Applied Industrial Technologies, Inc.

2021 First Quarter Earnings Call for Applied Industrial Technologies. My name is James, and I'll be your conference 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 that time, please press star 1 on your telephone keypad. Prior to asking a question, lift your handset to ensure the best audio quality. Please note that this conference is being recorded. I'd now like to turn the call over to Ryan Fieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Thanks, James, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing the first 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, including the potential impact from COVID-19, as well as trends in sectors and geographies, success of our business strategy, and other risk factors. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents. Our speakers today include Neil Scrimshaw, Applied's President and Chief Executive Officer, and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil.

Thanks, Ryan, and good morning, everyone. On behalf of our entire team at Applied, we hope you and your families are healthy, safe, and managing well. I'll start today with a business update, including how we continue to respond to the pandemic, as well as progress with various internal initiatives and color on the external environment. Dave will follow with a summary of our financials and some specifics on our first quarter and outlook, and then I'll close with some final thoughts. In the early fiscal 2021, we're seeing a modest recovery gain momentum and are executing well. I'm encouraged by the start to the year and believe we are in a solid position to build off this positive momentum as we move forward. Our operations are functioning productively. Our supply chain and inventory levels are in a good position. and we are responding effectively to customers' increasing requirements as an initial demand recovery appears to be underway. Throughout the past several quarters, we have quickly adapted to the evolving environment, including implementing new processes and ways to support our customer needs. A key part of our message to all our stakeholders during these evolving times is how applied is stronger today than in prior cycles. This includes benefits from our expanded offerings, greater technical focus, and a more diversified in-market mix. We've also strengthened our marketing and sales efforts to showcase our comprehensive and leading technical offering and to further develop our cross-selling opportunity. We are increasingly critical to our customers as maintenance, production, and efficiency requirements begin to ramp across their core operational infrastructure. These elements are providing near-term sales support and leave us increasingly constructive on our growth potential going forward. In addition, investments in systems, talent, analytics, and operational processes in recent years are yielding additional benefits in the current environment. We quickly aligned our cost structure and once again are demonstrating our operational discipline and the resilience of our operating model. This is highlighted by better than expected decremental margins in the quarter, as well as ongoing strengthening of our balance sheet following strong cash generation performance and a nearly 30% reduction in net debt levels over the prior year. Our capabilities and company-specific opportunities, combined with the improving outlook, positions us to be a growth leader with increasing earnings power entering the next phase of recovery in the industrial economy. This is demonstrated by our recent tuck-in acquisition of advanced control solutions earlier this month. ACS represents the next step in expanding our automation offering, which is further differentiating our value proposition, diversifying our in-market mix, and enhancing our growth profile to include next-generation industrial solutions. We welcome ACS to apply it and look forward to leveraging their innovative technology and capabilities as we continue to execute on this growth opportunity. As it relates to the broader demand environment, underlying trends remain below prior year levels during our first quarter as business activity continued to adjust to the ongoing pandemic. That said, customer order activity improved sequentially through the quarter, and we continue to gain traction with our internal growth initiatives. As a result, the year-over-year organic sales decline of 13.4% in the quarter improved notably from the 18.4% decline last quarter. Year-over-year organic sales declines improved each month and sequential trends in daily sales rates seasonally strong. We're starting to see greater maintenance activity and break-fix requirements with customers increasing access to their facilities and expanding equipment utilization as production gradually ramps back up, including at smaller local accounts. Feedback from our sales leaders suggest order sizes are increasing, customer inventory levels are being replenished, and maintenance projects are getting authorized as businesses increase activity, and new safety protocols support a productive path forward. In addition, we saw several industry verticals return back to growth during the quarter with 10 of our top 30 verticals up year over year versus only two last quarter. Areas such as food and beverage, aggregates, technology, chemicals, and transportation were all showing positive momentum. And while weakness remains greatest across heavy industries such as machinery, metals, and oil and gas, demand within these verticals appears to be stabilizing and improving slightly. We view these dynamics as a positive sign for the industrial economy and demand for our critical products and solutions. That said, the pace of in-market improvement remains gradual and at times inconsistent. Organic sales through our first 18 business days of October are down by a mid-teens percent over the prior year. We saw some easing in sales early in the month following a strong end to our fiscal first quarter. Sales trends have improved each week in October with order momentum increasing sequentially across both our segments month to date. However, it's important to note that visibility remains limited ahead of the seasonally slower winter months as customers continue to manage through an uncertain macro and pandemic outlook near term. Additionally, customer purchasing discipline can be more restrained around any given election cycle. As we've shown in recent quarters, we know how to manage and execute in this still uncertain business environment and will remain prudent in our cost focus and capital deployment near term while focusing on our self-help growth opportunities. Overall, we're seeing signs that reinforce our view that the worst is behind us and a recovery is starting to gain traction. This bodes well for when we enter the seasonally stronger second half of our fiscal year as comparisons become easier and we continue to execute on our internal growth initiatives. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.