AIT - Earnings call transcript Q4 2020 | Applied Industrial Technologies, Inc.

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Operator

Welcome to the Fiscal 2020 Fourth Quarter Earnings Call for Applied Industrial Technologies. My name is Michelle and I will 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. Please note that this conference is being recorded. the and to Treasury. turn of Cieslak, now Relations Investor will call Ryan over Director I Ryan, may you begin.

Ryan D. Cieslak

release deck Thanks, Michelle. Both Investor morning, earnings Relations This on of the supplemental And good available applied.com. morning we to these documents section issued in quarter of our fourth detailing everyone are call. and results. investor the our

sectors our the based results other in Before potential revise trends certain and those statements. strategy, statements. geographies, All materially forward-looking obligation outlook differ undertakes and we begin, of make COVID-XX to the expressed Actual the just or from business subject a to statements impact factors. reminder, company forward-looking on are pandemic, the publicly forward-looking success we'll The any risk risks, statement. as expectations including from in and discuss our business well may current forward-looking no update as

measures, qualifications In non-GAAP use addition, subject financial documents. are conference those the call the in which to will referenced

include Neil to Neil. and Financial I'll over it speakers Wells, Chief turn Officer. With Our Chief Dave and Schrimsher, our today Officer; that, Executive President Applied's

Neil A. Schrimsher

and up fluid COVID-XX final Thanks, And we pandemic On financials some as start your brief you particularly XXXX. on for response and our our take quarter Dave specifics supplier to support to update, pandemic as to on want responded, will what environment. and across inspiring our this from I'll over team with well remain and to see the seeing follow fiscal our thank of behalf are slower Ryan, stepped focused strong summary well. thoughts. and customer demand the It's families challenge then markets. in we're driving with hope past effort months managing manage and as our Applied some what we to our business an proud safe accomplished base. close including healthy, a our and and and ongoing how core of environment today team at I several with we've across outlook. a fourth end good face we've actions we've collectively in and their I'll to morning, the how throughout value entire unprecedented first everyone. a within our Applied, our operational of entire I'm moment the

our supply associates, our Our to partners and facilities chain. our safety adjust as us and have and and top to efficient. fulfillment swiftly remains centers local COVID-XX embedded allowing various open continues of customers, remains to our pandemic All adapted requirements priority business solidify well-being our operations the our measures the evolve. We've suppliers, and remained operations at and customers' distribution centers service quickly

sales made years, and communication our resilient many apparent effectively capabilities. recent we facets across of team The control critical and sciences leading of essential integration power solutions, well as life driving and food supporting and pneumatic pulp break/fix applications areas industries as electronic MRO safety paper, nature shown leveraging multi-channel has system in of technology, such as model company operating to agriculture, virtual tremendous including and motion for control Our investments sustainability. precision fluid greater provide from various value and throughout the platforms, solutions products flexibility, our and beverage, is our proposition

leading control, power, also and We're at penetrating in productivity who across control We're environment identifying encouraged our requirements Controls' and flow through several strengthened traditional in initial next-generation and position solutions. aimed network activity our by automation at solutions quarters. automation connecting gaining Of experiencing also Controls, Service products we Center traction our legacy sales customer opportunities past over with opportunity capabilities the focused Olympus industries. are COVID-XX Olympus flow base. further safety Center solutions are team across progress note, automation, our Our consumable fluid greater addressing on is our quoting Service cross-selling by the further and across greater and developing of

are Our awareness the various customers fiscal already we production direct as XXXX drive cycles with particularly providers driving look accounts, customer infrastructure. is cross-selling beyond. meaningful cross-functional and to critical consolidate and at opportunity, growth believe laying foundation their the innings We're to this that into environment a should greater of strategic more that teams in is still spend early fewer capable which and are incremental

backdrop entire team past the several evolving powerful business our has over Applied months, the through and Importantly shown durability.

manage slower encouraged Our by us cash and liquidity solid which to align fiscal driving our operating and fourth the the working in cost generation, decremental quickly expenses and mid-teen We're fiscal within improve across months, record execution during provides recent have environment, team allowed discipline quarter. entering XXXX. footing capital our actions prompt margins,

month, pronounced our generally markets. rates. in as across expected, slightly rate a comparisons end quarter fourth mid-teens demand Weakness project As By transportation. broader remained XXXX reduced underlying April and year-over-year May teens the manufacturing implemented low throughout remains and followed date in organic heavy characterize production, our seasonal includes declined many as percentage improvement sales sales slight would a month are environment to as XXs despite deferred by daily to sales progression, customers This fiscal core sales in our during June by during activity. by of stronger quarter Organic decline oil closed stable metals, machinery, May. percentage year When orders, daily gas, facilities, down and by year-over-year. challenging and industries since percent considering we high bottoming sequential such of first and shelter-in-place a a typical prior

facilities bringing adjustments pace balanced the to capital following gradual back schedules are discipline. recent customers remains months, shutdowns and by working more online in While and production

fiscal selling noting, centers since starting improved during activity and service from XXXX. heavy our sales maintenance We're In in less to however, addition, of July. see have some greater customers early business product while our positive a in of represents worth amounts category small are, gradually order than to There we industry supplies our recent COVID-XX, and safety demand janitorial across are customers. given and weeks of rates break/fix signs this greater particular portion X% was overall

As orders depleted, regains our visibility of was uncertainties production following remains deferrals indicators – PMI, and operations industrial still critical and activity continue worst typically exists the manage buffer our is outlook. during improving with on believe pre-buying core behind which to firming, across our increased is us. and what We as April. such we will Combined That requirements we unusual business. customer a is be following and as some believe ramps pandemic, macro and as the consumables gradually infrastructure. limited production of stock around said, safety sentiment recovery pandemic-driven and a believe still industrial business, evolving industrial Ultimately, idle period maintenance production and like our prolonged speed momentum, around meaningful, customers equipment lead

business actions As to remain are preserving early value into possible recovery managing opportunity and quarter, expenses evolve. are appropriate With the our reductions signs approach these sheet where These model proactively fiscal remain bring we such, position, them last XXXX. growth to fourth given requirements as our actions cycle we strong and quarter continues jobs. easy and not temporary will we soon in furloughs as focused to our reverse business fiscal offensive in forward. inherent of actions as cost That intend showing will XXXX. take our extending going our a as associates pay and organization to into a our we initial durability balance disciplined We and ahead, the on various include align said, and this conditions while understand current we outlined to an

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

David K. Wells

Neil. Thanks

provide remind financial Before XX.X% reference. decreased deck performance factors, selling Investors year your supplemental a which results, with an discussion X%. additional that organic for these foreign consolidated everyone fourth days I impact and the of is quarter key X.X% will available more a detail investor partially site XX.X% our quarter. at sales year-over-year. begin on over like approximately by in Netting I points To decreased basis currency our sales of Acquisitions number unfavorable offset growth contributed prior recaps an

segment Flow by declined as end on of Turning Control precautions reflecting prior or drove MRO our needs On electronics organic partially acute was with sales the base on and particularly XX.X%, mobile Lower XXXX across as by industrial Olympus declined year-over-year, well XX.X% Center Australian industrial sales customer Power as sales market within Flow more lower as Service Service Fluid industries, metals, acquisition during and from the within operations. sales growth gas, offset X majority segment machinery our within well Center X.X% to OEM of activity. Within Fluid weaker This Power applications, XX.X% highlighted sales production COVID-XX forestry, deck, slower the and & within August from and Weakness reduced in our basis. growth. over growth offset year off-highway and quarter. project in the end organic chemical contributing Power our basis, sales paper, sales demand Control performance food Controls beverage, closures decreased pulp in quarter. as quarter, Fluid X technology points our of an an resilient the segment, partially by during markets, slide was oil X facility activity and transportation mining, and segment customer and the

margin year-over-year compared tied with segment in points was levels mix headwinds million year-over-year Gross expense the & performance XX Moving mix Fluid across a points price/cost of now to non-cash partially margin positive vendor in page of of our quarter. balanced our to performance. expectations greater lower declines, primarily Control highlighted coupled as our as $X.X basis by margin favorably performance, business These roughly lower as well reflecting prior XX.X% sales with XX to accounts, project attributed deck, Service margin or with dynamics were when This Power excluding Flow gross $X.X year softer initiatives, to declined X LIFO stable expense LIFO our volumes. on unfavorable line Canadian largely of operations, Center and the of approximately support million. expansion in softer of local margin basis

products, While driving benefits expansionary service-oriented expansion as our our strategic we expect demand margin contribution to on annual local remain solutions, of across some the term, growth investments, technical headwinds normalize, business to persist gross and these positive customer from systems expand focused we near from our levels of base. initiatives reflecting

over XX.X% costs, which our declined and distribution, the in exit Center include of operating Olympus facility in the on quarter, of related costs demand and declined actions $X.X Control million to when to associated basis, administrative weaker year in Fluid and expense recorded Power million Service acquisition. an costs & our XX% an prior was segment. adjusted selling, in our environment. expenses the These severance year-over-year million SG&A excluding with operating costs to implemented segment, excluding our on nearly $X $X.X Adjusted basis Turning costs Flow organic response non-routine Controls

highlighted staffing as well and we demand. slower overtime As various last the to consulting (XX:XX:XX), the quarter, of reductions and temporary spend furloughs, implementation actions align include company's labor, and T&E, suspension restricting expenses XXX(k) pay implemented match. with These as of temporary alignments,

these While executed across swiftly materially difficult, our organization. team displayed the great and discipline requirements

As a as temporary both structural actions this reminder, to mix a assess continue the we includes of environment. cost and

will have remain and costs $XX.X our fiscal fiscal in effectively in $XX.X roughly year a while which per On or prior continues be outlook X% $XX.X basis, strategic of net income term reported share, focused first GAAP look down respond basis. and per the the demand million, these costs, non-GAAP net as quarter XXXX. to million, $X.X and alignments referenced or down the as margin With cost expense prior-year temporary we XX% or execute non-cash of the per unfold. to still share, we LIFO of basis, excluding current $XX into cost we On million was EBITDA a into and requirements adjusted actions these reported costs quarter the on to balancing income our quarter. first near we non-routine million includes ramp initiatives pre-tax EBITDA on adjusted uncertain, million, $X.XX previously recovery in X.X%, the of $X.XX That soft managing $X.XX said, our the respectively, was in a to share, excluding growth or Adjusted quarter. $XX.X on compared quarter, half we million extended

to liquidity. flow and cash Moving our performance

activities income. operating was During cash the while fourth or million, $XXX.X quarter, from generated free million cash nearly was times X adjusted $XXX.X flow net

$XXX net our and million, of For model. cash in full income million as as the of working year capital and adjusted XX% initiatives The we business our flow ongoing full strong performance reflects generated cash free the XXX% up year over contribution flow quarter countercyclical fiscal of well during record from cash of profile year. the XXXX, the $XXX representing prior

in US held Given on the we million with hand, strong cash over XX% the nearly ended with that flow unrestricted performance $XXX of June cash. quarter, of cash

Our prior below leverage and the net the EBITDA X.X of of prior X.X times level year over year level debt is and down stood times XX% the net at at quarter end, adjusted X.X times. prior quarter

are in We the with performance. covenants across flow our solid cushion of cash end following the quarter financial compliance of at June

into XXXX. July, of fixed note, to million $XX pay fiscal will cash the we excess that savings had due. utilized X.X% rate, private The cash a pay-down a During came note off drive interest placement additional the which

since including within of paid We have months. million past debt the $XXX seven XXXX, early million down now $XX roughly

undrawn and down incremental will private paying an of $XXX M&A accordion $XXX In a with related our though capacity pipeline remain uncommitted in liquidity deployment revolver addition, our on focus million and capacity remain opportunistically initiatives we remains and Capital to Combined on positive shelf million our facility, active. with preserving near continue term liquidity additional position. option. debt, approximately

customers remains into that remains from our are now in proceed of bolt-on focus with at press guidance align and Control full year months. on and our formal around how particularly to Our outlook, we refraining our point noted Power, targets release, fiscal an on impact Visibility Flow financial pandemic. fall due wave winter as priorities uncertainty COVID-XX materializes XXXX opportunities. automation growth will including the if infections limited Transitioning to operations, additional providing Fluid smaller this ongoing the of the with

as believe we considering nature provide our with declines a we on when decline to-date be such trends & demand as guidance and to sales greater XXXX organic and clarity trending backdrop, in macro organically appropriate, the downturn. assuming particularly near-term operations it's This the first Control of directional are remains consistent quarter, XX% our includes August segment early pending assumption As of quarter more mid-teen and July that Center transparent of productive this declines Power the our an Flow Service trajectory, on underlying With high-teens for the unique in remainder fiscal expect to segment. XX% year-over-year. to Fluid how

of This from an quarter have Olympus the a benchmark reminder, we a acquired was use As we operational recovery. sales At the will into growth actions around margin half and high-teen we XXXX. roughly requirements a Controls as and appropriate which of inorganic level, mid-August consideration our near-term. decremental position in takes cost contribution emerging believe still is to

the return historical declines with are full the frame would your In average of and until reference and this Again, improve certainly of daily addition quarter. of year-over-year year broader cycle, provide fourth our with fiscal are our of consistent can year to our a that initiatives patterns assumes assuming the daily going second modeling, forward. depending in historical not sequential fiscal similar direction rates materially direction to industrial to on for the sales patterns and some the growth economy, seasonal trends, execution a organic half sales growth sequential sales this year-over-year vary imply trends in do

moderation is flow to assumption expect year, our effective appropriate seasonality, fourth softer near first of half Lastly, as perspective, sequentially typically cash our near quarter term. modest we record level XX% From free cash the reflecting an we tax believe XX% from mind term. in a of remains such, an rate in keep fiscal generation

the to the recovery as plays greater look and we potentially growth the recovery capital of out. requirements expect year the XXXX, also support in fiscal working as We

CapEx will turn recent at our initiatives million back income. cash and in profile comments. provides fiscal encouraged remain free capital cash final target including potential limited flow XXXX requirements strong remain improving and by forward for and of Our confident least our call are XXXX our normalized $XX that, at the net we capital margin cash million targeted to XXX% I $XX working capital to some Overall, with performance, from annual of Neil evidence profile, reiterate now of over going further With years. generation spend. fiscal of in cash We benefits which our

Neil A. Schrimsher

Dave. Thanks,

opportunity XXXX, a as our as and we position industry fiscal As significant leading a enter we distributor see leverage ahead new around opportunities. growth we technical emerging

relative While trends, company well provide the headwinds will adapting considering cash production generational and on focused believe generation, initiatives US opportunity aimed technical a and business accelerated, facing now ongoing, for as us, model the This to navigate and if in the greatest near-term economy at returns while our we're strategic customers' needs, our we demonstrated positioning foundation greater our fourth on as our through years. we industrial coming stronger challenge strong generates consolidation free a in quarter. of the industrial organic likely significant have in cross-selling improved the a cycle adapts growth potential transitions not requirements, our throughout remarkably support greater increasing from that industry staying and capital I years. to in strongly potential legacy coming cash is front pandemic,

of growth investments solidify our margins. EBITDA and term, of sales billion $X.X expand with to our remain years. solutions unique chain. in initiatives, a coming We Our shared from our comprehensive a systems puts further supply and our plan these to into connected from leading targets leveraging technical emerging emerge an to opportunities, margins Long and we ability areas expansion ever to us sophisticated, services our automated, combined tailwinds. growth leverage excellence growth as will value of suite model, proposition of we beneficiary products XX% position These operational and financial committed in more expand our as in industrial

suppliers, we dependent strategy trajectory, our goals they within framework are of is the value reach these and for Applied's the going the While industrial on as I timing significant provide cycle creation believe Industry execute our flow is X.X solutions. leading standalone distributor with across customers message and industrial motion, of automation next are capabilities growing and To our and technologies the power forward. clear, we generation

have capabilities, greatest vital commitment engineered and and portfolio to this track We comprehensive premier record solution service consistency the most of and space. technical expertise,

you here partner Applied for products developing channel return to on and We industrial enhancing solidifying serve the supply critical during solutions. again, up and environment for will imminent investing you focused chain questions. we your Once open the with moving be are for forward. that, these best-in-class unique support. thank we'll and for talent, times We're fast future, dynamic as going your and what continued the with And and lines

Operator

you. Thank

We will session. now begin the question-and-answer

comes from question Quinn from first Your Fredrickson Baird.

is line open. Your

Quinn T. Fredrickson

guys. Good morning, Hey.

Neil A. Schrimsher

Good morning.

Quinn T. Fredrickson

a So, trends stayed in my just Flow like Fluid Center steady. since first question and Center on of recovery? Flow seen seems whereas in business the Service Is It Service that has kind of April function or the is the reasons just the hasn't heavy momentum the the Fluid Power of has business. have mix been than Power Service of of in recovery Center industries Control that in local Service Centers the same customers any more or why Control, your most other & &

Neil A. Schrimsher

the industries. I'll presence say would one I would the with participation start. heavy and be

oil some shelter-in-place from some been little and rates little various we've improvements it varieties. (XX:XX:XX) have seen across the that customers and so, back, do a metals, the heavy gone And to and have And we about of that and been coming mining, and there. the in perhaps gradual slower the trends, the but then, order gas, has year, of modest through. beginning local customers a as transportation we fiscal be Since participation think machinery,

Service correct Center. that you thinking is an So, are on in input

Quinn T. Fredrickson

gross Okay. near-term you on Thank any secondly the just could color margin, And you. outlook. on just provide

got and mix in customers. year-over-year Would of some higher tailwinds a expectation further first obviously be that sales You've slightly continued recovery still the but product that basis plus margin maybe volume quarter? down is point local sequentially on your in gross

Neil A. Schrimsher

year-over-year mix I we through local and is on to margins the as we would think sequentially accounts, I I challenging be we at a unchanged. unchanged. look comparison sequentially was little through relatively think think start look, would sequentially as it year, of gross probably I kind year. if through Yeah, we unchanged first the And good coming more probably but a start quarter. think as bit move ahead But the a If benchmark we last fiscal driver from go

David K. Wells

is just start that last we comp year-over-year XX.X% QX our were improve is see back. where elaborate that toughest as see the account some then year come mix fundamental we and local there that at but of still to to I'd again, expect trend

Quinn T. Fredrickson

guys. Okay. Thank you much, very

Neil A. Schrimsher

Thank you.

Operator

next Fargo. will Wells from come McGinn question And your from Michael

Your line open. is

Michael L. McGinn

Good morning, everybody. Good quarter.

Neil A. Schrimsher

Hi, Mike.

Michael L. McGinn

just through target. walk I want to margin incremental the

with and you high-teens structure what it additional temporary taking even me at the could that you stagnant or like seems you're on but the it's just below push cost mid-teens maybe Can actions So walk to that? decrementals. through why – math

David K. Wells

we've to of talked to, and some in the growth we're of if but left as a terms talked for XX% a We of bonus to in come. come as targets, nature will here some position in the you decremental that high-teens, so script, do have back that delivered in kind that in, we behind investments We quarter. costs of terms some reset not room caught recovery most recent also ourself things make on we've

in of QX. investments business So in high-teens a through that and the you versus why we're continuing still more strategic that's what some and like talking to looks that potentially make posted something see reading in terms we

Neil A. Schrimsher

in our responding little come these into the some them Yeah we say it to few our and back But of bit get travel and the now later of as to and find SG&A we're many more or the We're think them. starts to their to medical helping important that. reacting reoccur connected be There right way Michael, time is in period. think access just to on be I I'd participating it internal in associated there real see appointments that expense general We quarter. will normal plan some and to people customers. facilities view fourth will be fully than not we as one will routines, a and did

Michael L. McGinn

going just quick. in but improved, the maybe top the parts. line the just mentioned then quarter trending and how margin or you both to And FCX. said customers kind your was base well. top magnitude last I frame of on some just a of it line, is you the real affected we're your the restocked would Okay. some you down business think mid-teen Kind the Can back for to seeing in as Fluid down any dip – And little why there of seeing help mid-teens back here that be appreciated? Power,

David K. Wells

side business We've lot the not break/fix. this does I this demand. started business the Fluid or of say saw, a on don't (XX:XX:XX) stocking really just Control talked up around Center destocking of not I'd is But, and side picked XX% bit April. the the Power we more that think Service we to on in other especially randomness on phenomena a the deal previously a given of & it Flow great point probably stocking

there heavier and in some items protecting of a ordered was repetitive potential from to that had chain that – some again, bit We themselves Here, are customers just what may have April I think protect the come. uncertainty supply themselves. to disruption used and

that. business growth & the certainly, And the as posting side Flow Power Control. Fluid But just Service daily the Center business easier what trends comparisons as Flow the of that Control stable the comps demand stable seeing go some is that So, and rates. demand as the opposed slightly look very given is we're of Power I Fluid both sales project back improving and & comes to between you to nature at technical with based think (XX:XX:XX) we in stocking, destocking more that very

Ryan D. Cieslak

is this Mike, Ryan. Yeah.

Just Power to segment, mind that say, technology the first Power you second trend or are we nice keep even which and in mind, put comps what we comps that industrial business and the at cycle quarter also Dave look look get helping as quarter to and down the if within our in quarter say within we the this mid-teens Control fourth for you different easier is the right? why expect and providing Dave forward. and market, we the they & there, Fluid down and seen in year-over-year maybe we legacy Center As there. about, Flow to we to expansion (XX:XX:XX) We'd the Control business the is mentioned, we've that's do at segment when Service talked have do reinforce said comparisons on, Flow the the would & which Fluid balance growth of though, go in here organic have more segment segment, going the Power continue some Fluid a up difficult as But that that into versus to we be first in quarter, XX% quarter. expect the performance keep

Michael L. McGinn

was It's one really just great. right. last on me. flow All cash good. Free And then

in as it's working a frame guys? talking been since use just we Can restocking much like XXXX half? million working use? a and timeframe looks was like something larger that capital Or saw I you a think of for Are modest capital lowest XXXX. what $XX million, the percent (XX:XX:XX) $XX we for the are sales million more looking where we $XX you me mostly back

David K. Wells

We're to going our do best tools the at disposal. using our

in this time. I better think we're much position

we you build of couple net the where say, some at in If restocking terms look and back, of free income cash our did were coming volume. working of a as that of XX% that cycles XX% we last you some maybe to comes out of with capital of the look – at, kind

and continuing performance the be with As further around investments we of in our to of we've to balancing, able fund thoughtfully AR talked made the volume dues. in the again growth bring back to going script, inventory past that's the to and we're a still leverage with terms in That's the XXX%. to initiatives come targeting systems collections some continuing improvement

the from recovery, out this So, of the and still through about operating disciplined back but more be, and we demand that working able this the be I balanced we'll tug to capital half talked again much being cycle. and some thoughtful being think quarter. more with that the manage year, coming particularly see that There comes will as we of

Michael L. McGinn

I'll along. time. pass the Appreciate it

Neil A. Schrimsher

Thanks, Mike.

Operator

from next from & Your Sidoti Company. Joe question Mondillo comes

line is Your open.

Joseph L. Mondillo

morning. Good guys. Hi,

Just a capital follow and up on last that inventory question, working payables. both

help down your Could what So, XX% on And fared expect How to to payables do up there side, payables inventory XX%. the think and us revenue was you then inventory? being you the XX%. opportunity your quarter? about with you foresee inventory just were And going management forward? do over reduce in the going and down understand on more you what's

David K. Wells

Sure.

leverage think the we'll (XX:XX:XX) to had bring that and we with we through, address in some as kind we've see results, down decline the commensurate business. where seen. the we've of that inventory, investment balanced not of opportunities stocking in level to as sales we QX, across work Do have in That you that I was fully and first. like inventory the I traction continued the work still

So, we half through will still of we provide particularly of first work have some XXXX. for opportunities as cash that us source the some

payment of in terms. approach discipline we payable of about don't unusual anything was terms there see the – so or there trends the side, On in in change terms no

– of see of reading I that and kind inventory through. the purchases inventory So, a that as the commensurate function with

much like sequentially the programs, real I cetera, equation, the But terms like opportunity again, tough continued expect comes expansion, our quarter. working traction about due side payables help We've overall opportunity to terms us more of continue a obviously to environment, and the trends actually, continued down on to look have extend collection in some the quarters. of here et X% we'd around So, past inventories there that think as through, card to of use purchase made terms. as the in initiatives well in prior we've they the brought management despite the of

the and one pleased to So, of well. there that with performance team the we'll work continue as

Joseph L. Mondillo

forward? think of challenges. Okay. the Power I the Fluid you & The And then, Flow a for, in that than that looking margin fourth do considering better year-over-year going put very and margin a there How about up question expansion was the to how good think we Control sort quarter about on segment. comparisons was

David K. Wells

Sure.

that of business. our margin, terms mean, case at progress I of of showed gross a was FCX expansion synergy That and it's ongoing very that margin there. in of both the opportunities in Some margins improved one combination nice

again protect the We'll on of here us kind of of gross the there as still Control. nature the margin overall of we expect Power & reading Flow those through. both that bring forward. just move the technical that, sides margins expansion cost countermeasures of of as Some helps Fluid just some from we well kind value margin the benefit operating Certainly,

will but we Some will volume benefit of replace off recovery the temporary see that with roll benefit. as do

like business. continuing still improvement that prospects margin So for show operating in to our across

Joseph L. Mondillo

Just in sort like. talk as And the is guess The know driven looks backlog lastly more and Okay. maybe it. that quarter bit parts what in just you I that segment particular have to of little backlog of sort component come expecting to I little about a year-over-year have that the that visibility quarter? does that your backlog that far you're why of a first as of Did have that increase bit segment segment. a visibility throughout do and the the declines that down

David K. Wells

issue really that of terms a across comps about down position helped we've that It's still to talked in Ryan steady pretty backlog bit business. pretty I and that's of tech very we're seen again nicely as get of indicated, here buffer in quarter, but as comp come the to some benefit really starting we market hang think the to now year-over-year the provide stable tougher does in seeing more

Joseph L. Mondillo

then I to thinking about thinking that try continue guess your are to the you you me regarding How you're that. for managing And and year? down expect throughout we ramp down? debt consistently pay Okay. to the Should debt debt about last thing how

David K. Wells

mean, priority I sheet (XX:XX:XX) on leverage strategic a will in and as million $XXX the with still ended cash balance We the be our just Sure. this we of environment. position quarter. like

us on the the very requirements terms some modest talked be selective to M&A. give there pursue to call talked we capital as of still the kind the some and and deleveraging will script, bolt-on still flexibility We in M&A So priorities the is about of priorities active going the pipeline.

environment. able But as still et well. will M&A expect getting the disciplined we're out, some diligence, to work as sort cetera, back this be funnel in deleveraging of around priority a (XX:XX:XX) perform we So,

Joseph L. Mondillo

taking my for questions. Thanks Okay.

David K. Wells

Sure. Thanks, Joe.

Operator

Your next Research. from Uhlman question Adam come will from Cleveland

Your open. line is

Adam Uhlman

might can it morning. cost you for savings quarter? first – And missed Hey, the (XX:XX:XX) temporary place this can wanted of the being Hey, I entirety of have then past but debt guys. size the to magnitude Good in here your confirm you planning the quarter? on

Neil A. Schrimsher

thirds don't more had the duration decline of we're and the will specific really fully, them those for would of in say, two I Yeah. first quarter continue in. fourth but actions around size we the quarter were say, that the I really we would

will that think I so And help.

Adam Uhlman

a suspect speak probably Okay. your And wondering And lift you've programs that that that to lot of to then maybe there? shifted the breadth maybe any would have society scope a as more Got of to in and investment you seeing you guess channel. could I transactions e-commerce. whole in on you're that through you. has activity levels sales seen as I expand a was so that then offerings? channel I

Neil A. Schrimsher

Yeah.

electronic an (XX:XX:XX). I that ourselves customers follow think and side on we business with I have the includes say electronic XX% between doing given requirements in in so and customers (XX:XX:XX) mid-XXs, news bit is with and good interchange, investment the EDI, the connections a comes more capabilities from engaging would that, way, exist. systems, procurement doing up. applied.com, data or don't tools higher within also I But of that but believe the a little that standpoint,

a And teams and What could procurement more with ramp so is little onsite connection and teams we seeing that teams. also bit. engineering just virtual are

and present demand (XX:XX:XX) serve their we we are to requirements. while physically technology so, times, at And led generate could where

Adam Uhlman

the me, planned current thing And restructuring or any half? do you. you quarter got Okay, for for the last have costs additional the first

Neil A. Schrimsher

I that the cost time, on That's our how Personally, line and and customers our right Leadership we requirements we're will cost. in I and In that this look I at would meaningful. or team are now we reviews act on have say say, our to sessions we'll opportunities and on. they continue think stage where wouldn't focus. have in we know evaluate at continues lot where spending we fourth, effort, more and energy. cycle it will opportunities we're we're in and cash. rather opportunities again ahead the demonstrated our on We and as to growth us of those operate see a first. spending in time the to the

Adam Uhlman

you. Got you. Thank

Operator

from will Longbow next Dankert Your come from question Chris Research.

is line open. Your

Chris Dankert

kind in guys. break/fix this seeing idled manner, guess back unplanned morning, equipment that about some turns of an for Good of talking Thanks the question. been increased demand earlier taking some Hey. we've as was on. I

briefly just, way come in back than think mentioned I slower is you've have guess? turn any expected, I things to Or on? are starting you we prepared in like that bit it meaningful the back something But break/fix remarks. that demand see a as would

Neil A. Schrimsher

gradual. the has ramp think I been

And I think view including that shifts to they their may or as a whether customers long that time, industries see up is through. are that. these starts for production some schedules, little of be increases idled But starting as these some a we more demand being demand are as only industries to our heavy of related. down come virus back period comes still across bit equipment out adjust dealing to with time environment, or from

Chris Dankert

but I if of i's at of in you pricing guess. Understood. it. did And my it, missed dot there, the assume apologies on the I impact was then it comment Got Got But it. quarter? nominal. the kind I all just

Neil A. Schrimsher

inflationary on growth. offset the but overall negligible impact, It of was the impact in nominal, terms

Chris Dankert

to fourth SG&A in map of Got about willing you're that me Got something it the guess Is way of very seasonal here, the assumes think extent I right of kind here? put envelope a it. of the pieces a all trying together, these back off like kind impressive controlled And quarter the quarter up to level. it for (XX:XX:XX), it. SG&A of seems then, fashion comes comment to to first kind of to

David K. Wells

Yeah.

We we're that up. ramp between that's about. here is decremental starting travel, back talking versus expect mid-teens the difference cetera again high-teens the Once et to that the again,

So, there well to capture opportunity as QX the upside. we is in the we're work positioning some as, virtually to here investments none as ready sure make around that again, on

some of shut So, not our strategic on us projects have continue that will growth for (XX:XX:XX) funding our the drive pulling in we those not priorities future. see through and to

Chris Dankert

Got forward it. thanks Well, guys. good it. much, luck going here Got and so

David K. Wells

Thanks, Chris.

Operator

KeyBanc your (XX:XX:XX). come Barger [KeyBanc question Steve will And Capital Market from Capital next Markets] (sic) from

line Your open. is

Robert Stephen Barger

guys. morning, Good Thanks.

Neil A. Schrimsher

morning. Good

Robert Stephen Barger

of smaller confident about? be concerned you you're competition Back price from commentary your around typical pace aggressive that you improvement, are or retaining you should your of to Service kind share Center any competitors are seeing

Neil A. Schrimsher

overall to confident think cost with serve. we're is doing in think capability recognition broader I environment I it. on the good the productive in still

control, and I on also connected us. be Control just and but start Power we is products, ability those think to solutions, more the helping then that expertise connected Flow & for motion transmission have a now us then little think bearings, around to and with be I power Fluid bit even connected in be as automation

very now, position. our about good So feel we

Robert Stephen Barger

looks Great. and sure XQ XX%, is you the for rest step to sequential trough dynamics, dollars like XX% down XQ make is quarter the And down in XQ. from revenue of the to understand normal improvement do want But then it year? I I if you'll sequential the revenue have expect revenue the for

Neil A. Schrimsher

that these declines it in hold think the historical assuming I year-over-year would we to would materially fourth growth half quarter. would think we improve we kind as sales trends the and not return our until second see about then of

Robert Stephen Barger

Okay.

Ryan D. Cieslak

And is Steve, Ryan. this

the then back Just materially from to what really with improve be not half. where don't second quarter. patterns change the sequential the of for seeing will the on point more assumption the Neil's comment are assume that that, implies if an half, normal back the trends that change they because we comparisons we then into And really into year-over-year ultimately year-over-year the the then trend And much first from today. just

Robert Stephen Barger

wondering a it obviously stability bit down little changed mean starting this seen expect or that we've XQ kind is weakness if normally XQ. pattern year was that because like the this sounds I just minus? level plus of (XX:XX:XX) April. that in Yeah. in I you from of

Ryan D. Cieslak

Yeah.

our on we're improvement April, think as depending year-over-year would now, very about I assume you you that that is averages, would off sequential say mentioned the But, of that start right? if coming with, what point. a is on level, just deploying low again, dynamic fair as execution it on that's trend normal can I to growth no in assumption we right is think trend. certainly a the of strategies And that think cycle vary what I a the of half into post, guiding patterns material historical as how starting depending back

Robert Stephen Barger

part as Things. the six to strategy big evolved those of or past the helping your step integrate Internet from have commercial physical? the back five you Got you. Can of gears, you've customers automation, or to talk had months or Switching interactions about is efforts robotics, how a think over about customer

Neil A. Schrimsher

expand Well, connections, point, sometimes right, on, participation virtual expertise. physically you to they're sessions. are making we're can still when level really your sometimes your they and virtual And sessions, of

looking them for, our as and Applied they we're we Internet or and with program have automation working that to solve operations, Things (XX:XX:XX) discrete how we that think customers, So, problems of Connect deal they're about opportunities. discrete solutions with around can

in those inspection. bit little similar management, a to they've of environment. lets connect which experts them (XX:XX:XX) technology, robotics connect effectively, I helps in facilities of so, that traveling to handling; of it even helps vision around or this they remote which or type help safely productively, use that with And and data as look those their connectivity cleaning has as some just them this them, sites review the of things able do them they have on able techniques maybe quality And around like to some we're do people on material They're then and connecting their communications, maybe around encouraging to operating things. potential devices their more IT to go what can upon do or go remote for which use more relied to in and some whereas monitoring some social distancing them us through; past,

our things to And so, is coming more on. those Because in that technology, And those connecting with products. sensors, are we're the more capability working suppliers. more

interpreting items connect the specific we're needs performance and those and suppliers in data think part well be to customer reviewing from we to So, then positioned our of around them.

David K. Wells

missed think team terms hasn't the sales a of beat activity. in I our

of one virtually, they're Olympus of be engineers wider that be the pitches, a sales with net a able just and delivery. able because to cast making X – indicated he's One of do it here more being from our month reviews times efficient sales probably to the ago,

we've adapted some COVID So, of come to driving has growth. but had the I out well think learnings and this, environment still the team

Robert Stephen Barger

or curious in and you trying In capabilities they're increase likely just other words, Have seen to are, what a commensurate that then pitches? increase figure in closings are relative and people to the out we anything revert else? thinking get robotics, automation, to permanent do this change whatever, you people of vaccine a in how a or the are if think is about importance or vision driving

Neil A. Schrimsher

adoption. think I it's driving use around the more and and the the importance

we're mode go So, in presentation perpetual we feel like we as through. don't

with some slowed would we site help and projects got Now, as and have we we pull go on through. know commissioning that

be Now, we and will because ongoing meaningful. value quarter or of through. here go safety perhaps quarters individuals comfortable I people to it mean, it's stay more part we having with to into proposition. start ease But to we routines think future the We think is this think as are that's and going no,

Robert Stephen Barger

And me. for last one

learned – or about talking more terms based little you're productive what but how own You any digitizing? of about a customers your requirements? to you applying automating that bit Just their talked business from anything this already, in lessons to learned on that's you've making

Neil A. Schrimsher

Yeah.

missing we with or to of both Things productivity. technology beat as customers drive we're at improve as our our internal and not think products talk we using that the supplier as own So and do and about technology, we with Internet

we service think out But centers a what with can have that. help to with has up continue those things warehouse routines to those put of to like I quotes have I more those. pull been ups, done. for opportunities, feel flow that have of or manual out we'll tasks management, we've individuals always runway we quote services work think focus about of the connecting as customers and and practices help operations shared as on think follow material to still time and I we ourselves. we more nice and also and mundane free more technology some away, we spend and about in time a like or and

Robert Stephen Barger

good it. detail. a That's Thanks. Appreciate

Neil A. Schrimsher

you. Thank

Operator

next Michael your from from Fargo. Wells question come will And McGinn

open. is Your line

Michael L. McGinn

domestic, like the the what wanted color, been Thanks between what looks of just it follow-up, gap a to of Can your us the your where just for I some ask out currently positive one you seen today? for competitors, Any is has Center frame historically international and and recovery business business. about in international and trends the Service has guys. Inenco, Australia.

Neil A. Schrimsher

quarter and think Zealand, they to our and we've mentioned I Australia-New in now. Well, had have Australia, participate the continued team that in so growth

of So, is coming the team They, I the through. with think some too, very pandemic faring have well. dealt

days New on, Australia continue going think think operations But there. so XXX-plus has fared of very well. has I I Zealand string

local right, monitoring, So, and remote preventative we're seeing or we service fully offering our our participating grow continue capability including teams to trends see and we those activity and that predictive they, are And in come and that. maintenance too, as through.

Michael L. McGinn

Okay.

outlined, the both towards Center and other? that's is comment one you more So, weighted framework it or or by FP FQX growth the a a that Service

David K. Wells

understood sure Mike, I'm it. fully that you not repeat can we just question?

Michael L. McGinn

the Power Service by end that of Center case confirming to Fluid Center. peak the move growth Service bigger both the that's So, fiscal if would by trough quarter the would for year, I'm assuming fourth by growth apply a just you're the or... and

David K. Wells

we... Yeah,

Michael L. McGinn

sector. ...if it's more weighted one

David K. Wells

we we as fourth to a but as specific really trend year-over-year recovery into a we color in both materialize starting did expect not those fourth is give quarter. would to the would it's say basis get Yeah, segments relates quarter, because by the a segment around – of we on

Michael L. McGinn

from Okay. me. That's it Thanks.

Operator

showing remarks. turn Mr. call At closing this I time, Schrimsher no questions the over back I'm will to in queue. further for

Neil A. Schrimsher

simply interaction just throughout the the look to quarter. to thank and everyone continued time want we today the for taking I joining forward us

Operator

Thank and ladies participating. This you concludes for gentlemen. you, Thank today's conference.

disconnect. now may You

Applied Industrial (AIT) 12 Aug 202020 Q4 Earnings call transcript