Applied Industrial Technologies, Inc.

Welcome to the fiscal 2022 first quarter earnings call for applied industrial technologies. My name is Shelby and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. If you wish to ask a question at 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 will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Thanks, Shelby, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the investor relations section of apply.com. 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 the COVID-19 pandemic, as well as trends in sectors and geographies, the 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 Neal Scrimcher, Applied President and Chief Executive Officer, and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neal.

Thanks, Ryan, and good morning, everyone. We appreciate you joining us and hope you're doing well. I'll start today with some perspective on our first quarter results, current industry conditions, and company-specific opportunities. Dave will follow with more specific detail on the quarter's performance and provide some additional color on our outlook and guidance. And then I'll close with some final thoughts. In the early fiscal 2022, we are executing well and making progress on our strategic initiatives. We reported record first quarter sales, EBITDA, and earnings per share. as well as another strong quarter of cash generation despite greater working capital investment year to date. As widely evident across the industrial sector, inflationary pressures and supply chain constraints are presenting challenges as industrial production and broader economic activity continues to recover. Nonetheless, we are in a strong position to handle these conditions and believe the current backdrop is reinforcing our value proposition and long-term growth opportunity. As it relates to the quarter and our views going forward, I want to emphasize a few key points that continue to drive our performance. First, underlying demand remains positive. Second, our industry position, operational capabilities, and internal growth initiatives are supporting results. And third, we continue to benefit from efficiency gains and effective channel execution. In terms of underlying demand, trends remain favorable across both our segments during the quarter. Industrial supply chain constraints are having some impact on the timing of demand flowing through to sales, though solid execution and our favorable industry position still drove an over 16% organic increase in sales versus prior year levels and stronger growth on a two-year stack basis relative to recent quarters. This positive momentum has continued into our fiscal second quarter with organic sales month to date in October up by a mid-teens percent over the prior year. As it relates to customer and market, Trends during the quarter were strongest across technology, chemicals, lumber and wood, pulp and paper, and aggregate verticals. In addition, we continue to see stronger order and sales momentum across heavy industries, including industrial machinery, metals, and mining, providing incremental support to our sales growth into early fiscal 2022. Forward demand indicators also remain largely positive. Working activity across our service center network is holding up well, despite sector-wide supply chain pressures. We believe this partially reflects the diversity of our customer mix, as well as sustained MRO demand as customers catch up on required maintenance activity, provide greater facility access, and continue to gradually release capital spending. Our ability to provide strong technical and local support, inventory availability, and supply chain solutions places our service center network in a solid position to address our customers' evolving needs near term while helping them prepare and execute growing production requirements over the intermediate to long term. In our fluid power and flow control segment, we continue to see strong demand from the technology sector. This includes areas tied to 5G infrastructure and cloud computing, as well as direct solutions we are providing to semiconductor manufacturing. Customer indications and related outlooks across the technology and market remain robust, reflecting various secular tailwinds and production expectations. continue with an ongoing recovery in longer and later cycle markets such as industrial OE and process flow, we believe the underlying demand backdrop across our fluid power and flow control operations remains favorable. In addition, we're seeing strong growth indications across our expanding automation platform. The current tight labor market combined with evolving production considerations post the pandemic is driving greater customer interactions and related order momentum for our automation solutions. We remain focused on expanding our automation reach and capabilities, both organically and through additional M&A. During the quarter, we announced the tuck-in acquisition of RR Flutie Company, a regional provider of advanced automation solutions in the US Midwest. The transaction further optimizes our footprint and strategy across next generation technologies, including machine vision and robotics. We welcome RR40 to apply and look forward to leveraging their capabilities going forward. Overall, the demand environment remains positive and we're seeing ongoing contribution from our internal growth initiatives. That said, we expect supply chain constraints to persist across the industrial sector near term. Lead times remain extended across certain product categories, driving component delays and an increase in fulfillment timing. We saw greater evidence of this across both our segments during the quarter. Our teams are effectively managing through these issues to date as reflected by our first quarter results. as well as our ability to increase operational inventory levels in the U.S. by 6% during the quarter. Our products are primarily sourced across North America, limiting our direct exposure to international freight and supply chain dynamics. Our technical scale, local presence, and supplier relationships are key competitive advantages in the current backdrop, providing a strong platform to gain share as the cycle continues to unfold. The broader supply chain backdrop is also increasing inflationary pressures across our business, both through the products we sell and the expense we incur to support our competitive position and growth initiatives. We saw ongoing supplier price increases develop during the quarter with indications of additional increases in coming quarters. Our price actions, strong channel execution, and benefits from productivity gains are helping offset current inflationary headwinds as reflected by solid EBITDA growth and EBITDA margin expansion during our first quarter. We continue to take appropriate actions to offset these headwinds. Overall, we are encouraged by our ongoing execution. First quarter results highlight the strength of our position and company-specific earnings potential despite broader challenges industry-wide, and reinforce our ability to progress towards both near-term and long-term objectives in any operational environment. Combined with the strong balance sheet, increasing order momentum exiting the quarter, and greater signs of secular growth tailwinds across our business, we remain positive on our potential going forward. Now at this time, I'll turn the call over to Dave for additional detail on our financial results and outlook. Thanks, Neal.