Applied Industrial Technologies, Inc.

Welcome to the fiscal 2023 first quarter earnings call for applied industrial technologies. My name is Bridget 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. If you wish to ask a question at that time, please press one followed by four on your telephone keypad. Prior to asking a question, lift your handset to ensure the best audio quality. If at any time during the conference call you need to reach an operator, please press star zero. Please note that this conference is being recorded. I will now turn the call over to Mr. Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Okay, thanks, Bridget, and good morning to everyone on the call. This morning we issued our earnings release and investor presentation 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, which are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from these expectations. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use certain non-GAAP financial measures, which are subject to qualifications referenced in those documents. Our speakers today include Neal Scrimshaw, Applied's 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. I'll start today with some perspective on our first quarter results, including an update on current industry conditions and our performance, as well as our expectations going forward. Dave will follow with more specific detail on the quarter's financials and provide additional color on our outlook and guidance, which we raised this morning. And I'll then close with some final thoughts. So overall, we had a solid start to fiscal 2023. Sales, EBITDA, and EPS all hit record first quarter levels with respective growth of 19%, 34%, and 45% over prior year levels. Demand remained strong during the quarter. We continue to benefit from our industry position and internal growth initiatives. This is driving new growth opportunities across both our segments. We're also doing an excellent job of managing inflation and controlling costs. This consistent performance is supporting robust operating leverage, helping further expand our margin profile and resulting in meaningful earnings growth despite more difficult comparisons. I want to thank our entire team for their ongoing effort and focus on optimizing and positioning applied to achieve these results. So several key points to highlight in more detail. First, as it relates to underlying demand, customer order and spending activity remained healthy through the quarter and exceeded our initial expectations. We saw some normalization in sequential trends following robust levels in recent quarters. However, bookings and order trends remain firm and highlight a productive and steady demand environment. as customers work through record backlogs, reinforce supply chains and equipment across their production base, and make required maintenance and growth investments. Our diversified in-market base is providing further support. Positive underlying demand and sales growth have continued into the early part of our fiscal second quarter with organic sales month-to-date in October, approximately 20% over the prior year. Within our service center segment, organic sales growth was above 20% for the second straight quarter. This is on top of 16% in the prior year period, so very positive trends. Segment orders and booking rates remain firm through the quarter, and we continue to see encouraging order patterns into October. Break-fix MRO activity remains steady at healthy levels within most of our core end markets. In addition, we believe the level of growth sustaining across our service center network partially reflects various secular growth tailwinds and supply chain requirements facing the U.S. manufacturing sector today. Our scale, local and consistent service capabilities, and technical knowledge of motion and control products and solutions are driving greater growth opportunities across both legacy and emerging end markets as these tailwinds persist. We also continue to benefit from sales process initiatives and ongoing pricing actions, as well as increased traction from our cross-selling efforts. Earlier this month, our broader U.S. Service Center leadership team gathered in Cleveland for the first time in three years. The excitement and energy surrounding our core business today is meaningful, and our teams are making significant progress, deploying a number of strategic actions designed to further catalyze our growth and margin profile long-term. Sales growth also remains solid in our engineered solutions segment, which, as indicated in our press release this morning, is the new name of our former fluid power and flow control segment. As we continue to strategically expand this segment, including the scope and capabilities of our fluid power, flow control, and automation businesses, we believe the new name aligns better with our core value proposition and leading technical capabilities across these higher engineered products and solutions. These specific elements are integral to the solid growth we're seeing across this segment. Of note, engineered solution segment organic sales growth of 18% accelerated from 14% last quarter. Growth in the segment continues to benefit from firm demand across longer cycle industrial OE, off-highway mobile, and process flow verticals. Our fluid power team continues to see healthy demand across many of our leading engineered solutions. from customized manifolds and industrial power units to pneumatic automation systems and advanced solutions tied to IoT, telematics, and the electrification of fluid power systems. In addition, MRO activity and capital spending on process infrastructure remains positive in our core flow control in markets. with incremental support from new business tied to our customers' decarbonization efforts. We also continue to see healthy order growth and backlog across our automation platform. Our automation growth strategy and value proposition is gaining further traction across the market as customers manage through structural labor constraints and evolving production considerations in the post-pandemic industrial economy. We remain very excited about the potential of our automation platform, including an active pipeline of strategic M&A opportunities that we expect to further scale and optimize our competitive position going forward. Overall, the momentum sustaining across engineered solution segment is encouraging, particularly when considering ongoing supply chain constraints and component delays. which are impacting the timing of system builds and shipments. Our industry position and supplier relationships provide the ability to manage through these ongoing constraints near term, and we continue to work with our suppliers to optimize component availability going forward. In addition to sustained top line momentum, we had another strong quarter managing inflationary pressures through channel execution and additional countermeasures. Combined with our cost discipline and efficiency gains, we grew EBITDA nearly twice the rate of sales growth and expanded EBITDA margins year over year for the eighth straight quarter, while EPS grew nearly two and a half times the rate of sales during the quarter. So really solid flow through once again with strong contribution from both segments. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook. Thanks, Neal.