.

Chris Dankert: I guess to move to service center here, I know you don't typically comment on the month. Maybe just any comments on October to date there. I mean, is service center kind of down in line with the overall guide for kind of low single digit pullback here in 2Q? As we think about it, in the quarter performance, I think the service center segment has performed well.

Chris Dankert: And so we think about flatish overall, we got to have in October, we got to have service centers probably being a little better than that at this stage. Got it, got it. And if you didn't dull just one more, I'm curious, just on, you know, backlog and engineering solutions has been, you know, pretty elevated. Is that kind of back to normal levels here? Have we seen any cancellations? Just any commentary on backlog would be great.

Chris Dankert: Yeah, it's a overall backlog as we think about it. We're still pleased. We think back pre-prependemic to those levels as, quote, historical norms. We're still going to be operating at 2x plus from a backlog standpoint. So that's encouraging for us as we think forward. You know, in the quarter we did have some conversion of that as expected. We would expect further of that in the side. But teams are doing a nice job of how we're working the engineer, new solutions and add to that any time that including in technology, if there's a slowing or a little bit of law, it allows teams to work on solutions. But we're encouraged especially in industrial off highway mobile, that backlog, that level and what we're doing to convert. So still remains at a good healthy level.

Chris Dankert: Any answer to the cancellation question? Yeah, no, you typically wouldn't see cancellations in that engineered solutions piece of the business, given the nature of that business. You may seem to be re-faising of OEM shipments based on demand, but that's pretty modest. Really, that 2x backlog just continues to be driven by strong order trends. And we are still seeing ongoing supplier constraints that are impacting adversely some of that shipment timing and gaining those projects out the door. So continuing to see that impact the engineered solution side to business, some of that reading through to the lower growth for the quarter.

Chris Dankert: Got it, but thank you so much for the detailed graphs on the quarter here, guys. Thanks.

Operator: As a reminder to register for a question, please press the one followed by the four on your telephone.

Ken Newman: And our next question comes from Ken Newman with Keybank Capital Markets, please proceed. Hey, good morning, guys. Good morning.

Ken Newman: Maybe we should just start off with the automation demand. And just how you're thinking about the cadence of that coming back in the back cap, you know, just touching on the last comment and anneal some of your comments and your prepared remarks, you think you talked about some timing of more complex shipments maybe being pushed out a bit. Can you just expand on that a little bit? I mean, what is what is still tight specifically in those orders? And then again, how do you think about the cadence of those shipments for that vertical into the second half?

Neil Schrimsher: Yeah, so as I think about it, kind of it, or first I'll start with kind of what's holding up two things. At times it can be small components, small things. Holding it up would be cabling or connectors or interface PLCs in that area that can create. And then sometimes these projects are part of a larger project that the customer is working on. So those project managers will work their extended Gantt charts on managing that project.

Neil Schrimsher: And if something else that we're not related to extends out, it impacts that window or that timing. And so as I think on some of those projects, we're going to see them move beyond our Q2 into the start of the calendar year perhaps in some of those. So as I think about overall for the back half, we would expect growth to resume in our automation business in that side. But if I look at that window, it could set up that it might be similar in Q2 from a demand or a sell standpoint.

Neil Schrimsher: Is there a way to, from a high level, to kind of parse out the magnitude of what is more, is it evenly split between the small components versus big project timing or is one in a larger impact in the other? Well, it's hard to parse out each contributing factor to that. Is it external with projects or inputs or suppliers or components in that? But the teams are working it. We covered in our operating reviews with them in the side.

Neil Schrimsher: So we feel like we have a good line of sight. And the other that's encouraging by the amount of sales collaboration and what the sales engineers are doing and the advanced work by the application engineers, I think it's building a good funnel of conversion opportunities. You know, we touched on the setup to address needs and problems around labor and material movements. So for collaborative robots and mobile, but we're also seeing it in vision opportunities.

Neil Schrimsher: That's how that can positively impact quality and performance plus address some labor challenges that could exist from a customer's operation standpoint. So hey, we remain encouraged in that. Can't control perfectly the timing on some of this project release in the side. But again, we like where we're at. We know as we go into the second half and especially look forward into 25, we're going to expect, you know, continued outsized outgrowth contributions from the automation space. Right.

Ken Newman: In the last quarter, I think you gave us, sorry if I missed this, but I think you gave us, you know, just the size, the opportunity funnel and automation. I think there were over a hundred open projects last quarter. Did you provide an update to that funnel this quarter or are you willing to? No, I didn't. I would say it's in a similar realm higher in that as it would go along.

Ken Newman: So there's some consistency in that. Obviously, many of those projects are moving to the next stage of the funnel. Plus teams are looking in areas to add to that. So if I draw the comparison to the last quarter, it would be greater. I understand.

Ken Newman: Maybe if I could just squeeze one more in, you know, obviously it seems like the biggest headwind or the only headwind really that you saw this quarter was primarily in the technology sector outside of the tough comms. But I'm just curious if you could just give any kind of other end market information on where you've seen, you know, any outside acceleration. If any, and in some of the other verticals you serve.

Ken Newman: Yeah, so we touched on the technology. I think the only other one that could be presenting some headwinds aggregates that we could see in some areas and around construction and building materials on that side. I think the stack up as we talked about on the top 30 industries, you know, all in all favorable, right? As it compared to last quarter and many of those that are in the top half of the 30 doing well. But along with the technology, I think that aggregate side on the ones that would be declining year over year, and you're still very helpful. Thank you again. Thank you.

Neil Schrimsher: And there are no further questions at this time. I'll turn the call back to you for closing remarks. I just want to thank everyone again for taking the time to join us today and we look forward to talking with you throughout the quarter. Thanks.

Operator: That does conclude the conference call for today.

Operator: We thank you for your participation and I think you please disconnect your lines.