Q3 2024 Applied Industrial Technologies Inc Earnings Call

Welcome to the fiscal 'twenty 'twenty four third quarter earnings call for applied Industrial technologies. My name is Michelle and I'll be your operator for today's call.

Rochelle: Welcome to the Fiscal 2024 Third Quarter Earnings Call for Applied Industrial Technologies. My name is Rochelle, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question at this time, please press star followed by the number 1 on your telephone keypad. Prior to asking a question, lift your handset to ensure the best audio quality.

Rochelle: This time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question at that time. Please press star followed by the number one on your telephone keypad prior to asking a question lift your handset to ensure the best audio quality if.

Rochelle: If at any time during the conference call you need to reach an operator, please press star zero. Please note that this conference is being recorded. I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Rochelle: If at any time during the conference call you need to reach an operator. Please press star Zero. Please note that this conference is being recorded I will now turn the call over to Ryan see slack, there rector of Investor Relations and Treasury Ryan you may begin.

Ryan Dale Cieslak: Thanks, Rochelle, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our third quarter results. Both of these documents are available in the investor relations section of apply.com. 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 certain risks and uncertainties, including those detailed in our SEC filing.

Ryan Dale Cieslak: Okay. Thanks, Michelle and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our third quarter results. Both of these documents are available in the Investor Relations section of applied dotcom, but.

Ryan Dale Cieslak: Before we begin just a reminder, 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.

Ryan Dale Cieslak: Actual results may differ materially from those expressed in the forward-looking statement. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GOPCAP financial measures which are subject to the qualifications referenced in those documents. Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer, and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil.

Ryan Dale Cieslak: Actual results may differ materially from those expressed in the forward looking statements.

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

Ryan Dale Cieslak: Our speakers today include Neil Schrimsher applies President and Chief Executive Officer, and Dave Wells, Our Chief Financial Officer.

Neil A. Schrimsher: With that I'll turn it over to Neil.

Neil A. Schrimsher: Thanks, Ryan, and good morning, everyone. We appreciate you joining us. As usual, I'll begin with some perspective and highlights on the key drivers of our results, including an update on industry conditions, as well as expectations going forward. Dave will then follow with more detail on the quarter's financials and provide additional color on our outlook and guidance. And then I'll close with some final thoughts.

Neil A. Schrimsher: Thanks, Ryan and good morning, everyone. We appreciate you joining us.

Neil A. Schrimsher: I'll begin with some perspective and highlights on the key drivers of our results, including an update on industry conditions as well as expectations going forward, Dave will follow with more detail on the quarter's financials and provide additional color on our outlook and guidance and then I'll close with some final thought.

Neil A. Schrimsher: <unk>.

Neil A. Schrimsher: Overall, our third quarter results reflect our strong industry position and ongoing progress with our internal growth initiatives against a mixed and evolving in-market backdrop. There are a couple of points and takeaways I want to walk through. First, sales exceeded our expectations during the quarter and returned modest year-over-year organic growth. The year-over-year trend improved each month through the quarter. While partially reflecting easy comparisons, reported sales also benefited from solid performance across our core service center segment, where steady break-fix activity, sales process initiatives, and secular growth tailwinds continue to drive positive momentum.

Dave: Overall, our third quarter results reflect our strong industry position and ongoing progress with our internal growth initiatives against a mixed an evolving end market backdrop. There are a couple of puts and takes I want to walk through.

Neil A. Schrimsher: First sales exceeded our expectations during the quarter and returned to modest year over year organic growth the.

Neil A. Schrimsher: The year over year trend improved each month through the quarter.

Neil A. Schrimsher: Partially reflecting easy comparisons reported sales also benefited from solid performance across our core service Center segment were steady break fix activity.

Neil A. Schrimsher: <unk> process initiatives and secular growth tailwind continued to drive positive momentum.

Neil A. Schrimsher: This was partially offset by ongoing modest sales declines within our engineered solutions segment. While the decline was slightly greater than expected, we're seeing several encouraging developments, including stabilizing technology vertical headwinds. Strengthening Process Flow Orders. In addition, our automation platform is also developing significant growth opportunities that we expect to start building in the quarters ahead. All of this indicates that fiscal third quarter 24 will represent the trough in the segment's year-over-year sales performance.

Neil A. Schrimsher: This was partially offset by ongoing modest sales declines within our engineered solutions segment, while the decline was slightly greater than expected, we're seeing several encouraging developments, including stabilizing technology vertical headwinds strengthening process flow of orders.

Neil A. Schrimsher: In addition, our automation platform is also developing significant growth opportunities that we expect to start billing in the quarters ahead.

Neil A. Schrimsher: All of this indicates that physical third quarter 24 will represent the trough in the segments year over year sales performance.

Neil A. Schrimsher: Combined with improving short cycle macro demand in the indicators in recent months and potential incremental tailwind tied to infrastructure spending reassuring and our cross selling efforts, we are positioning the business to accelerate organic growth in coming quarters and progress towards our long.

Neil A. Schrimsher: Combined with improving short-cycle macro demand indicators in recent months and potential incremental tailwinds tied to infrastructure spending, reshoring, and our cross-selling efforts, we are positioning the business to accelerate organic growth in coming quarters and progress towards our long-term growth objectives. This growth positioning and the modest sales growth backdrop near-term resulted in some expense deleveraging during the quarter. Our applied team continues to execute and control costs effectively, as reflected in operating expense up less than 2% year-to-date. This is inclusive of slightly higher support costs and our annual merit increase that went into effect January 1. And despite some prior year expense favorability.

Neil A. Schrimsher: [noise] term growth objectives.

Neil A. Schrimsher: This growth positioning and the modest sales growth backdrop near term resulted in some expense deleveraging during the quarter. Our applied team continues to execute and control cost effectively as reflected in operating expense.

Neil A. Schrimsher: Less than 2% year to date. This is inclusive of slightly higher support costs and our annual Merit increase that went into effect January one and despite some prior year expense favorability.

Neil A. Schrimsher: In addition, we remain on track to achieve record cash generation this year, which will provide additional capacity for capital deployment opportunities. Our priorities remain unchanged, with a primary focus on optimizing growth and operating capabilities through both organic investments and inorganic acquisitions. Secondarily, we look to return cash to our shareholders through opportunistic share buybacks while continuing to support consistent annual increases in our ordinary dividend and managing our balance sheet commitments. Over the past five years, we've deployed over $900 million in capital toward these areas.

Neil A. Schrimsher: In addition, we remain on track to achieve record cash generation this year, which will provide additional capacity for capital deployment opportunities our priorities remain unchanged with a primary focus on optimizing growth and operating capabilities through both organic investments and.

Neil A. Schrimsher: Inorganic acquisitions.

Neil A. Schrimsher: Secondarily, we look to return cash to our shareholders through opportunistic share buybacks, while continuing to support consistent annual increases in our ordinary dividend and managing our balance sheet commitments.

Neil A. Schrimsher: Over the past five years, we've deployed over $900 million in capital towards these areas.

Neil A. Schrimsher: As it relates to acquisitions, we have significant potential based on an active pipeline and our industry position. We remain focused on a return framework and opportunities that stand to enhance our organic growth, margin profile, and competitive position over the long term. Considering the fragmented markets we compete in, as well as increasing technical and operating requirements across our industry, we believe M&A activity could increase over the next several years. On that note, as indicated in our press release this morning, I'm pleased to announce a definitive agreement to acquire Grupo Copar, a provider of emerging automation technologies and engineered solutions primarily across Mexico.

Neil A. Schrimsher: As it relates to acquisitions, we have significant potential based on an active pipeline and our industry position. We remain focused on our return framework and opportunities that stand to enhance our organic growth margin profile and competitive position long term.

Neil A. Schrimsher: Considering the fragmented markets, we compete in as well as increasing technical and operating requirements across our industry. We believe M&A activity could increase over the next several years.

Neil A. Schrimsher: On that note as indicated in our press release. This morning, I am pleased to announce a definitive agreement to acquire Grupo co par.

Neil A. Schrimsher: Provider of emerging automation technologies, and engineered solutions, primarily across Mexico.

Neil A. Schrimsher: This acquisition will extend our automation footprint with the addition of 16 locations across Mexico as well as Costa Rica and Texas. CoPAR has strong alignment with our strategy, focused on high-value robotics, machine vision, and IoT applications, and they will provide a diverse portfolio of established customers across food and beverage, automotive, light manufacturing, electronics, and pharmaceutical in the market. The acquisition will add approximately 200 new employees and is expected to generate annual sales of over $60 million in the first year, with accretive contributions to both gross margins and EBITDA margins. We expect the acquisition to close in the coming weeks, and we look forward to welcoming COPAR to Applied and leveraging their capabilities going forward.

Neil A. Schrimsher: This acquisition will extend our automation footprint with the addition of 16 locations across Mexico, as well as Costa Rica, and Texas co par has strong alignment with our strategy focused on high value robotics machine vision, and Iot applications and they will provide.

Neil A. Schrimsher: A diverse portfolio of established customers across food and beverage automotive light manufacturing electronics and pharmaceutical end markets.

Neil A. Schrimsher: The acquisition will add approximately 200, new associates and is expected to generate annual sales over $60 million in the first year with accretive contributions to both gross margins and EBITDA margins.

Neil A. Schrimsher: We expect the acquisition to close in the coming weeks and we look forward to welcoming co par to applied and leveraging their capabilities going forward.

Neil A. Schrimsher: As it relates to the underlying demand environment overall dynamics remain mixed but generally stable.

Neil A. Schrimsher: As it relates to the underlying demand environment, overall dynamics remain mixed but generally stable. Demand within our core technical MRO operations has been resilient, including solid demand across our U.S. Service Center and flow control operations, where sales increased organically by a mid-to-high single-digit percent during the quarter, including strong activity during the month of March. We believe steady capacity utilization and heightened technical MRO requirements on critical production infrastructure remain key tailwinds. This has been further supported by an increased focus on energy efficiency and service coverage.

Neil A. Schrimsher: Demand within our core technical MRO operations has been resilient, including solid demand across our U S Service center and flow control operations, where sales increased organically by mid to high single digit percent during the quarter, including strong activity during the month of March.

Neil A. Schrimsher: We believe steady capacity utilization and heightened technical MRO requirements on critical production infrastructure remain key tailwind.

Neil A. Schrimsher: This has been further supported by an increased focus on energy efficiency and service coverage.

Neil A. Schrimsher: That said, in-market dynamics within these MRO areas of our business are bifurcated to some degree. In addition, demand remains more muted across the OEM channel, including reduced shipment activity for off-highway mobile fluid power components and systems within our engineered solutions segment.

Neil A. Schrimsher: That said and market dynamics within these MRO areas of our business are bifurcated to some degree.

Neil A. Schrimsher: In addition demand remains more muted across the OEM channel, including reduced shipment activity for off highway mobile fluid power components and systems within our engineered solutions segment.

Neil A. Schrimsher: We believe this partially reflects ongoing recalibrate recalibration across various mobile in markets as supply chain stabilize and higher interest rates balanced more capital intensive machinery production.

Neil A. Schrimsher: We believe this partially reflects ongoing recalibration across various mobile-in markets as supply chains stabilize and higher interest rates balance more capital-intensive machinery production. As such, we saw slightly more mixed trends out of our top 30 mobile-in markets during the quarter, where 15 generated positive growth year-over-year compared to 18 last quarter. Growth was most favorable across food and beverage, primary metals, utilities, mining, lumber, and wood verticals during the quarter, offset by declines such as machinery, energy, pulp, and paper, and fabricated metals.

Neil A. Schrimsher: As such we saw slightly more mixed trends out of our top 30 in markets. During the quarter were 15 generated positive growth year over year compared to 18 last quarter.

Neil A. Schrimsher: Growth was most favorable across food and beverage primary metals utilities mining lumber and wood verticals during the quarter offset by declines such as machinery energy pulp and paper and fabricated metals.

Neil A. Schrimsher: As it relates to the solid performance within our service Center segment, we continue to see strong growth across larger national accounts and fluid power aftermarket sales.

Neil A. Schrimsher: As it relates to the solid performance within our service center segment, we continue to see strong growth across larger national accounts and fluid power aftermarket sales. We also began to see some improving growth out of our local customer accounts during the quarter, partially reflecting demand for our conveyance and shop services. In general, technical break-fix activity remains resilient across many of our key service center markets.

Neil A. Schrimsher: Also began to see some improving growth out of our local customer accounts during the quarter, partially reflecting demand for our conveyance and shop services.

Neil A. Schrimsher: In General Technical break fact break fix activity remains resilient across many of our key service center markets.

Neil A. Schrimsher: We believe our service center customers remain focused on sustaining appropriate MRO activity on core equipment as they position and refresh production capacity for growth in years to come, especially when considering aged industrial production assets across the U.S. and an increase in focus on energy efficiency. Our technical domain expertise and access to core industrial equipment puts us in a leading position to help customers manage these operational requirements, particularly as they struggle with finding skilled labor.

Neil A. Schrimsher: We believe our service center customers remain focused on sustaining appropriate MRO activity on core equipment as they position and refreshed production capacity for growth in years to come.

Neil A. Schrimsher: Especially when considering aged industrial production assets across the U S and an increase in focus on energy efficiencies.

Neil A. Schrimsher: Our technical domain expertise and access to core industrial equipment puts us in a leading position to help customers manage through these operational requirements, particularly as they struggle with finding skilled labor.

Neil A. Schrimsher: In addition, our sales initiatives continue to drive new growth opportunities. We're leveraging technology investments to streamline processes and digitally enhance capabilities in business intelligence. Our service center teams are going to market today as key consultants to our customers' most important capital equipment, making our relationships and interactions increasingly strategic and less transactional.

Neil A. Schrimsher: In addition, our sales initiatives continue to drive new growth opportunities.

Neil A. Schrimsher: We're leveraging technology investments to streamline processes and digitally enhanced capabilities and business intelligence. Our service center teams are going to market today is key consultants to our customers' most important capital equipment, making our relationships and interactions increasingly strategic.

Neil A. Schrimsher: And less transactional.

Neil A. Schrimsher: This is driving increased account penetration and account openings, as well as expanding opportunities to cross-sell our technical solutions, including new industrial technologies tied to robotics and IoT. Overall, our Service Center team is executing at a high level and remains in a strong growth position moving forward. Within our engineered solutions segment, MRO activity and capital spending on process infrastructure remain positive across our flow control operations. Consistent with prior quarters, flow control is benefiting from new business tied to customers' decarbonization and energy transition efforts. This includes technical support for the configuration, assembly, and testing of process systems used in carbon capture, utilization, and storage, as well as producing alternative fuel sources.

Neil A. Schrimsher: This is driving increased account penetration in account openings as well as expanding opportunities to cross sell our technical solutions.

Neil A. Schrimsher: Including new industrial technologies tied to robotics and Iot.

Neil A. Schrimsher: Overall, our service center team is executing at a high level and remains in a strong growth position moving forward.

Neil A. Schrimsher: Within our within our engineered solutions segment, MRO activity and capital spending on process infrastructure remains positive across our flow control operations <unk>.

Neil A. Schrimsher: Consistent with prior quarters flow control is benefiting from new business tied to customers' de carbonization and energy transition efforts. This includes technical support for their configuration Assembly and testing of process systems used in carbon capture utilization.

Neil A. Schrimsher: Utilization and storage as well as producing alternative fuel sources.

Neil A. Schrimsher: Combined with internal business development and solid sales execution, we saw flow control booking activity gain momentum during the third quarter, with related orders up by a high 18 percent both year-over-year and sequentially. In addition, demand and order activity for stationary fluid power systems across industrial-focused end markets remains relatively firm. We believe this partially reflects the many positive secular tailwinds across the U.S. manufacturing base, including investments focused on updating and expanding industrial production infrastructure and aging manufacturing equipment.

Neil A. Schrimsher: Combined with internal business development and solid sales execution, we saw flow control booking activity gain momentum during the third quarter with related orders up by a high teen percent both year over year and sequentially.

Neil A. Schrimsher: In addition demand and order activity for stationary fluid power systems across industrial focused in markets remains relatively firm. We believe this partially reflects the many positive secular tailwind across the U S manufacturing base.

Neil A. Schrimsher: Including investments focused on updating and expanding industrial production infrastructure.

Neil A. Schrimsher: And aging manufacturing equipment.

Neil A. Schrimsher: This includes enhancing efficiency and lifecycle of hydraulic systems and power units, filtration systems, and hydraulic presses, and is reflected in positive fluid power cells growth within metals, mining, and rubber industries during the quarter. That said, these trends were more than offset by reduced activity for off-highway mobile OEM components and systems within Fluid Power, and to a lesser degree, ongoing organic sales declines within our automation operations, as expected. We believe the lower number of operating days and holiday timing in March had some impact on the completion and timing of engineered solutions in these more technical and assembly-heavy areas of our business. Nonetheless, underlying demand and backlog conversion from mobile OEM fluid power customers was mixed in the quarter, partially reflecting more balanced production activity across various machinery and markets.

Neil A. Schrimsher: This includes enhancing efficiency and lifecycle of hydraulic systems and power units filtration systems and hydraulic presses and is reflected in positive fluid power sales growth within metals mining and rubber industries during the quarter.

Neil A. Schrimsher: That said these trends were more than offset by reduced activity for off highway mobile OEM components and systems within fluid power and to a lesser degree ongoing organic sales declines within our automation operations as expected.

Neil A. Schrimsher: We believe the lower number of operating days in holiday timing in March had some impact on the completion and timing of engineered solutions and these more technical and assembly heavy areas of our business.

Neil A. Schrimsher: Nonetheless underlying demand and backlog conversion from mobile OEM fluid power customers was mixed in the quarter, partially reflecting more balanced production activity across the various machinery end markets.

Neil A. Schrimsher: Overall, while the sales backdrop within our engineered solutions segment remains bifurcated near term, we are constructive on the segment's potential into fiscal 2025.

David K. Wells: Overall, while the sales backdrop within our engineered solutions segment remains bifurcated near term, we are constructive on the segment's potential into fiscal 2025. Of note, the year-over-year headwind tied to the technology vertical has stabilized and could emerge as a positive growth catalyst in coming quarters as comparisons continue to ease and demand within this key in-market recovery. Early leading indicators have been directionally positive across the semiconductor space in recent months. In addition, we are favorably positioned to benefit from the ongoing secular growth across data center infrastructure, including providing various fluid conveyance, flow control, and robotic solutions for server cooling, material handling, and technical maintenance.

David K. Wells: Of note the year over year headwind tied to technology vertical has stabilized and could emerge as a positive growth catalyst in coming quarters as comparisons continue to ease and demand within this key end market recovers.

David K. Wells: Early leading indicators have been directionally positive across the semiconductor space in recent months.

David K. Wells: In addition, we are favorably positioned to benefit from the ongoing secular growth across data center infrastructure, including providing various fluid conveyance flow control and robotics solutions for server cooling material handling and technical maintenance.

David K. Wells: We also note that customer interest in our automation operations remains positive with our sales funnel and pre sales engineering activity remaining active.

David K. Wells: We also note that customer interest in our automation operations remains positive, with our sales funnel and pre-sales engineering activity remaining active. We have meaningful growth opportunities in automation, given the scale, service, and engineering capabilities we are developing around advanced technology such as smart vision and mobile robots, as well as the market access our service center network provides. Combined with the building order activity, cross-flow control, and easing comparisons, we look forward to seeing a rebound in segment growth in the coming quarters. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

Dave: We have meaningful growth opportunities developing in automation given the scale service and engineering capabilities. We are developing around advanced technology, such as smart vision and mobile robots as well as the market access our service Center network provides.

Dave: Combined with the building order activity cross flow control and easing comparisons we look forward to seeing a rebound in segment growth in coming quarters.

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

David K. Wells: Thanks, Neil. Just a reminder before I begin: as in previous quarters, we have posted a quarterly supplemental investor presentation for our investors. This is for your additional reference as we recap our most recent quarter performance and updated guidance. Turning now to details on our financial performance in the quarter, consolidated sales increased 1.3% over the prior year quarter. Acquisitions contributed 120 basis points, and foreign currency translation had a positive 20 basis point impact, while the difference in selling days had a negative 80 basis point impact. After studying these factors, sales increased 0.7% year-over-year on an organic daily basis and approximately 16% on a two-year stack basis.

Dave: Thanks, Neil just a reminder, before I begin as in prior quarters, we have posted a quarterly supplemental investor presentation to our Investor site. This is for your additional reference as we recap our most recent quarter performance and updated guidance.

David K. Wells: Turning now to details on our financial performance in the quarter consolidated sales increased one 3% over the prior year quarter.

David K. Wells: Acquisitions contributed 120 basis points and foreign currency translation had a positive 20 basis point impact while the difference in selling days and negative 80 basis point impact.

David K. Wells: Many of these factors sales increased 7% year over year on an organic daily basis, and approximately 16% on a two year stack basis.

David K. Wells: As it relates to pricing, we estimate the contribution of product pricing to year-over-year sales growth was in the low single digits for the quarter and relatively unchanged from last quarter. Turning now to sales performance by segment, as highlighted on slides 7 and 8 of the presentation, sales in our service center segment increased 2.6% year-over-year on an organic daily basis when excluding a 1.5% positive impact from acquisitions and a 30 basis point positive impact from foreign currency translation.

David K. Wells: As it relates to pricing, we estimate the contribution of product pricing and year over year sales growth within the low single digits for the quarter and relatively unchanged from last quarter.

David K. Wells: Turning now to sales performance by segment as highlighted on slide seven and eight of the presentation sales in our service Center segment increased two 6% year over year on an organic daily basis, when excluding a one 5% positive impact from acquisitions, and a 30 basis point positive impact.

David K. Wells: Foreign currency translation.

David K. Wells: On a sequential basis, segment sales per day increased 4% from fiscal second quarter, only slightly below normal seasonal patterns and an improvement from relative trends in recent quarters. Growth in the quarter was strongest across our U.S. service center network, led by solid contributions from strategic accounts, as well as improving growth among local accounts.

David K. Wells: On a sequential basis segment sales per day increased 4% for fiscal second quarter, only slightly below normal seasonal patterns and an improvement from relative trends in recent quarters.

David K. Wells: Growth in the quarter was strongest across our U S Service Center network led by solid contributions from strategic accounts as well as improving growth among local accounts.

David K. Wells: This was partially offset by more muted sales trends across our international operations. For example, within our engineering solutions segment, sales decreased 3.6% over the prior year quarter. This includes a positive 40 basis points of growth from acquisition. On an organic daily basis, accounting for one less selling day in this year's quarter, segment sales decreased 3.2% year over year. Stronger growth across process flow control markets was more than offset by lower fluid power sales against a difficult prior year comparison, as well as ongoing sales declines within our automation operations. That said, both fluid power and automation sales were unchanged sequentially and, as mentioned earlier, were likely adversely impacted by more muted system shipments due to the calendar shift and holiday timing during March.

David K. Wells: This was partially offset by more muted sales trends across our international operations.

David K. Wells: Within our engineered solutions segment sales decreased three 6% over the prior year quarter. This includes a positive 40 basis points of growth from acquisitions.

David K. Wells: On an organic daily basis accounting for one less selling day in this year's quarter segment sales decreased three 2% year over year.

David K. Wells: Stronger growth across process flow control markets was more than offset by lower fluid power sales against a difficult prior year comparison as well as ongoing sales declines within our automation operations.

David K. Wells: That said, but fluid power and automation sales were unchanged sequentially and as mentioned earlier, we're likely adversely impacted by more muted system shipments due to the calendar shifts and holiday timing during March.

David K. Wells: In addition contribution from the technology vertical remained subdued during the quarter, though the year over year headwind abated relative to recent quarters, reflecting easier comparisons and demand stabilization.

David K. Wells: In addition, contribution from the technology vertical remains subdued during the quarter, though the year-over-year headwind abated relative to recent quarters, reflecting easier comparisons and demand stabilization. Moving to gross margin performance, as highlighted on page 9 of the deck, gross margin of 29.5% increased 8 basis points compared to the prior year level of 29.4%. During the quarter, we recognized LIFO expense of $4.8 million compared to $8.2 million in the prior year quarter.

David K. Wells: Moving to gross margin performance as highlighted on page nine of the deck gross margin of 29, 5% increased eight basis points compared to the prior year level of 29, 4%.

David K. Wells: During the quarter, we recognized LIFO expense of $4 $8 million compared to $8 2 million in the prior year quarter.

David K. Wells: This net life of Tailwind had a favorable 30 basis point year over year impact on gross margin. Third quarter life expense was, however, obsequentially and slightly higher than our expectations. In addition, we estimate gross margins in the quarter include approximately 10 basis points of unfavorable mix compared to prior levels. This primarily reflects lower engineered solution segment sales, as well as strong national account sales growth and a lesser mix of automation engineered solutions compared to the prior year.

David K. Wells: This net LIFO tailwind had a favorable 30 basis point year over year impact on gross margins.

David K. Wells: Third quarter LIFO expense was however, up sequentially and slightly higher than our expectations.

David K. Wells: In addition, we estimate gross margins in the quarter included approximately 10 basis points of unfavorable mix compared to prior year levels.

David K. Wells: This primarily reflects lower engineered solutions segment sales as well as strong national account sales growth and a lesser mix of automation and engineered solutions compared to the prior year.

David K. Wells: Overall, we continue to amaze brighter inflationary dynamics well through our ongoing initiatives.

David K. Wells: Overall, we continue to manage broader inflationary dynamics well through our ongoing initiatives, including enhanced analytics, rate expense management, and channel execution. As it relates to our operating costs, selling, distribution, and administrative expenses increased 5.3% compared to prior year levels.

David K. Wells: And enhanced analytics, great expense management and channel execution.

David K. Wells: As it relates to operating cost selling distribution and administrative expenses increased five 3% compared to prior year levels.

David K. Wells: SD&A expense was 18.9% of sales during the quarter, up from 18.2% during the prior year quarter. On an organic constant currency basis, SD&A expense was up approximately 3% over the prior year period. We saw slightly greater-than-expected expense deleveraging in the quarter given muted sales growth combined with higher employee costs, professional fees, and investments tied to growth and supporting our constructive outlook. In addition, year-over-year SDNA expense comparisons were impacted by some cost favorability in the prior year period relating to strong AR collection performance and related provisioning reversals.

David K. Wells: SG&A expense was 18, 9% of sales during the quarter up from 18, 2% during the prior year quarter.

David K. Wells: On an organic constant currency basis, SG&A expense was up approximately 3% over the prior year period.

David K. Wells: We saw a slightly greater than expected expense deleverage in the quarter, given muted sales growth combined with higher employee costs professional fees and investments tied to our growth and supporting our constructive outlook.

David K. Wells: In addition year over year SG&A expense comparisons were impacted by some cost favorability in the prior year period relating to strong collection performance and related provisioning reversals.

David K. Wells: We continue to manage costs well as we balance expense controls against our growth initiatives and outlook, as well as face ongoing inflationary pressure. Overall, slightly greater-than-expected engineering solution sales declines combined with unfavorable expense absorption, mix, and difficult prior year comparisons resulted in reported EBITDA declining 3.3% year-over-year during the quarter, while EBITDA margin of 11.8% decreased 56 basis points year-over-year. We view the year-over-year declines in EBITDA and EBITDA margin as a transitory near-term dynamic that is largely isolated to the third quarter, particularly when considering prior-year comparisons.

David K. Wells: We continue to manage cost well as we balance expense controls against our growth initiatives and outlook as well as face ongoing inflationary pressures.

David K. Wells: Overall slightly greater than expected engineered solutions sales declines combined with unfavorable expense absorption mix and difficult prior year comparisons resulted in reported EBITDA declining three 3% year over year during the quarter, while EBITDA margin of 11, 8% decreased 56 basis.

David K. Wells: Points year over year.

David K. Wells: We view the year over year declines in EBITDA, and EBITDA margin as a transitory near term dynamic and largely isolated to the third quarter, particularly when considering prior year comparisons.

David K. Wells: On a year-to-date basis, we note EBITDA has increased 4% compared to a 2% sales increase, while EBITDA margins are up approximately 20 basis points year-to-date. We also continue to reflect the benefit from lower net interest expense, which was down nearly $5 million from the prior year and primarily reflects reduced debt levels and greater interest income from higher cash balances and investment yields. Combined with a lower tax rate relative to prior year levels, reported earnings per share of $2.48 was up 4% from a prior year adjusted EPS level.

David K. Wells: On a year to date basis. We note EBITDA has increased 4% compared to a 2% sales increase while EBIT margins were up approximately 20 basis points year to date.

David K. Wells: Okay.

David K. Wells: We also continued to reflect benefits from lower net interest expense, which was down nearly $5 million from the prior year.

David K. Wells: And primarily reflects reduced debt levels and greater interest income from higher cash balances and investment yields.

David K. Wells: Combined with a lower tax rate relative to prior year levels reported earnings per share of $2 48.

David K. Wells: It was up 4% from the prior year adjusted EPS levels.

David K. Wells: Moving to our cash flow performance cash generated from operating activities. During the third quarter was $84 2 million, while free cash flow totaled $76 7 million or 79% of net income and was up 14% from the prior year level.

David K. Wells: Moving to our cash flow performance, cash generated from operating activities during the third quarter was $84.2 million, while free cash flow totaled $76.7 million, or 79% of net income, and was up 14% from the prior year level. Year-to-date, we have generated nearly $235 million of free cash, which is up 64% from the prior year, reflecting sustained earnings growth, our enhanced margin profile, and ongoing progress on working capital initiatives. From a balance sheet perspective, we ended March with approximately $457 million of cash on hand and net leverage at 0.3 times EBITDA, which is below the prior year level of 0.9 times and unchanged from last quarter.

David K. Wells: Year to date, we have generated nearly $235 million of free cash, which is up 64% from the prior year, reflecting sustained earnings growth, our enhanced margin profile and ongoing progress on working capital initiatives.

David K. Wells: From a balance sheet perspective, we ended March with approximately $457 million of cash on hand, and net leverage at three times EBITDA, which is below the prior year level of <unk> nine times and unchanged from last quarter.

David K. Wells: Our balance sheet is in a solid position to support our capital deployment initiatives moving forward as well as enhanced returns for all stakeholders.

David K. Wells: Our balance sheet is in a solid position to support our capital deployment initiatives moving forward as well as enhance returns for all stakeholders. During the third quarter, we repurchased approximately 100,000 shares for $18 million. This brings our year-to-date total for share repurchases to $29 million.

David K. Wells: During the third quarter, we repurchased approximately 100000 shares for $18 million. This brings our year to date total on share repurchases to $29 million.

David K. Wells: Turning now to our outlook as indicated in today's press release and detailed on page 12 of our presentation. We are updating full year fiscal 2024 guidance to reflect third quarter performance and our fourth quarter expectations.

David K. Wells: Turning now to our outlook, as indicated in today's press release and detailed on page 12 of our presentation, we are updating full year fiscal 2024 guidance to reflect third quarter performance and our fourth quarter expectations. Specifically, we now project adjusted EPS in the range of $9.55 to $9.70 based on sales growth of 1.5% to 2.5%, including a 0.5% to 1.5% organic growth assumption, as well as an even margin of 12% to 12.1%.

David K. Wells: Specifically, we now project adjusted EPS in the range of $9 55 to $9 70.

David K. Wells: Based on sales growth of one five to two 5%, including eight five to one 5% organic growth assumption as well as EBITDA margins of 12 to 12, 1%.

David K. Wells: Previously, our guidance assumed EPS of $9.35 to $9.70, sales growth of 1-3%, and EBITDA margins of 12.1-12.3%. The updated adjusted EPS guidance range excludes the $3 million net tax benefit realized in fiscal 2024's second quarter related to the Tax Valuation Allowance Adjustment.

David K. Wells: Previously our guidance assumed EPS of $9 35 to $9 70.

David K. Wells: Sales growth of 1% to 3% and EBITDA margins of 12, 1% to 12, 3%.

David K. Wells: The updated adjusted EPS guidance range excludes the $3 million net tax benefit realized in fiscal 2024 second quarter related to the tax valuation allowance adjustment.

David K. Wells: Our updated guidance implies a fiscal fourth quarter EPS range of $2 44 to $2 59.

Neil A. Schrimsher: Our updated guidance implies a fiscal fourth quarter EPS range of $2.44 to $2.59 and an organic sales per day range of down 1% to up 2% year-over-year and even a margin of 12% to 12.4%. Our fourth quarter sales guidance takes into consideration organic sales month to date in April, which are down by a low single-digit percent year over year, combined with ongoing economic uncertainty. In addition, we expect year-over-year sales declines to persist in our engineering solutions segment during the fourth quarter, reflecting softer fluid power OEM demand and uncertainty around the timing and magnitude of recovery across the technology vertical.

Neil A. Schrimsher: Organic sales per day range of down 1% to up 2% year over year, and EBIT margins of 12% to 12, 4%.

Neil A. Schrimsher: Our fourth quarter sales guidance takes into consideration organic sales month to date in April which are down by a low single digit percent year over year combined with ongoing economic uncertainty.

Neil A. Schrimsher: In addition, we expect year over year sales declines to persist in our engineered solutions segment during the fourth quarter, reflecting softer fluid power OEM demand and.

Neil A. Schrimsher: Uncertainty around the timing and magnitude of recovery across the technology vertical.

Neil A. Schrimsher: Overall, while we remain constructive on our set up moving forward.

Neil A. Schrimsher: Overall, while we remain constructive on our setup moving forward, considering easier prior year comparisons, favorable trends within our shorter cycle of service center operations, and sustained benefits from our internal initiatives, we believe it remains prudent to take a balanced approach to our near-term outlook, pending more definitive and broader signs of a positive inflection in macro and industry conditions. Lastly, from a margin perspective, we expect fourth-quarter gross margins to be flat to slightly up sequentially, inclusive of ongoing NICS headwinds in the near term.

Neil A. Schrimsher: <unk> easier prior year comparisons favorable trends within our shorter cycle service center operations and sustained benefits from our internal initiatives. We believe it remains prudent to take a balanced approach to our near term outlook any more definitive and broader signs of a positive inflection in macro and industry conditions.

Neil A. Schrimsher: Lastly from a margin perspective, we expect fourth quarter gross margins to be flat to up slightly sequentially inclusive of ongoing mix headwinds near term.

Neil A. Schrimsher: We also expect ongoing expense deleveraging near term based on our fourth quarter sales outlook and growth positioning, though to a lesser degree than in the third quarter and balanced by cost controls and reduced professional fees.

Neil A. Schrimsher: We also expect ongoing expense deleveraging near-term, based on our fourth-quarter sales outlook and growth positioning, though to a lesser degree than in the third quarter and balanced by cost controls and reduced professional fees. Combined with lower LIFO expense compared to the prior year and easier comparisons, we expect year-over-year EBITDA trends to show improvement from the third-quarter performance. With that, I now turn the call back over to Neil for some final comments.

Neil A. Schrimsher: Combined with lower LIFO expense compared to the prior year and easier comparisons we expect year over year EBIT trends to show improvement from third quarter performance.

Neil A. Schrimsher: With that I'll now turn the call back over to Neil for some final comments.

Neil A. Schrimsher: Thanks, Dave. As we prepare to close out Fiscal 2024, I'm proud of the ongoing progress we're making to strengthen our industry position, customer experience, and growth potential. This is evident in our year-to-date performance, where we have sustained year-over-year organic sales growth against difficult high team growth comparisons during a period of sub-50 PMI readings, declines in industrial production, and notable technology vertical headwinds. We've also expanded margins and sustained earnings growth year-to-date while strengthening our cash generation to a record level.

Neil: Thanks, Dave as we prepare to close out fiscal 2024, I'm proud of the ongoing progress, we're making to strengthen our industry position customer experience and growth potential. This is evident in our year to date performance, where we have sustained year over year organic sales growth against.

Neil A. Schrimsher: Difficult high teen growth comparison.

Neil A. Schrimsher: During a period of sub 50, PMI readings declines in industrial production and notable technology vertical headwinds.

Neil A. Schrimsher: We've also expanded margins and sustained earnings growth year to date, while strengthening our cash generation to record levels.

Neil A. Schrimsher: These results clearly show the traction our strategy and internal initiatives are having, including diversifying our in-market mix, gaining exposure to sustainable, non-cyclical growth tailwinds, and enhancing our operational capability. As we look ahead to fiscal 2025, I remain constructive on the outlook for our company and the potential for sustained above-market sales and earnings growth. While we are cognizant of various cross-currents that remain, we are encouraged by recent improvements in various industrial macro-indicators that correlate with our business. This includes the ISM PMI above 50 during March, including the production sub-index at its highest level in nearly two years.

Neil A. Schrimsher: These results clearly show the traction of our strategy and internal initiatives are having including diversifying our end market mix, gaining exposure to sustainable non cyclical growth tailwind and enhancing our operational capabilities.

Neil A. Schrimsher: As we look ahead to fiscal 2025, I remain constructive on the outlook for our company and the potential for sustained above market sales and earnings growth.

Neil A. Schrimsher: While we are cognizant of various crosscurrents that remain we are encouraged by recent improvements in various industrial macro indicators that correlate with our business. This includes the I S. M. PMI above 50 during March including the production sub index at its highest level in nearly two years.

Neil A. Schrimsher: In addition, durable goods orders are showing improvement in federal stimulus for infrastructure build out is starting to flow at a greater rate.

Operator: In addition, durable goods orders are showing improvement, and federal stimulus for infrastructure build-out is starting to flow at a greater rate. We're also uniquely positioned to benefit from many secular and structural tailwinds continuing to play out across North American manufacturing and industrial sectors. Our technical domain expertise within industrial facilities across North America, including local MRO and engineering support on critical capital equipment, is increasingly vital as customers manage through an aging skilled labor force, along with continuing requirements tied to reshoring and U.S. infrastructure investment, both of which are expected to gain momentum moving forward.

Operator: We're also uniquely positioned to benefit from many secular and structural tailwind continuing to play out across north American manufacturing and industrial sectors.

Operator: Our technical domain expertise within industrial facilities across North America, including local MRO and engineering support on critical capital equipment.

Operator: Is increasingly vital as customers manage through an aging skilled labor force along with continuing requirements tied to re shoring and U S infrastructure investments.

Operator: Both of which are expected to gain momentum moving forward.

Operator: We see additional support levels from energy security and supply chain hardening. In addition, our strategic positioning and capabilities in the areas of pneumatic automation. Fluid Conveyance and Robotics have expanded our addressable market and organic growth profile across the technology sector, which we believe could re-emerge as a meaningful earnings tailwind due to the ongoing and critical build-out of semiconductor manufacturing and data center infrastructure. Combined with our balance sheet capacity, we expect to make ongoing progress in fiscal 2025 to move towards our intermediate objectives of $5.5 billion in sales and 13% EBITDA margins, while also developing the next step in applied evolution and long-term potential.

Operator: We see additional support levels from energy security and supply chain hardening.

Operator: In addition, our strategic positioning and capabilities in areas of pneumatic automation.

Operator: Fluid conveyance, and robotics have expanded our addressable market and organic growth profile across the technology sector, which we believe could reemerge as a meaningful earnings tailwind, giving ongoing and critical buildout of semiconductor manufacturing and data center infrastructure.

Operator: Sure.

Operator: Combined with our balance sheet capacity, we expect to make ongoing progress in fiscal 2025 to move towards our intermediate objectives of $5 5 billion in sales and 13% EBITDA margins. While also developing the next step and applies evolution and long term.

Operator: <unk> potential.

Operator: I want to recognize our entire applied team. So the foundation of our performance and evolution their perseverance and customer focus and operational focus provide a strong position to accelerate our potential moving forward.

Operator: I want to recognize our entire application team; they're the foundation of our performance and evolution; their perseverance, customer focus, and operational focus provide a strong position to accelerate our potential moving forward. As always, we thank you for your continued support, and with that, we'll open up the lines for your questions.

Operator: As always we thank you for your continued support and with that we'll open up the lines for your questions.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please pick up your handset and press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question from the queue, press star 1 again. As a reminder, if at any time you need to reach an operator, please press star zero. We'll pause for just a moment to compile the Q&A roster. The first question comes from the line of David Manthey from Baird. Please ask your question.

Speaker Change: Thank you.

Operator: We will now begin the question and answer session.

Operator: If you would like to ask a question. Please pick up your handset and press star followed by the number one on your telephone keypad if.

David John Manthey: If you would like to withdraw your question from the queue Press Star one again.

Operator: Minder, if at any time, you need to reach an operator, Please press star zero, So fast for just a moment to compile the Q&A roster.

Operator: Okay.

Operator: The first question comes from the line of David Manthey from Baird. Please ask your question.

David John Manthey: Thank you. Good morning, everyone.

David John Manthey: Thank you and good morning, everyone.

David John Manthey: Um, the first question is, um, you're positioning the company for accelerating growth in the coming fiscal year. Could you just talk a little about the type of investments that that includes? And then, of course, everyone has a plan until they get punched in the face. And obviously, if things don't materialize as expected, how can you adjust the posture of that growth that you're leaning into? If things don't materialize as planned, if at all, maybe some of those things you'll just wait it out, but if you could give us an idea of the plan here for the coming fiscal year, I'd appreciate it.

David John Manthey: First question is on your positioning the company for accelerating growth in the coming fiscal year could you just talk a little about the type of investments that includes.

David John Manthey: And then of course.

David John Manthey: Everyone has a plan until they get punched in the face.

David John Manthey: Obviously, if things don't materialize as expected how can you adjust the posture of that that growth.

David John Manthey: Well that you are leaning into.

David John Manthey: If things don't materialize as planned if at all maybe some of those things you'll just wait it out but if you could give us an idea of the the plan here for the coming fiscal year I'd appreciate it.

Neil A. Schrimsher: Yeah, and David, I'd say still a little early as we think about Fiscal 25. Obviously, we're working through it, and we'll talk more specifically about it. I did tell some of the team, in my view, this is almost the most wonderful time of the year, right?

David John Manthey: Yeah.

Speaker Change: David I'd say, it's still a little early as we think about the fiscal 'twenty five obviously, we're working through it and we'll talk more.

Speaker Change: Specific on it I did tell us some of the team.

Neil A. Schrimsher: My view this is the almost the most wonderful time of the year, we worked to close a a fourth quarter, we build long range three year plans plus our next year's operating plan, So where we're active we're active into it I think on the.

Neil A. Schrimsher: We work to close the fourth quarter. We build long-range, three-year plans plus our next year's operating plan. So we're active in it. I think about preparing the company for growth. I think we've been doing that. As we look at our position around technical MRO and our service center's position there, and the benefits that we have for ongoing secular trends from reshoring and heightened investment and our customers dealing with probably low CapEx in that industrial capacity for a period of time, and then this aging technical workforce. So stay well positioned there.

Neil A. Schrimsher: Preparing the company for growth I think we've been doing that as we look at our position around technical MRO and our service centers position, there and the benefits that we have for our ongoing secular trends from re shoring and heightened investment and our customers dealing with probably low capex.

Neil A. Schrimsher: In that industrial capacity for a period of time and then this aging technical workforce, so stay well positioned there and then.

Neil A. Schrimsher: And then the trends that we see around infrastructure and technology and how we've diversified the company in engineered solutions. And so even now, right, we absorb some off-highway mobile headwind with that diversification that we've had around flow control, the industrial side of fluid power, and now even more on automation. So I think specifically in the quarter, as we saw a little bit of that volume softening late in March, we knew that, with some of the holiday timing, the businesses around off-highway mobile and a certain degree of automation are a little labor-intensive in building out those solutions, either on our part or customers accepting them. So I think that played into a little bit of the result in that period.

Neil A. Schrimsher: The trends that we see around infrastructure and technology and how we've diversified the company in engineered solutions and so even now right. We absorb some off highway mobile headwind with that diversification that we've had around flow control the industrial side of fluid power and now even more.

Neil A. Schrimsher: Even more on automation so I.

Neil A. Schrimsher: I think specifically in the quarter as we saw a little bit of that volume softening late.

Neil A. Schrimsher: In the late in March.

Neil A. Schrimsher: You know, we knew and that with some of the holiday timing the businesses around off highway mobile and certain degree automation are little labor intensive, but building out those solutions either on our part our customers accepting them. So I think that played into a little bit of the result in that period, but our view is I.

Neil A. Schrimsher: But our view is obviously that we're staying committed to having the right technical resources in both sales engineering and application engineering to convert these projects. I like the work that we have in emerging areas, including things like electrification in that. And so those will be the investments that will continue. If some of this doesn't materialize or the environment changes, obviously, we've got natural shock absorbers in the business as we think about our cost position in that.

Neil A. Schrimsher: We're staying committed to having the right technical resources in both our sales engineering and application engineering to convert these projects.

Neil A. Schrimsher: I like the work that we have in emerging areas, including things like electrification in that and so those will be the investments that will continue.

Neil A. Schrimsher: If some of this doesn't materialize or the environment changes, obviously, we've got natural shock absorbers in the business as we think about our cost position and that if there's lower volumes things in commissions and incentives adjust freight adjust so there's those natural shock absorbers.

Neil A. Schrimsher: If there's lower volumes, things in commissions and incentives adjust, freight adjusts, so there's those natural shock absorbers. And then if it's beyond that, I think obviously we've demonstrated the cost accountability and have the history that will respond accordingly. But if I look out, I don't think that's the environment that we're preparing for. Obviously, we know how, but I am constructive about the outlook that we have for performance and really some continued outperformance as we turn into 2025.

Neil A. Schrimsher: And then if it's beyond that I think obviously, we've demonstrated the cost accountability and have the history that we will respond accordingly, but if I look out I don't think that's the environment that we're preparing for obviously we know how.

Neil A. Schrimsher: But I am constructive on the outlook that we have for performance and really some continued outperformance as we turn into a 25%.

Speaker Change: I'll just tag on there, David and add that the.

David K. Wells: I'll just take a stab at that, David, and add that a lot of this investment was more transitory in nature. If you look back, obviously, to the last couple of years, and especially during the COVID downturn, we continued to make investments in the business while leveraging some of the shock absorbers that Neil indicated and some of the benefits from our systems investments, shared services, process improvement, etc. So if I strip apart the SD&A for you, pulling out the impact of currency, the M&A, the kind of cost that's been added on a year-over-year basis, and the AR provisioning that was an unusual prior-year benefit that we call it out, up only 1.2% operationally year-over-year.

David K. Wells: A lot of this investment was more transitory in nature and thank you. If you look back obviously to the lab.

David K. Wells: A couple of years and especially during the Covid downturn, we continue to make investments in the business well leveraging some of those shock absorbers that you indicated in some of the <unk>.

David K. Wells: And it fit from our systems investments shared services process improvement et cetera, So if I strip apart the SG&A for Ya.

David K. Wells: Pulling out the impact of currency the M&A kind of cost that's been add on year over year basis, and the AAR provisioning that was an unusual prior year benefit do we call it out.

David K. Wells: I have only one 2% operationally year over years and as I look at the you got the impact of staffing you know only 30 basis points of that was really driven by higher staffing costs, the merit impact et cetera, and some of the investments that we've made in personnel resource you know a lot of these investments or more transitory in the terms of support.

David K. Wells: As I look at the impact of staffing, only 30 basis points of that was really driven by higher staffing costs, the merit impact, etc., and some of the investments that we've made in personnel resource, a lot of these investments were more transitory in the terms of supporting the COPAR acquisition, the legal work that went on behind that, some of the automation greenfield activity we have going on, as well as some of the expansion that we have ongoing with both Olympus to support some of the automation opportunities we've seen going forward, as well as some expansion of facility in the tech side of the fluid power business, thinking about what's coming at us there, particularly out of the semi-space. So just to give some further clarification on some of those investments and how we see some of this normalizing to a degree in terms of the deleveraging in Q4.

David K. Wells: The <unk> acquisition the legal work that went on behind that some of the automation Greenfield activity, we have going on as well as some of the expansion that we have ongoing with both the Olympus to support some of the automation opportunities, we see going forward as well as some expansion of facility and the the tech side of the fluid power.

David K. Wells: Just thinking about what's coming out there with the particularly out of the semi space. So you just give some further clarification on some of those investments.

David K. Wells: And how we see some of this.

David K. Wells: Normalizing two to be degree in terms of the deleveraging in Q4.

David K. Wells: Yeah.

David John Manthey: Yeah, thanks for all that detail. You guys are clearly well positioned, and you've historically been very nimble as it relates to the changing economic landscape. So just another quick one on this Grupo CoPAR. If you perform this fiscal year, say fiscal 24 for that acquisition, assuming it goes through, what would be the revenue run rate? at that point. And second, I'm assuming that COPAR works with these Maquiladoras. Are some or many of the customers that they deal with domiciled or have U.S. operations that could become a cross-sell opportunity for you now?

Speaker Change: Yeah. Thanks for all that detail you guys are clearly well positioned than you've historically been very nimble as it relates to changing economic landscape. So.

David John Manthey: Just another quick one on this Grupo co par.

David John Manthey: If you pro forma this fiscal year, so fiscal 'twenty four for that acquisition, assuming it goes through what would be the revenue run rate.

David John Manthey: At that point, and then second I'm, assuming that co par works with these maquiladora.

David John Manthey: Or some or many of the customers that they deal with.

David John Manthey: Domicile, there have U S operations that becomes a cross sell opportunity for you now.

Speaker Change: So I can start based on the footprint and the capabilities that they would be.

Neil A. Schrimsher: So, I can start. Based on the footprint and the capabilities, they would be more than just Maquiladora's strong presence in the interior and throughout Mexico. Obviously, we're encouraged if we think about the amount of foreign direct investment going into Mexico and many people looking at it as an additional place to do business, that supply chains more regionalized or localized, you know, from a U.S. North America perspective. So, we view that

Neil A. Schrimsher: More than just maquiladora has strong presence in the interior and throughout Mexico. Obviously, we're encouraged if we think about the amount of foreign direct investment going into Mexico, and many people looking at it as a traditional place to do business.

Neil A. Schrimsher: As supply chains more regionalize our localized.

Neil A. Schrimsher: The us North America perspective, so we view that as very encouraging there will be some opportunity for cross selling and customer further customer cooperation in U S and Mexico, but also we have a very strong position and are in Mexico on our service center side of our business today.

Neil A. Schrimsher: There will be some opportunity for cross-selling and further customer cooperation in the U.S. and Mexico. But also, we have a very strong position in Mexico on the service center side of our business today and operation. So, we think about bearings and power transmission and fluid power.

Neil A. Schrimsher: And operate so we think about bearings and power transmission and fluid power in time that will open up some of those opportunities and I think about it from an annualized basis on sales right. We touched on it to around the $60 million of Upsells and basing on the time at close we can look at calendar rising it but I'd say at first pass.

David John Manthey: In time, that will open up some of those opportunities. If I think about it from an annualized basis on sales, right, we touched on it to around 60 million in sales. And based on the time it closed, you know, we can look at calendarizing it. But I'd say at first pass, it'd be pretty orderly from a rate standpoint.

David John Manthey: It would be pretty orderly from a rate standpoint.

David John Manthey: Yes.

David John Manthey: All right, that all sounds great. Thanks a lot, guys. Thank you. Thanks, Abe.

Speaker Change: Alright that sounds great. Thanks, a lot guys. Thank you. Thanks Abe.

David John Manthey: The next question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Operator: The next question comes from the line of Christopher Glynn from Oppenheimer. Your line is now open.

Christopher M. Dankert: Thanks, Good morning.

Christopher M. Dankert: Thanks. Good morning.

Christopher M. Dankert: I wanted to ask about the tenor you're seeing from the smaller customer base. One concern we've had is the kind of lagged effective rates and inflation on the less resourceful portion of the industrial economy. So I'm wondering if you're seeing any particularly interesting insights into that smaller customer base.

Christopher M. Dankert: I wanted to ask about the China Youre seeing from the smaller customer base when considering we've had kind of a lagged effect.

Christopher M. Dankert: Rates and inflation.

Christopher M. Dankert: <unk>.

Christopher M. Dankert: Less resourceful.

Christopher M. Dankert: A portion of the industrial economy. So I'm wondering if you've seen any particularly interesting insights.

Christopher M. Dankert: Into that smaller customer base.

Neil A. Schrimsher: Yeah, I'd say specifically as it relates to that, we saw positive developments that, you know, helped contribute to the overall service center performance on that. We're also seeing that customer segment look for more things for us to do and help them with. You know, obviously, they, too, can be challenged with their workforce, an aging technical workforce, and that. And so just like large customers have been looking at that and outsourcing some of those requirements, we're seeing local customers expand. So, you know, we remain encouraged.

Neil A. Schrimsher: Yeah, I would say specifically as it relates to that we saw positive developments that helped contribute to the overall service center performance on that we're also seeing that customer segment look two more things.

Neil A. Schrimsher: For us to do and help them with.

Neil A. Schrimsher: Obviously, they too can be challenged with a workforce aging technical workforce and that and so just like our large customers have been looking at that and outsourcing some of those requirements. We're seeing local customers expand so we remain encouraged I think we've touched on our own.

Neil A. Schrimsher: I think, you know, we touched on our overall markets. All in all, still a good productive environment, you know, with 15 of them up, a slight decline from the prior quarter at 18. But those local customers participating, especially in those vertical segments, are active in doing well. And I think local customers are getting pulled into and benefiting from ongoing reshoring. Because I think some of these larger customers and these global customers are either pulling the work in-house, or they're finding qualified, localized suppliers to help them. And I think that's been an additive lift for some in the local economy.

Neil A. Schrimsher: We're all markets all in all still a good productive environment with 15 of them up slight decline from the prior quarter at 18, but those local customers participating, especially in those vertical segments are active and doing well and I think local customers are getting pulled into and benefiting from.

Neil A. Schrimsher: <unk> ongoing re shoring because I think some of these larger customers in these global customers are either pulling the work internal or they're finding qualified localize suppliers to help them with and I think that's been a additive lift for some in the local economy.

Speaker Change: Thank you for that.

Christopher M. Dankert: Thank you for that. And I wanted to follow up on linearity.

Speaker Change: Wanted to follow up on the linearity I think two.

Neil A. Schrimsher: I think things improved throughout the month. April was low single digits, and I think that has favorable Easter timing in the comparison. So just curious how to kind of plug that into our thought process on the fourth quarter guide with April seeming a little less constructive toward that. Okay, no fair. Good, good question, you know.

Christopher M. Dankert: Things improved throughout the months.

Neil A. Schrimsher: April was low single digits, I think that has a favorable Easter timing and the comparison. So just curious how to kind of plug that into our thought process.

Neil A. Schrimsher: Fourth quarter guide with April seeming a little.

Neil A. Schrimsher: Less constructive towards that Okay. No fair. Good. Good question you know clearly March was good across the service Center network, a little bit of normalizing in there, but still positive trends.

Neil A. Schrimsher: Okay, no fair. But a good question.

Neil A. Schrimsher: You know, clearly March was good across the service center network, a little bit of normalizing in there, but still positive trends. If I think about April from a comparable standpoint, it does step up a little bit, a little tougher comparison, I think by maybe a couple hundred basis points there in the side, and so still a few days to go in that April side. So I don't read too much into it, but obviously, hey, we want to be prudent and have the right balance as we look ahead at some of these cross currents and as we prepare for fiscal 25 and the opportunities that we see ahead. All right. Thank you.

Neil A. Schrimsher: Think about April from a comparable standpoint does step up a little bit a little tougher comparison I think by now maybe a couple of hundred basis points, there in the side and and so.

Neil A. Schrimsher: Still a few days to go in that April side, So I don't read too much into it but obviously, we want to be prudent.

Neil A. Schrimsher: And have the right balance as we look ahead at some of these cross currents and as we prepare for fiscal.

Neil A. Schrimsher: Fiscal 'twenty five and the opportunities that we see ahead.

Speaker Change: Got it thank you.

Neil A. Schrimsher: The next question comes from Ken Newman with Keybanc capital markets. Your line is now open.

Operator: The next question comes from Ken Newman with KeyBank Capital Markets. Your line is now open. Mr. Newman, your line is now open.

Operator: Okay.

Ken Newman: Mr. <unk>. Your line is now open.

Operator: Alright, thank you. Hey, sorry about that. Good morning, guys.

Operator: Alright.

Ken Newman: Good morning, guys.

Ken Newman: Good morning.

Ken Newman: I'm just curious you know.

Ken Newman: I'm just curious, you know, can you just talk through the implied 4Q ADS growth guide? You know, obviously, the midpoint is assuming a sequential step down from the 70 basis points you put up this quarter, but the comp next quarter looks like it's stepping down again, and the end is much easier. Any color on whether the guide is really just conservatism, or is it just taking a more prudent approach to what you're seeing so far in April? Just any color to help us think about, you know, your expectations for the sequence of ADS growth as we move throughout the next quarter?

Ken Newman: Can you just talk through the implied <unk> Ats growth guide.

Ken Newman: Obviously, the midpoint is assuming a sequential step down from the 70 basis points up you put up this quarter, but the comp next quarter. It looks like it's stepping down again and it's much easier.

Ken Newman: Any color on whether the guidance really just conservatism or is it just taking a more prudent approach to what youre seeing so far in April just any color to help us think about.

Ken Newman: Your expectations for the sequence of ADR growth as we move throughout the next quarter.

David K. Wells: You bet. You know, here again, guys.

Speaker Change: You bet.

David K. Wells: Again guys.

David K. Wells: So really, the guide does assume some continuation of the trends that we saw and no real recovery from the tech or the fluid power OEM space. So that, like I said, just coupled with some of the market uncertainty, we said we wanted to be prudent as we think about the guide. So the Q4, once again, that would imply organic sales growth in the updated guidance of overall 1% to 4% up on an organic basis, down potentially 1% to an up 2%.

David K. Wells: So really the guide does assume some continuation of the trends that we saw it and no real recovery out of the tech or the.

David K. Wells: The fluid power OEM space, So that makes it just a couple of sort of the market uncertainty we said yes.

David K. Wells: We wanted to be prudent as we think about the guide. So you know the Q4 once again that would imply organic sales growth.

David K. Wells: And the updated guidance of your overall, 1% to 4% up on organic basis down potentially 1% two and up to yeah. So at the midpoint that would assume some slight further deterioration.

David K. Wells: So at the midpoint, that would assume some slight further deterioration in the overall markets. So we'll work to offset that, obviously, with the continued push on some of the opportunities and the stronger booking trends that we are seeing in that engineered solution space, where for the first time in about seven quarters, we did see kind of a one-to-one book-to-bill ratio. So that was encouraging, as we've seen some of those order trends come back, which have continued to supplement some of that stronger flow control, kind of like I said, high single-digit growth that we saw there in the most recent quarter. So that's how I'd frame it up, really a continuation of the same that we saw this quarter, with just the further uncertainty and the potential for market contraction centered around that midpoint.

David K. Wells: In the overall markets.

David K. Wells: So we'll work to offset that obviously with you go to the continued push on some of the opportunities in the stronger booking trends that we are seeing in that engineered solutions base, where for the first time in about seven quarters. We did see kind of a one to one book to bill ratio. So that was encouraging as we've seen some of those you know order trends come back.

David K. Wells: Which have continued to supplement some of that news longer flow control, you know kind of like I said high single digit.

David K. Wells: The growth that we saw there in the most recent quarter. So that's how I'd frame. It up you know really continuation of the same that we saw this quarter with the you know just need to further uncertainty and there's a potential for the market contraction centered around that midpoint.

Speaker Change: Yeah, I think yeah.

David K. Wells: Further into it, Ken, if we look at the detail, we think the service centers in that could be flat, up a low single digit, but while the engineered solution segment perhaps down a low single digit as we take it forward. So there's sequential improvement at the midpoint, but probably slightly less, maybe 100 basis points below that normal seasonal pattern.

Speaker Change: Yeah, I'd say further into account if we look at the detail, we think the service centers and that could be flat.

David K. Wells: Up low single digit, but while the engineered solutions segment, perhaps down low single digits as we take it forward. So there's sequential improvement.

David K. Wells: At the midpoint, but probably slightly less maybe 100 basis points below that normal seasonal pattern.

Ken Newman: Understood that's very helpful.

Ken Newman: I understand. That's very helpful.

Neil A. Schrimsher: For my second question, just going back to COPAR, you know, I think this may be one of the first deals that you've made that's really focused on the Mexican market. I'm just curious, how large of an opportunity Mexico is for you? Should we think about this deal or view it as a modest shift toward focusing more on the international market rather than the U.S., North American market?

Speaker Change: For my second question, just going back to co bar.

Neil A. Schrimsher: I think this maybe one of the first deals that you've made that's really focused on the Mexican market I'm just curious.

Neil A. Schrimsher: How large of an opportunity in Mexico for you and.

Neil A. Schrimsher: How should we think about this deal or view it as a modest shift for.

Neil A. Schrimsher: Focusing more on the international market rather than.

Neil A. Schrimsher: The U S North American market.

Neil A. Schrimsher: You know, I'll start by saying one, we're excited about the addition. We see a lot of alignment from a strategy standpoint. We have a common approach to thinking about vision and robotics and linear motion and connectivity.

Speaker Change: Well I'll start and saying Hey, one we're.

Neil A. Schrimsher: Cited about the addition, we say a lot of alignment from a strategy standpoint, I mean, we have a common approach and thinking about our vision and robotics and linear motion and connectivity.

Neil A. Schrimsher: Teams have known one another for an extended period of time now, and so we see a lot of growth opportunities. Back to earlier, the economy in Mexico, and the amount of foreign direct investment coming in. So we think that is very positive. We've said for a while, our focus clearly remains on our U.S. opportunities in North America. And in time, we'd like to add to our capabilities outside of the U.S. in North America with automation and some of the other engineered solutions areas. So it's a logical extension, but we still will remain to have a clear U.S. North America focus because the market back, that's where we see significant opportunity.

Neil A. Schrimsher: Our teams have known one another for an extended period of time now and so we see a lot of growth opportunity back to the earlier.

Neil A. Schrimsher: The economy in Mexico, the amount of foreign direct investment coming in.

Neil A. Schrimsher: So we think that it is very positive we've said for a while our focus.

Neil A. Schrimsher: Clearly remains on our U S opportunities in U S. North America and in time, we'd like to add to our capabilities outside of the U S and North America with with automation and some of the other engineered solutions areas. So.

Neil A. Schrimsher: It's a logical extension, but we still will remain to have a clear U S. U S. North America focused cause market back, that's where we see significant opportunities.

Neil A. Schrimsher: Yes.

Neil A. Schrimsher: Yes.

Ken Newman: Maybe if I could just squeeze one more in here on the automation business, specifically, where is that run rating and revenue today? Do you have a sense of when sales will start to bottom out?

Speaker Change: Maybe if I could just squeeze one more in here on.

Ken Newman: On the automation business.

Ken Newman: Specifically.

Ken Newman: Or is that run rating in revenue today and do you have a sense of when sales there starts to bottom out.

Neil A. Schrimsher: We think they probably sales or could be similar in the fourth quarter. So in this last quarter, we were a mid single-digit decline in that side. If I look at pre-order or order activity, what our sales engineers are involved with, projects that our application engineers are working on, the cooperation, and the opportunities that our service centers are opening up on that side. We think as we go into fiscal 25, there will be a return to growth in that segment.

Ken Newman: We think they are probably sales or could be would be similar in the fourth quarter and so in this last quarter. We were mid single digit decline in that side, if I look at.

Neil A. Schrimsher: Pre or order activity what ourselves engineers are involved with projects that our application engineers are working with the cooperation the opportunities at our service centers are opening up on that side, we think as we go into.

Neil A. Schrimsher: Fiscal 'twenty five.

Neil A. Schrimsher: There's a return to growth in that segment that we look down below in some of those product groups, we think theres going to be more and more mobile robotics opportunity in that side. So I think that's what we would expect going forward we entered the fiscal.

Neil A. Schrimsher: If we look down below in some of those product groups, we think there's going to be more and more mobile robotics opportunities on that side. So I think that's what we would expect going forward. We entered the fiscal year at probably a run rate of a couple hundred million with automation.

Neil A. Schrimsher: Fiscal year.

Neil A. Schrimsher: At play at a run rate of a couple of hundred million with automation, obviously as we progress forward and move towards closure with co par will add to that $60 million of sales.

Neil A. Schrimsher: Obviously, as we progress forward and move towards closure with COPAR, we'll add to that 60 million dollars of sales or so on that side. So we continue to scale this business. We'll look for opportunities to organically grow. We've green-filled in a couple of geographies, and so we'll also look at, perhaps, right acquisition opportunities to further build out that footprint and platform. But we're encouraged by it, as we are with the amount of automation that exists in some of our other parts of engineered solutions right now, because there are elements of that that reside in fluid power, but also our flow control as well. I just remind you, Ken, we did say on the—

Neil A. Schrimsher: Sales or so in that side. So we continue to scale. This business, we will look for opportunities to organically grow.

Neil A. Schrimsher: Greenfield in a couple of geographies and so we will also look at perhaps right acquisition opportunities to further build out that footprint and our platform, but we're encouraged by it.

Neil A. Schrimsher: As we are with the amount of.

Neil A. Schrimsher: Automation that exist in some of our other smarts of engineered solutions right now because there's elements of that that reside in.

Neil A. Schrimsher: Fluid power, but also our flow control as well.

Speaker Change: Just remind you Ken we did say on the prepared remarks that the sequentially your automation shipments were ruined.

David K. Wells: I just remind you, Ken, we did say on the shared merits that the, you know, sequentially, the automation shipments were really in line with small Q2. So it feels like, you know, we've seen that trough as a, you know, did see stronger order intake, you know, that, you know, kind of one-to-one parity obviously with the, as we talked about with the shipments in the quarter. So that was a positive sign. So, you know, hopefully, we've seen that through, and, you know, do you see some improvement given some of the booking rates and the project quotation activity that we're still enjoying right now?

David K. Wells: Q2, so it feels like you know we've seen seeing that trough. They said you did see stronger order intake that you got.

David K. Wells: One to one parity obviously with the as we talked about with the the shipments in the quarter. So that was a positive sign so hopefully we've seen that trough and do you see some improvement given some of the the booking rates and the project quotation activity that we're still enjoying right now.

Operator: The next question comes from the line of Chris Dankert with Loop Capital. Your line is now open.

David K. Wells: Okay.

Christopher M. Dankert: Great. Thanks.

Operator: Okay.

Operator: The next question comes from the line of Chris Dankert with loop capital. Your line is now open.

Christopher M. Dankert: Hey, good morning, guys. Thanks for taking the question.

Christopher M. Dankert: Hey, morning, guys. Thanks for taking the question. I guess just first off, you know, definitely not a principally backlog-driven business, but is backlog still kind of 2x what the normal level is for engineered solutions and so on? And if so, is there any kind of bottleneck still slowing down some of those shipments from moving forward here?

Christopher M. Dankert: I guess just first off.

Speaker Change: Obviously not.

Christopher M. Dankert: Principally backlog driven business, but.

Christopher M. Dankert: Is backlog still kind of.

Christopher M. Dankert: <unk>, what the normal level is in engineered solutions and if so is there any kind of bottleneck kind of still slowing down some of those shipments from from moving forward here.

Speaker Change: It is go ahead sir.

Neil A. Schrimsher: I would say yes. It's still running at, if we think about it, pre-pandemic levels of 2X normalized backlog, so that is encouraging. There are probably pockets where some things could be held up by some component or assembly or where the solution fits in the overall project with a customer on that side, so there could be some of that, but we view the backlog at its level constructive. We touched on in the remarks flow control added to it in that side, so we think there's a productive base to operate from, and we would think that orderly works its way out as we look forward, especially as we go into 2025.

Speaker Change: I would say yes.

Neil A. Schrimsher: It's still running at that we think about it pre pandemic levels of <unk> normalized backlog so that is encouraging.

Neil A. Schrimsher: Despite pockets that are some things could be held up by.

Neil A. Schrimsher: Some component or assembly or where the the the.

Neil A. Schrimsher: Solution fits in the overall project with a customer in that in that side. So there could be some of that but.

Neil A. Schrimsher: But we view the the backlog at its level constructive you know hey, we touched on.

Neil A. Schrimsher: In the remarks, our flow control added to it and in that side. So we think theres a productive base to operate from and we would think that orderly works its way out as we look forward, especially as we go into 'twenty five.

Christopher M. Dankert: Got it. Got it. Makes sense. And then, just anything to write home about in terms of the Northwest facility expansion, any update on the facility there?

Speaker Change: Got it got it makes sense.

Christopher M. Dankert: And then just anything to write home about in terms of the northwest facility expansion any update on the facility there.

Christopher M. Dankert: Continued to make good progress in that side will move to a beneficial occupancy soon.

Neil A. Schrimsher: Continue to make good progress on that side. We'll move to beneficial occupancy soon on that, and so we're encouraged by that progress as well as, you know, Dave mentioned one other that we have in the fluid power space as well. So they're good projects. They take a little bit of time, effort, focus, and attention. I appreciate the resources that are working on it. You know, some of that expense creeps into the results for the quarter, but we think those are very important investments to be making in the automation, in the technology, and in the support of the semiconductor buildout overall. So good progress, and perhaps we'll look forward to showing it to a few in the coming period. Yeah, yeah, you say...

Neil A. Schrimsher: Into that and so we're encouraged by it by that progress as well as you know Dave mentioned, one other that we have in the in the fluid power space as well so they're good projects they take a little bit of time effort focus and attention. Appreciate the resources that are working on it some of that expense creeps in to the results.

Neil A. Schrimsher: Into the quarter, but we think those are very much investments to be making in our in the automation and the technology and the support of the semiconductor build out overall so good good good progress and.

Neil A. Schrimsher: Perhaps we will look forward to showing it to a few in the in the coming periods.

Christopher M. Dankert: Yeah, exciting developments for sure. Well, thank you, fellows, and best of luck finishing out the year here. The next question comes from the line of Aaron Reid with North

Speaker Change: Yeah, Jake exciting developments for sure well thank you Paolo.

Aaron Reid: Best of luck, finishing out the year here.

Christopher M. Dankert: Yes.

Christopher M. Dankert: Yeah.

Aaron Reid: The next question comes from the line of Erin Reed with North Coast Research. Please ask your question.

Operator: The next question comes from the line of Aaron Reed with North Coast Research. Please ask your question.

Aaron Reid: Great. Thanks for taking my question, just taking a step back and looking at broader here.

Aaron Reid: Can you speak on really what youre seeing in terms of on the inflation front I know some of your competitors are seeing it come down quite a bit what is your experience and kind of what are you seeing right now.

Aaron Reed: Yeah, I would say, I mean, we will have continued expectations for inflation. And so if I look at, obviously, down from the pandemic-driven inflationary periods, but if I look at prior to that, the number of increases are similar, right? Suppliers are getting orderly on that, but the rate of the increase is higher. And I think perhaps that could translate, you know, roughly 100 basis points more with the rate of the increase on the other side.

Aaron Reed: Yeah, I would say I mean, we will have continued expectations for inflation and so if I look at.

Aaron Reed: Obviously down from the pandemic driven type of inflationary periods, but if I look at prior to that the the number of increases are similar right suppliers getting orderly on that but the rate of the increase is higher and I think perhaps that could translate.

Aaron Reed: You know roughly 100 basis points more with the rate of the increase in the side and and I can't contend there's going to be continued inflation into the business.

Aaron Reed: And I can contend there's going to be continued inflation in the business looking forward. While material inputs may soften or abate to a degree, the labor side of that has not. The general G and A type expenses of medical and some other things have not been as good on those fronts. So from our side, we continue to see supplier increases. The pace is, you know, more normalized in that perhaps the amount of the increase is slightly higher than it has been by historical standards. We're still reading through some of the...

Aaron Reed: Looking forward while.

Aaron Reed: Material inputs may soften or abate to a degree the labor side of that has not.

Aaron Reed: The general G&A type expenses of medical and some other things have not in those fronts. So from our side. We continue to see a supplier increases the pace is a more normalized and that perhaps the amount of the increase slightly higher than they are.

Aaron Reed: Ben by historical standards.

Aaron Reed: Which still read through to some of the higher LIFO expense that we talked about in the quarter, a little bit higher than expectation. So you know we.

David K. Wells: which still read through to some of the higher LIFO expense that we talked about in the quarter, a little bit higher than expectations. So, you know, we historically hear again, kind of nice steady inflation like this, very good for industrial distributors, who have demonstrated the capability of taking that, you know, passing it on. Just a reminder, but it does not necessarily always come in the form of price. There are some offsets to the degree that, you know, we have strategic or large national accounts where we've got contractual pricing.

David K. Wells: We historically here again kind of nice steady inflation like this you know very good for industrial distributors have demonstrated the capability of taking that passionate on just remind everybody that does not necessarily always come in the form of price. There are some offsets to the degree that we have.

David K. Wells: <unk>, our large national accounts, where we've got some contractual pricing.

David K. Wells: You know, our key suppliers will work with us to absorb those price increases for the interim and make us whole so that we're not, you know, seeing that. So, it doesn't necessarily read through as a one-to-one comparison of prices, but certainly, Neil indicated that we are seeing that steady inflation continue, which is overall positive for the business.

David K. Wells: Our key suppliers will work with us to absorb those price increases for the interim and make us whole so that we're not.

David K. Wells: Seeing that so don't necessarily read through as a one to one to price, but certainly.

David K. Wells: New indicated see that steady inflation continue which overall is a positive for the business.

Speaker Change: Okay, great. Thank you.

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

Schrimsher: Thank you.

Neil A. Schrimsher: Yeah.

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

Neil A. Schrimsher: I just want to thank everyone for joining us today, and we look forward to talking with you throughout the quarter. Thanks.

Schrimsher: Just wanted to thank everyone for joining us today, and we look forward to talking with you throughout the quarter.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Neil A. Schrimsher: Thanks.

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

Operator: Okay.

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