Earnings call transcript Q2 2023

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Operator

Greetings and welcome to the Fiscal 2023 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Malika, 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. [Operator Instructions] 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 Cieslak

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

statement. certain reminder, forward-looking risks The to update outlook obligation and expectations statements. All publicly statements Before detailed based SEC business subject forward-looking uncertainties, in we from forward-looking no make filings. may and our expressed to begin, including revise those Actual statements. or we'll discuss in the undertakes just differ current are a those on our company forward-looking materially results any

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

President Our Chief Financial Schrimsher, and our Executive Officer; speakers Neil Chief today Dave Wells, Officer. include Applied's and

over I'll that, turn it to Neil. With

Neil Schrimsher

joining morning, Thanks good Ryan, us. and everyone. appreciate We you

with and highlights expectations going with I'll an with conditions raised some on and as well usual, provide our quarter's on as close the morning. update Dave I'll we've outlook on additional perspective will including then on of drivers begin our more forward. follow results, As guidance, financials key which industry the some detail this color and And thoughts. final

both exceeding in performance all our really XX% across businesses. had favorable sales we with overall, organic growth quarter So strengthened, solid another Year-over-year segments.

and continuous teams are exceptional Our improvement initiatives. managing an at driving doing job cost

XX%. quarterly of under to new a expanded margins record EBITDA We slightly

the time, continue enhancing service and over basis safety, talent, At have an to expanded for at years. invest future. our operational EBITDA our XXX we our in same three past over margins strength and further it Looking the the capabilities solutions points extended period, technology, nearly

year respective our and XX% EBITDA and levels. together over XX%, was sales, EPS XX%, prior Taken

facing we're comparisons these more reminder, a As difficult days.

of strong our noteworthy earnings and enhanced growth of power. sales So and growth indication level a to see and earnings profile is sustained this

optimizing history, to our a Applied for teams particularly their achieve X,XXX I and results. entire on these and positioning couple with team on and proud anniversary a focus we is want than for and to reflect progress our ago thank Applied exciting as ongoing world. effort more associates, our moment around very our including company's of gratifying the celebrating XXX-year weeks talented This

and will and our rich Our to every remain along strategy guiding who day work our advance our forward, culture technical and us going our to help supplier capabilities history industry. throughout and customers business framework a with leading our evolution partners valued serve

points opportunity detail So and forward. to emphasize a our few key to areas moving performance underpinning what's and more I want on provide

As strong demand, Sequential quarter areas we expectations. patterns, solid it many the trends including quarter. through relates rates our sales Sales underlying the throughout across positive during our momentum during business growth of saw held December. above exceeded and were to sustain seasonal or normal

While remains date. are order as yet any in areas slowing commentary markets to and expected, customer to some meaningful slowdown see we've normalized level fairly more and positive rates to

to broader growth evolution we're benefiting the and and facing which with long-term in this more prospects the of tailwinds. half to said, our we and years. growth industry-wide constructive in first currents impact performance strategy Of economy, activity view. recent remain no, cross ongoing mix position is That our the will business end multi-channel This of reinforcing believe we markets mindful diverse on our from tied a partially likely are We continue near-term.

labor spending, incremental stimulus from and to key resulting are favorably we force industrial government scarce reshoring aging including growth before, gaining and sector, secular growth American positioned highlighted technical we've capitalize across the As infrastructure spending. momentum trends, on North greater and opportunities

of elevated and meaningful considering technical backlogs. last reinforcing particularly production continue to capital customers is focused supply This production higher chains an spending, work through U.S. their equipment level maintenance and facilities. quarter, also within requirements a aged to Similar infrastructure. They're on embracing

Overall, Service, more reliability supporting and ever. are comprehensive is and for demand efficient access our solutions. maintenance to leading this brands engineering and suppliers’ than premium critical technologies

initiatives to executing tools driving on number identify also greater various and new more well. capture sales Ongoing We're and We're a our momentum talent opportunities. using of effectiveness. sales aimed investments internal at analytics process as salesforce to business continue supplement

to In emerging and traction solutions we initiatives our customers' meaningful cross-selling value The is initiatives facilities. addressing control labor offer process supporting from with addition, our solid safety robotic at suite our seeing today we're our flow products to proposition. technical technologies, full of maintenance

are for and problems across solutions supply they teams embrace and reassess More us as chain customers provider, as customers investments. leading labor technology and their solving assets supply multi-channels Our strategies our our our increasingly face a production required collaborating to more, reliability. recognize most constraints, valuable integral and chain

segment results the where for XX% Many initiatives quarter. growth our sales to of sales instrumental these third internal organic Center have growth Service exceeded been straight

There and In service a to supplier increases. price break-fix manufacturing focused centers through demand working productive backdrop addition, effectively MRO local our remain for on U.S. also support. related ongoing managing benefit and continue from inflationary pressures

in increases infrastructure customers. machinery from Gradual our are mining spending aggregate demand greater driving and

leading brands continue market offering also given capable is supplier This more arising spend support service consolidate motion We distributors around products our demanding notable and solutions. and opportunities their critical to growth local customers around believe technical requirements reliability. applications, are including powertrain relevant and in focus particularly as with

the some did and end during slowing and such lumber as select see We wood. milling markets metals, in quarter,

productive. and as customers However, booking budgets remain remain firm relatively levels in month date to generally January reset

cycles quarters, providing specific While cycles, coming exposed secular more does to manifest. slower if the believe potential to environment our in we activity tailwinds not and of production segment sales a immune slower Service in than level company is a industrial prior segment greater support and today Center is potentially

prior points Solution Backlog of XX% of and is increasing growth. from includes chain revenue basis meaningful solid previously with year-over-year, shortages. sales providing helping which point, in XXX Within by of year of over organic release signs segment, coverage quarter, shipments Engineered comp last cancellations Flow assemblies accelerated Fluid Control, XX% supply our offerings, no this our material Power, despite at the pent-up a Automation strength some various component system modest improvement is areas growth

remain our underlying growth power, core and prospects addition, favorable industrial fluid verticals. within In mobile off-highway

Our technical and Tier and in innovation from demand features of equipment. advanced into their greater smaller OEMs engineering capabilities they are rapid face accelerate as integration

electrification also the are We systems. cycle efficiency units, of customer systems and sustainability helping new to within enhancing fluid to and initiatives our from power integrate hydraulic overall design features and life power integral

are of and represent funnel for the emerging our they term. these we're business early area While positively in influencing the innings of potential an growth of development longer opportunities, Applied

products remain addition, In such as chemicals, and metals. refining, booking margin and and levels project infrastructure solutions. demand for MRO maintenance on process and activity utilities, remains positive end process flow petrochemical, our control spending higher in markets solid core

from benefit customers to and other continue around required end also energy as We requirements. our efforts infrastructure investments, transition decarbonization new market

flow Additionally, these sustained solutions connect in as center cross-selling network, service our capabilities. our we seeing through control are to leading progress we process customers

profile more Our channel evolution mix example XXXX we a is market margin resiliency great strategic providing our to and our capabilities and is control into expansion today. that growth back end of of believe the in flow

by and These leading driven production such expanding are healthy. engineering tending, machine in considerations. opportunities constraints need capabilities control. progress new palletizing, the platform sales order our make the momentum functions We and remains interest advanced to business being underlying labor and Customer for solid are expanding evolving continue further quarter trends well. across automation as We and our as growth quality saw organic

best We expertise. our expansion serve and are with to market further embedded turnkey position, initiatives application leading and greenfield approaches including solutions base customer making traction developing new enhance through our proprietary our and

leading their as the Automation machine Midwest, well Inc. leveraging which solutions past million further around in to going of our automation In addition, our capabilities forward. We years, acquisition transaction represents and control. the the strategy annual Inc. four November, the in as look fifth sales providing optimizes we motion the automation forward and robotics, around over of welcome Automation announced with $XX vision, footprint next-generation acquisition

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

around have deeply for Applied continue headwinds. operational have incremental manage inflationary to cost that and and ingrained team accountability. margins LIFO execution a while, been a culture This you pressures as high we know we drive of those For apparent ongoing despite remains

levels the same we've hitting and over our At highlighting strategy. time, the quarters, capital embedded our recent the on in several across return profile value potential past double-digit creation strong business significantly years, improved

capacity. at And net the one lastly, we and a sheet sheet quarter billion times healthy in balance with leverage and over $X ended balance

M&A We position Automation. forward. priority M&A is of a our across opportunities Our enhance evaluate always, Flow of growth and number going disciplined our to and that areas Power, competitive and pipeline Fluid attractive could Control, as active continue remain

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

David Wells

and Neil good everyone. Thanks morning

supplemental another your reminder recap reference. available additional is our for our that First, on site investor quarterly

than increased basis details basis. contributed The XX.X% quarter. offset of XX in days performance was an organic more number a Acquisitions point sales prior Consolidated our of growth, to over translation. these now the selling in year-over-year. by was the on consistent financial quarter. Turning quarter currency from factors, increased the foreign Adding which headwind sales XX year points of basis XX.X%

mid a growth digit As we contributor pricing, sales single year-over-year the to product was percent pricing in it relates quarter. the to estimate

this contribution As price both SKUs from year-over-year increases top a on line only measurable periods. reminder, in assumption reflects sold

sales to performance now by Turning segment.

of the currency. the our organic on increased year-over-year excluding growth slide As across segment six of sales XX.X% quarter. strengthened Service impact and sales highlighted during in basis accounts Year-over-year Center our national on large seven when presentation, foreign the

smaller local see to favorable continued growth also We from accounts.

sequential end aggregates, were at and plastics, market looking and contributors segment biggest pulp When growth, mining. the the chemicals, rubber paper, increase and in

fluid in power sales and growth We quarter, our fluid aftermarket solid from leading also MRO power service network. execution saw strong support reflecting specialist the

increased in an of November. on which sales two basis segment XX.X% points contribution from segment, our a On two-year Solution XX% the over prior XX.X% year-over-year, This and Engineered basis. closed Inc. with months our increased growth. acquisitions Within quarter, organic acquisition, sales XXX reflects basis year of Automation contributed early stack over

system automation Segment delays sales division, solutions. modest see to customer for activity component into our inbound MRO supplier deliveries, sustained improvement benefiting across Power and by strong demand times by we though our during continue lead growth sales and ongoing weigh next-generation growth shipment and supplier in CapEx on and quarter. levels process infrastructure Extend flow quarter, to Fluid lead during supported the times the continues backlog and did the spending completions some be segment

margin Moving performance. to gross now

the year compared to XX.X%. points eight basis decreased of As prior gross highlighted on deck, the XX up of XX.X% page margin level,

the in million on the we LIFO year quarter ongoing net During recognize basis an and prior during XX inventory year-to-date. expansion margins supplier million inflation $X.X impact product quarter, compared $X.X unfavorable of had year-over-year and point the headwind quarter. reflects expense This to LIFO gross

a difficult well, We gross of XX reflecting over comparison the prior also and margin margins execution, our basis margin gross countermeasures. from continue ongoing we in pricing ahead broad-based during quarter favorable a faced increased boosted to performance, mix was sequential points actions, Overall, basis, the manage slightly broader in year dynamics performance quarter. and On channel expectations. which inflationary

inflationary SD&A relates XX.X% of an model, is which controlling down initiatives, XX.X% to a great operational the related low. prior during prior and services higher headwinds, distribution and increased we quarter, sales environment Despite from current of investments. our ongoing currency levels. expenses, as in excellence costs, to shared doing quarter, was our basis including during year selling, our constant X% new costs job compared the it a organic technology administrative As operating the expenses on expense are record teams leverage employer

EBITDA the robust prior quarter quarter, saw This the an over prior sales points year expanded impact EBITDA the saw due over unfavorable to Combined in while XXX increased we LIFO. basis includes year-over-year XX.X%. margins we with XX in basis to XX% the growth levels, point

of and share the pleased interest XX%. from year consecutive second growth quarter EPS am reduced resulting in quarter headwind per least eighth XX% earnings incremental in prior in despite exceeding continued reported LIFO this leverage levels. the per to earnings highlight consecutive high-teens of of I to greater adjusted that at than ongoing increased share represents $X.XX year-over-year. strong growth Combined the XX% see the expense, operating with margins We've EPS

was investment. quarter and Moving free flow capital from nearly cash cash higher our performance. $XX.X second Compared activities $XX.X generated earnings totaled Cash working to prior operating to the million. the year, cash while million, free stabilizing doubled, during flow reflecting flow

second Engineered the as half capital Looking well easing working our we trends of of work our ahead, process fiscal from the tied our some continued and to Solution segment, working including benefits from inventories expect benefit initiatives. as into year, capital conversion

$XXX net sheet balance ended which EBITDA. below of perspective, EBITDA, million a leverage the adjusted on From is of with X.X at level approximately prior cash we December times hand X.X and times

below well normalized remains of growth to as ongoing range times, partially leverage our reduction. years, as recent reflecting the have in we EBITDA significant Our X.X X.X experienced debt

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

our As to capital XX XXth our dividend today release for it recent we in areas the of quarterly time relates we increased announced deployment, years. press in that

automation Inc. November, excited acquisition of In addition, portfolio. further in the we're as Automation Neil by enhances highlighted, early our which

in acquisitions and future they and drive strategic position sheet, expansion balance well business supportive to organizations M&A across strategic proactive historical forward, initiatives, associates best position industry our capable Overall, to most as align ongoing our strong with great continue to focus drive Our valuable for executing priorities to growth look including their are the success. our we're accretive going and a M&A. remaining as as and organic attributes

our to outlook. now Turning

strong press per today's the release full project year. raising an improved page the $X.XX XX.X%. growth are on our XX $X.XX growth the half of second and in XX.X% indicated of to for share, EBITDA to per and outlook guide on to $X.XX XX.X%. of guidance to fiscal XX% X%, year detailed now of of EPS EBITDA $X.XX we year the presentation, sales performance XXXX based of range X% and of share quarter As We EPS of in sales second and reflect XX.X% to assumes to margins to margins Previous XX%

by continues as prior said, and supply consideration outlook see year-to-date That XXXX. into economic of potential to as ongoing sales uncertainty, encouraged back growth half chain are in our earnings We ongoing pressures. supporting opportunities the performance our fiscal our and well take inflationary and

moderation ongoing half in second more We modest of the expect order contribution in and the year. pricing rates

face including months, will We during coming most in sales difficult quarter. more comparisons fourth fiscal notably also growth our

Our updated various factors. incorporates these guidance

in sales March difficult project percentage third our currently year outlook, mid-teen grow the in are Please February In quarter addition, that year note near-term prior low to organic month-to-date prior on to based quarter. sales fiscal over January. sales January we and more relative and by trends to comparisons

back easing billings strong demand We're also following assuming some moderation in uncertain macro shipments in recent underlying the tied with months, and backlog to combined conversion order environment.

second margins gross expect levels XX%. relatively be We to unchanged from of XXXX quarter fiscal around

margins our reduced Xst, growth in considerations In operating quarter, the with combined sales and addition, incremental to focus our sales as inflationary merit on effective we the annual eases. ongoing mid-teens mid-teens pressures for low around January increase, growth assumptions assume leverage based increase

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

Neil Schrimsher

Thanks Dave.

across through solutions the extremely promising are benefiting our our America, long-term North buildout proud first focus. our Applied position, and performance remains The to underlying up, ongoing the we and industrial industry of So of from wrap am I advanced of operational half fiscal XXXX. team backdrop the and

energy tailwinds consumption. believe accelerate includes the customers incremental to solutions, for various We through on are and and secular providing and actions reduce This production labor an broader and capacity across America, refreshing infrastructure to focus structural as engineered particularly constraints demand North industrial manage and expanding greater advanced demand support environment.

our strategy Our with are strongly and are the growth these customers and aligned requirements trends initiatives facing.

transparency interim. commentary of the last uncertain orders the underlying backdrop with cadence from is and the Consistent growth our in economic quarter, reducing into

slowdown in greater meaningful industrial a could growth and guidance, in transitional tailwinds positive on any outlook be updated to of given take continue environment we years. reliability approach expected a That we believe shortened coming and quarters. in As a anticipate near-term said, underpinning nature chain sector and the cautious faced the shocks in our moderating to supply our focus recent wake

solid going shareholder opportunity will second addition, normalizing position enter and profile This our our opportunities the capital margin in a and growth In support requirements. the returns stronger forward. ongoing and fiscal improved we working and of balance half cash strategic generation with drive liquidity XXXX to reflecting sheet

first provide stakeholders and of and Applied intermediate value we've And in lastly, following toward billion XX% creation $X margins. initial our These clear for to milestones all revenue made progress long-term. our targets targets significant our achieve financial meaningful half EBITDA performance, of key

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

Operator

Thank you.

We will now the question-and-answer begin Instructions] session. [Operator

with question KeyBanc ahead. Capital Please go phone first Our Ken Newman line from the of is Markets.

Ken Newman

on Congrats quarter. morning the Hey, excellent good guys.

Neil Schrimsher

Thanks.

Ken Newman

for question that your outlook that me, XXX IP year-over-year in for mentioned basis expectation, half, back the you fiscal contraction in how assumes quarter is half. assumes curious has your -- and just is contextualize First macro you I'm back that just point evolved? or the if still how think could I outlook And that your a last what

Neil Schrimsher

in think digit about, the Ken, we it it, the perhaps to the ex And at look if one a fourth I we and mid digit assume of at digit probably or single midpoint, low the to markets, and perhaps to perhaps portion IP single low digit manufacturing in if So, QX a quarter, third then flattish inflation, to then flattish the at low would those in capital way growth the single think mid single year-over-year digit we single looking quarter. in single core fourth digit to goods low we're we it's closer quarter. contraction year-over-year or take contraction

oriented industrial of markets. So, potential core industries facing we some the are this consumer of believe more our still contraction than

Ken Newman

the at to way help follow-up, bit expecting and And can the quarter. then, you you been I about versus growth to of obviously way prior outlook, kind organic it's a similar pricing, here, still about positive talk just That's the this benefits XXXX any little my From you to mix mirror contributor talked understand point? us other helpful. a better of -- within pricing moving volumes? the buckets Any

Neil Schrimsher

Yeah.

probably start come can then will and Dave I So, in.

As see we perhaps would increases I a into from suppliers they're this from lifts and time. think coming about increases still count annual frequency, lower but year ago, we suppliers. still compare to we pricing, coming If expect in or

backdrop As the environment, those and not the be don't and things good an chain that we what been has think supply easing things continues to environment in abate. the a about around labor, also of we think demand inflationary

to there's business So, be the at contribution lower work of line albeit we last going had think top perhaps as fiscal a we through results rest to in the the quarter. to and overall we pricing level the the than XXXX,

Ken Newman

Okay.

David Wells

kind And digits early, but modest off going here some issue. as comp factors, in tail to lower, response into has of call, more get that to below a be we digits we single as still single get kind as and as we're move incremental Neil off some see talked pricing, of as of the of got about talking QX, into last tail QX lower those we assume obviously, we mid indicated to

Ken Newman

Right.

Neil Schrimsher

referenced the you the solutions, we're then the we participating we're of we business, and still bring mix positive contributions in. some more it, into encouraged opportunity of advanced as end around solutions that markets our mix And products that for side have the

we believe said up range. for in set And margins QX, favorably should a in those kind similar So, we've gross second of well. half will remarks, in the the as right,

Ken Newman

one Maybe here. Understood. more squeeze in just could I if

Is versus maybe assuming, spending of today? about us of cycles. infrastructure you prior that what in guide? are for any stimulus And you secular stronger the those the talked benefit what there way if in is benefit AIT You can kind a and help new tailwind federal markets size end exposure the any, being

Neil Schrimsher

the it's that into that would what said, we With think think we of into inclusive started also, about half. into just side. So, some getting say second I it's

But that some and infrastructure So between such aggregate cycle industries, kind and probably in more sector warehouse ramp. to of that directly later think buildout, and it others. these cycle, and will still in us some XX% indirectly, to we're if for and I about and also equipment well, data benefit industries, because as to think color of technology be be will the industries, that heavier fiscal in mid our and are going take and participate from it time we the storage exposure XXXX, will this XX% XG those that probably machinery and to metals

more back So, of the calendar we and year. underpinnings think the occur this late fiscal really into year the of half that

Ken Newman

Excellent. Thanks for color. the

Operator

Thank you.

from ahead. is the question with Loop Please go Capital. Chris line next Our of Dankert

line Your is now open.

Chris Dankert

first growth that the our congrats accelerated organic in and on there. impressive Hey, quarter. here, I don't both to team versus wasn't jumping I think anniversary kind morning. really XXX-year I whole guess in business words results the expectation, of your mean, core in near-term guess the the first I either. on in

just on the the basis? maybe kind of kind You in was touched but the some pieces, up real of on organic XQ what sharpen can -- outperformance of driver you the core

Neil Schrimsher

is think our inventory think a helping still demand the that are and Center we and we presence, -- collaboration very strong And side well. in front. break-fix those our We're positive. industry business place critical cross-sell liability, Center I more plus some Service break-fix help coming few have benefit it on local there of the about our side, across. all Well, that the of quarter. the that solutions for the of in service was think those That Service activity from advanced position, throughout We seeing things you take times performed stayed

about having a productive backlog on Within coming Fluid Power. Fluid in. Power, projects saw talked We've in we execution nice

smaller business. XX% in So, a out. some the later that continued availability it's period, we're cycle to And of Flow that backlog Control. products was the availability And from around so a holding up shipment growth The going Automation that as able strength was team seeing were benefited improved positive. organic and then, that which of perhaps team componentry into or portion on of execute a suppliers the typically

half. control flow into And we the so, we think ourselves for second that going business as well process the think and about sets up

Chris Dankert

Gotcha.

That's think you. a of how together. pieces of positioning again kind well average. here? Inventory color. follow-up the long-term the working capital we was about a below inventory of days Thank up sequentially, lot just should all of is year And So, still pulling and here. the half today maybe but are back great into kind really it Maybe

David Wells

a working as of Sure. capital we about as the pronounced QX, I'd a we bit be across but move in to tailwind talked expect in script QX. more

see levels, we be we see So, of of stabilization we'd point, To inventory that again, would driven QX move November we said, and did once see that flattish by that work terms stabilization. there. targeting December I continue backlog in a of did project businesses supplier some move further that position further. in strong through we we increase, as some enjoy your of those being kind and really and we then, through ease constraints focused to start move some we anticipate those as And reduction project backlog across to though, QX. Did as as in inventory some see

when about tailwind So, the a think you generation. cash

Chris Dankert

one one here. sneak Understood. And just if could I last in

debt? the interest the mean we're the times what leverage still rates target from or rise leverage interest X.X kind you kind for given very kind of low I today, it of is that just has doing, target to Given three guys long-term what seeing from are of in range rates change that's and just

David Wells

at driving We normalized with. talked been accretive M&A about that the the so X.X% more work, a environment, term working value being successful balance X% in to to we've target, longer in sheet putting

the and terms implications rate and the improved M&A to leverage, continue of the environment on of the interest sensitive to kind priorities. focused in and really stay are We be

So, target terms as move is times two a ratio X.X cognizant forward. we'll on longer that But cycle of leverage over still be that. in of we to term the

Chris Dankert

so for the color guys. half Thanks the back of in luck of much and it. Got best you

Neil Schrimsher

Chris. Thanks

Operator

Thank Instructions] you. [Operator

David Next line with go question Please of is from ahead. Baird. Manthey the

now open. Your is line

David Manthey

backdrop on the Thank few in the just the for assumption more dig fiscal has statement a in point your so in change a everyone. little half understand, the Or to that shifted duration bit economic view been a months and/or that fact the here you've right Good based to I morning of fair guidance, seen your on starting you. new To is say has the downturn? the it here your a of first year? in there depth on

Neil Schrimsher

David, I shift it's would what I a see we can We start. say standpoint. visibility the to it can from be -- right. know could a

touched we February the solid We so, and a in and more side. on start. get challenging in know comps little a January March that And

And like so, have to expectations good line mid-teen incrementals. margins of our very sight up around we that and view and sales is mid-teens feel with those thus, we the to QX

So, we see that.

what tougher We some in when could segment just be know Center can cross ignore potentially these Service of QX our a develop. currents We and they has comparable.

well. year, side Engineered up last in around was it as the think it plus and XX% I quarter even the Solutions segment, was last good

the as guidance. just lay mindful want we or out we inform be So, to

David Manthey

That's very rational.

a said channel that? more resilient past you than business You what by that -- the past cycles due mean Could in in release strategy. you elaborate your the comment on in made is to

Neil Schrimsher

those our control now now flow fluid on the the the centers start that doing and and participation products, offering run $XXX I process automation. around very presence capabilities, proposition Solutions transmission million, but and consumables and think front. our important that's it's with With our its and at million not a lot of plus the adding maintenance of to power, in customers, to rate $XXX of supplies Engineered that's of importance we're bearing and in and what power only buildout addition service value to

their that they much customers helpful challenges and with them capabilities, with to operational I to continue those serve demand. and because spend consolidate partner as their the to uptime constraints help deal can looking greater buildout we industry with fewer, contend as So, their very suppliers are someone their more desires labor for capable

David Wells

still terms said market cross-sell, And kind us said, of because we each of of next that continue offering, in how have a as operators the slowdown, comprehensive more work and depth like to of of that kind downturns. soften I outperformance know through feel it we like what as as of ability demonstrated as we the accordingly impact the certainly with the comes we've really business regardless, regardless of the market And drive kind to at we've gauge through cycle be ability to comes. to

David Manthey

little Okay. customers. I'll I guys. questions, about Thank about with theme you for discrete if that. maybe solution, it's I average three Could you items automation average order okay are cycle the for stick there? the capital the guess talk of sales size a of you these assume an with bit

the magnitude -- can you share what type that? terms takes of something the like gear length anything and in of with regarding the sort time us Just looks up, like that it of to sale of

Neil Schrimsher

Yeah.

I So, have doing I to size, that one, quickly. that of can have don't very this average order ways. come the more say; process it make are let sales we at a productized me solutions go couple I'd but know

to and they per And and so, deal pieces labor operator and wants with leverage want can equipment, if fabrication they tending, operators have to a collaborative customer machine fewer of have to constraints four one each has robots equipment. perhaps

that's been an area been helpful. so And that's

also active with volume around in oriented safety people We're palletizing and of that outflows envision type We're products. to the challenges doing in perhaps companies distribution or help more help warehouse for have labor. dealt

move so, those. from And on manual inspection

or And just a improvement, and where packaging to effectively labeling it some consumer packaged to manual you a vision that going if especially you from product enhancements or on has cannot afford but be can't great retailers, have So, defect, also standpoint. do goods, key pristine. it's

So, very those are systems helpful.

process helping the that's quickly. go sales So

discrete problem center are we on know sales or connecting solving in I'd with so we their other our now equipment side application and legacy that a well have engineers then our say, side, on -- customers, challenge. especially automation the production Dave, service where engineers

And that ownership look the mobile motion or but collaborative vision for the plant, as impact bringing that getting perhaps how them but of so, these solving success of of say capital And can maybe are or and on door type into approved, other we're robots start focused the the replicate facilities, they small or projects would plant. they're not extensive opened our small help mobile that we'll we all they're are their other that I that and along, or based level within connectivity control And to those going companies have. products and projects. in equation to projects could they

performance So, encouraged have undertake It's to long extremely investments impact cycle their customers business the activity presence. positively automation. by with and the to not that we're massive

David Manthey

That’s you. Thank very helpful, Neil.

Neil Schrimsher

You are welcome.

Operator

you. any further At closing turn we I'm now showing to go moment, this will have remarks. no for Thank Schrimsher Mr. question. the call I ahead. over Please

Neil Schrimsher

to Thank with everyone you, forward quarter. and us just thank And look Malika. this joining to want throughout today, you for we I talking

Operator

you thank that Thank disconnect and line. today's good a does you. participation your Ladies conclude day. call. your We and Have for gentlemen,

Applied Industrial (AIT) 26 Jan 232023 Q2 Earnings call transcript