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spk06: Welcome to the fiscal 2023 third quarter earnings call for Applied Industrial Technologies. My name is Frank and I'll be your operator for today's call. At this time, all participants are in the listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question at that time, please press the 1 followed by the 4 on your telephone keypad. Prior to asking a question, please lift your handset to ensure the best audio quality. If at any time during the conference 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 Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.
spk04: Okay, thanks, Frank, and good morning to everyone on the call. This morning we issued our earnings release and supplemental investor deck detailing our third 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 and uncertainties, including those detailed in our SEC filings. 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 statements. 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 Scrimshaw, Applied's President and Chief Executive Officer, and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neal.
spk00: Thanks, Ryan, and good morning, everyone. As usual, I'll begin with some perspective and highlights on the key drivers of our results, including an update on industry conditions, as well as expectations going forward. Dave will follow with more detail on the quarter's financials and provide additional color on our outlook and guidance. And then I'll close with some final thoughts. So overall, we had another solid quarter demonstrating our industry position and operational focus. We grew EBITDA by 29% and adjusted EPS by 36% on approximately 15% sales growth. This is on top of similar levels of growth in the prior year period. So very strong compounding growth and earnings power that we believe is top tier within our core marketplace. Digging further into the results, we expanded both gross margins and EBITDA margins, further enhanced our return on capital metrics, and generated stronger cash flow, both year over year and sequentially. We did this against the backdrop of ongoing inflationary pressures and supply chain constraints, as well as some moderation in broader market activity. I want to thank our entire team for their ongoing effort and focus on optimizing and positioning the company to achieve these results. So a few key points to emphasize and provide more detail on in terms of underlying demand. customer activity remained generally positive during the quarter. Feedback from our teams on the ground continues to highlight a relatively productive marketplace. Growth was strongest in many of our top industry verticals and across our larger national account base. We're also capturing new business opportunities from our industry position and technical capabilities as customers address increased maintenance requirements, continue to work through backlogs, consolidate their spend across our comprehensive product and solution set. We're seeing more and more examples of cross-selling success, expanding wallet share with strategic accounts, and engaging new local account relationships. These are strong and sustainable self-help growth tailwinds that we look to build on into the future. As expected, we did see broader market activity normalized some as the quarter progressed, following a relatively busy production backdrop over the past several years. Shipment activity tied to system assemblies and engineered solutions also moderated slightly, following strong backlog conversion during December and January. Again, largely what we had anticipated. Sales month to date in April are trending up a high single-digit percent on an organic basis versus the prior year. As reflected in our updated guidance, we remain mindful of ongoing macro headwinds that could weigh on near-term market activity. That said, as we highlighted before, we are favorably positioned to continue to outperform the broader market, reflecting our industry position and internal growth initiatives. Part of this reflects our ability to capitalize on key secular growth trends, gaining momentum across the North American industrial sector. This includes greater infrastructure spending, reshoring, an aging and scarce technical labor force, and incremental growth from government stimulus spending. We believe all of these dynamics are positively influencing our underlying growth today, and could have an even greater impact into the future. This is particularly true across our service center segment, which had another solid quarter with organic sales growth of 16% and strong incremental margins. On a two-year stack basis, segment organic growth was up nearly 30% during the quarter, while year-to-date segment operating margins are up nearly 240 basis points from an adjusted operating margin levels two years ago. Reflecting on these results, it's clear our service center network is much stronger and more productive business today, following a number of initiatives, investments, talent additions, and process improvements made in recent years. Similar to last quarter, we did see some slowing in select end markets during the quarter, such as metals and lumber and wood. However, overall booking levels remain relatively stable, and in markets that are slowing across our service center network, the underlying trend is manageable to date and not indicative of a material correction. In addition, many of our top industry verticals in the U.S. remain strong in the quarter, with greater than 20% growth within food and beverage, pulp and paper, chemicals, and mining. We believe our service center customers remain focused on sustaining appropriate MRO activity on core production equipment in the current backdrop as they mitigate supply chain risk and position production capacity for growth in the years to come, especially when considering potential reshoring, infrastructure spending, and increased CapEx requirements. Within our engineered solution segment, which includes our fluid power, flow control, and automation offerings, we had another solid quarter of double-digit growth with organic sales up 13% from the prior year. While moderating from the plus 20% growth we saw last quarter, this partially reflects more normalized shipment activity and backlog conversion following the strong trends we saw late last quarter. We continue to see solid growth in our industrial and off-highway mobile fluid power verticals, where our technical solutions and engineering capabilities remain in high demand as OEMs face required technology, energy efficiency, and safety enhancements for their systems and equipment. Growth across our specialty flow control operations was also favorable in the quarter. reflecting steady MRO activity and maintenance project spending on process infrastructure and continued growth opportunities emerging from our customers' decarbonization efforts. Underlying demand within our automation platform remains positive, driven by strong secular tailwinds and our expansion initiatives. This level of sales growth in the third quarter moderated from the over 20% growth we saw last quarter, though primarily reflecting shipment timing and ongoing supply chain constraints. Year-to-date organic sales across our automation platform are up a healthy double-digit level despite ongoing supply chain headwinds, and we continue to see favorable growth in many of our core industry verticals and applications. 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. In early April, we announced the acquisition of Advanced Motion Systems, which represents the sixth automation acquisition over the past four years. With annual sales of around 10 million, the transaction is on the smaller end, but is a great accretive bolt-on automation business that optimizes our footprint in the Upper Northeast region with strong capabilities in machine vision, motion control, and related services. We welcome AMS and look forward to leveraging their capabilities going forward. In addition to our sales performance, we had another strong quarter of margin improvement, both at the gross margin and EBITDA margin level. We're managing ongoing inflationary pressures through channel execution and countermeasures. Combined with our cost, discipline, and efficiency gains, we grew EBITDA nearly twice the rate of sales growth and expanded EBITDA margins sequentially and year over year. Year to date, EBITDA is nearly 60% higher on an adjusted basis than it was four years ago prior to the pandemic. While some of that growth is tied to the bolt-on automation acquisitions we've completed, the core driver is organic execution from our team in enhancing our growth profile, productivity, business mix, and cost structure in recent years. The expansion of our underlying earnings power is a strong testament to our strategy, commitment to operational excellence, and industry position. Lastly, we're in a strong position to take full advantage of our future organic growth and M&A opportunities moving forward. Our balance sheet has modest leverage currently, and we expect stronger cash generation going forward as our working capital requirements moderate following heavy investment in recent years. As it relates to M&A and capital deployment opportunities, we're holding firm to our return requirements and balancing broader macro dynamics. Our top M&A priorities remain focused on automation, fluid power, and flow control where we have an active pipeline. We'll also continue to evaluate options to strengthen our service center network where appropriate. through ongoing IT investments as well as select acquisition opportunities aimed at optimizing our market coverage, talent, and service capabilities. In addition, we'll continue to evaluate share buybacks and ongoing dividend growth as secondary options to deploy capital and drive returns. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.
spk01: Thanks, Neil, and good morning, everyone. First, another reminder that our quarterly supplemental investor presentation is available on our investor site for your additional reference. Turning now to details of our financial performance in the quarter, consolidated sales increased 15.4% over the prior year quarter. Acquisitions contributed 70 basis points of growth, which was partially offset by a 30 basis point headwind from foreign currency translation. the number of selling days in the quarter was consistent year-over-year. Netting these factors, sales increased 15% on an organic basis. As it relates to pricing, we estimate product pricing was around a mid-single-digit percent contributor to year-over-year sales growth in the quarter. As a reminder, this assumption only reflects measurable top-line contribution from price increases on SKUs sold in both year-over-year periods. Turning now to sales performance by segment, as highlighted on slide six and seven of the presentation, sales in our service center segment increased 16.1% year-over-year on an organic basis when excluding the impact of foreign currency. Year-over-year sales growth was strongest across our large national accounts during the quarter, though we continue to see nice contribution from our smaller local accounts, albeit at a more modest pace as market activity normalizes against difficult comparisons. We also continue to see solid fluid power aftermarket sales growth, reflecting strong execution and service support from our fluid power MRO specialist network. Within our engineer solutions segment, sales increased 15.2% over the prior year quarter, with acquisitions contributing 2.1 points of growth. On an organic basis, Segment sales increased 13.1% year-over-year. Segment sales growth continues to be supported by strong performance and backlog levels across our fluid power division, including healthy activity within industrial and off-highway mobile applications, as well as sustained customer MRO and CapEx spending into process flow infrastructure. This was partially offset by slower activity within fluid power technology verticals, and ongoing inbound component delays impacting the timing of system shipments and backlog conversion. Sales from automation operations were up by a mid-single-digit percent organically over the prior year period. This follows over 20% growth during the December quarter. As previously noted, automation growth of the quarter was partially impacted by ongoing supply chain constraints and shipment timing. Moving to gross margin performance, as highlighted on page eight of the deck, gross margin of 29.4% increased 13 basis points compared to the prior year level of 29.3%. During the quarter, we recognized LIFO expense of $8.2 million compared to $7.4 million in the prior year quarter. The net LIFO headwind had an unfavorable seven basis point year-over-year impact on gross margins during the quarter. On a sequential basis, gross margin improved 33 basis points during the quarter and was slightly ahead of our expectations. We continue to manage broader inflationary dynamics well. At the same time, we are benefiting from our gross margin initiatives, including enhanced analytics, freight recovery, and channel execution, while favorable growth in our higher margin flow control operations is also providing support. As it relates to our operating costs, Selling, distribution, and administrative expenses increased 7% on organic constant currency basis compared to prior year levels. SD&A expense was 18.2% of sales during the quarter, down from 19.5% during the prior year quarter. We continue to show strong execution in controlling costs in the current environment as we leverage our operational excellence initiatives, shared services model, and technology investments to help offset wage inflation, required talent additions, and medical cost inflation. In addition, our ongoing AR collection initiatives are helping control bad debt levels year-to-date. Combined with double-digit sales growth, EBITDA increased 29% over prior year levels, while EBITDA margins expanded 132 basis points over the prior year to 12.4%. This includes an unfavorable seven basis point year-over-year impact due to LIFO. Combined with the reduced interest expense, we reported adjusted EPS of $2.38, representing a 36% increase from prior year EPS levels. As highlighted in our press release, adjusted EPS in the quarter excludes a net tax benefit of $3.7 million, resulting from the release of a deferred tax valuation allowance within our Canadian operations. Moving to our cash flow performance, cash generated from operating activities during the third quarter was $75.2 million, while free cash flow totaled $67.2 million. Compared to the prior year, free cash increased nearly 39%, reflecting higher earnings and stabilizing working capital investment. Year to date, we have generated over $143 million of free cash, which is up 17% from the prior year, inclusive of greater working capital investment and CapEx spend. Looking ahead, we expect working capital investment to ease going forward, which should provide a path for stronger free cash generation during our fiscal fourth quarter and into fiscal 2024, heading the direction of broader macro dynamics and partially balanced by our ongoing growth initiatives and related investments. From a balance sheet perspective, we ended March with approximately $182 million of cash on hand and net leverage at slightly below one times EBITDA. Our leverage remains below our normalized range of 2 to 2.5 times, partially reflecting the significant EBITDA growth we have experienced in recent years, as well as ongoing debt reduction. We also remain disciplined with our M&A approach, focused on targets and valuations supporting our return requirements and strategic priorities. Turning now to our outlook, as indicated in today's press release and detailed on page 10 of our presentation, we are adjusting full-year fiscal 2023 guidance, including tightening our sales guidance to the high end of the prior range and increasing guidance for EBITDA margins and EPS following our third quarter performance. We now project full-year fiscal 2023 adjusted EPS in the range of $8.40 to $8.60 per share based on sales growth of 14% to 15% and EBITDA margins of 11.7% to 11.8%. Previously, our guidance assumed EPS of $8.10 to $8.50 per share sales growth of 13 to 15%, and EBITDA margins of 11.5 to 11.7%. The updated adjusted EPS guidance range excludes the $3.7 million net tax benefit in the most recent quarter related to the tax valuation allowance adjustment. Our updated guidance implies a fiscal fourth quarter EPS range of $2.07 to $2.20 on low to mid single-digit sales growth over the prior year and 11.6% EBITDA margin at the midpoint. Our fourth quarter sales growth guidance is relatively unchanged from our prior outlook provided in January and takes into consideration sales trends month to date in April, broader economic uncertainty, ongoing inflationary pressures, moderate market activity near term, and more modest pricing contribution. We will face more difficult sales growth comparisons as well as the fourth quarter progresses. With that, I will now turn the call back over to Neil for some final comments.
spk00: Thanks, Dave. As we prepare to close out fiscal 2023, I'm extremely proud of the progress we've made and excited about the significant opportunity that still lies ahead for our organization. Our value proposition, technical industry focus, and expansion into emerging industrial solutions provides a clear path for favorable growth and strong returns going forward. As we expected, broader market activity is moderating slightly as the economy adjusts to higher interest rates, tighter credit conditions, and lingering uncertainty on many levels. We continue to believe any near-term slowdown within our core end markets will be transitional and short in nature, given positive tailwinds underpinning the industrial sector, a greater focus on supply chain reliability, and capacity investments in the wake of meaningful shocks faced in recent years. In addition, we have many self-help levers building across our business today that support our growth trajectory beyond cycle conditions. This includes our exposure to secular tailwinds tied to reshoring, and investment in U.S. industrial infrastructure, which could represent notable tailwinds across our business for years to come. We also anticipate benefits from our cross-selling strategy, expansion into new market verticals, and a more diversified in-market mix relative to prior cycles. Additionally, we'll continue to evaluate and develop new commercial solutions that fully leverage our technical capabilities and application expertise as legacy industrial infrastructure converges with new emerging technologies. This includes greater growth opportunities around IoT, telematics, and electrification for fluid power systems, as well as the ongoing build-out of our automation platform. Today, our automation offering is approaching 200 million of annualized sales and 15% of our engineered solution segment. And we expect to further scale this platform going forward, both organically and through strategic acquisitions. We expect strong secular and structural demand for these next generation industrial solutions, which should be nicely additive to our growth, both near term and more meaningfully on a longer term basis. Lastly, we see ongoing margin expansion over the long term. reflecting a diverse set of opportunities tied to mixed tailwinds and system investments, plus a competitive moat from the critical nature of our core product set, application expertise, and customized solutions. Near-term, we'll remain diligent and ready to adjust if the environment slows or presents a more meaningful pullback. As our historical track record shows, we have the playbook to execute in any environment while generating strong counter cyclical cash flow. As always, we thank you for your continued support. And with that, we'll open up the lines for your questions.
spk06: Thank you. We will now begin the question and answer session. If you would like to ask a question, please pick up your handset, press 1-4 on your telephone keypad. If you would like to withdraw your registration from the queue, please press the one followed by the three. As a reminder, if at any time you need to reach an operator, please press star zero. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Chris Dankert with Loop Capital. Please proceed.
spk03: Hey, morning, guys, and congrats on the quarter here. I guess first off, you know, if I'm looking at gross margin, typically we see, you know, kind of a seasonal step up into the fourth quarter, I guess, given the impact of LIFO and freight and some of the other moving parts here, should we see a typical seasonal move into the fourth quarter? Or just maybe you could walk us through just the impact of some of the moving parts and gross margin near term here.
spk01: Yeah. The guide assumes a modest, you know, decline in gross margin sequentially, very strong performance in the quarter and, There were some higher levels of vendor support and other things that contributed to that, but very strong continued executional performance on really all levers in terms of our margin initiatives. So we'd expect that to moderate a little bit. Like I said, we were up over 30 basis points sequentially as we moved into Q3. So we'd expect to buck the typical seasonality just a bit as a result of that, Chris.
spk03: Okay, perfect. That's really, really helpful. Thank you. And then have to do it to you. Obviously, you're starting to look down the barrel at 24. I know there's no guides today, but just on a snapshot basis, kind of look at everything going on right now. I mean, would you expect to be able to hit growth given all these, you know, secular tailwinds that are pushing behind? Or just any comments, maybe beyond just the quarter and the end of the fiscal 23 year?
spk00: Sure. Hey, Chris, I'll start. And obviously, I mean, we'll provide color. when we get to August and Q4 results and the outlook, I think for us as we think about outlook now and when we're working our plans, but we'll probably model or think and have a cautious approach to it given the uncertainty that's out there. But, hey, clearly more to come.
spk03: Yeah, thanks so much, and I'll hop back in queue here.
spk06: Our next question comes from David with Baird. Please proceed. Hi.
spk05: Good morning, guys. First question, as you measure price and you think about that on the skews that repeat this year versus last, do you think that that naturally underestimates the impact. The reason I mention is that I would think that your ability to price and get inflation and retain that, not have it competed away, would be better on SKUs that are more rare that don't turn that frequently versus the ones that are more common. Any thoughts on that assumption?
spk00: Sure. Dave, I can start. You're correct, and we go off the data that we have on the match SKUs and the third that do over the period. Obviously, we have a lot of configured products or nonstandard products that don't match in that. We do feel like with our gross margin performance in the business, we, the team, has done a very nice job at keeping pace with that inflation. But to think about it in a quarter, probably a price-cost match probably a view of neutral maybe to slightly positive in the side. But we are intent on knowing, especially in the engineered solutions side of our business and these build-outs, that we price accordingly to the value and the benefits that we're generating. And so that's been our view in the past, and I think that will continue forward. And we like that we have you know, multiple levers that can help us over an upcycle on gross margins. And the things that we've done around point of sale and use of data and analytics there, we feel like we benefit from mix both customer side as we sell both large accounts and local accounts. We're doing well on more technical solutions in that. So we think all of those set up favorably for us for our gross margin standpoint. over the up cycle. We do think the amount of supplier increases as we do look forward there, they will likely moderate. There's still going to be increases, but I think from those that were multiple times a year, they'll settle back to more annual increases and lifts, but I feel like there could be, there will be an ongoing tail to this inflation especially when considering labor and kind of overhead expenses, things tied around medical and others.
spk05: Yeah, it seems that way. Thanks for that, Neil. Second, one of the factors that we've been hearing about is the share shift that's been driven by supply chain issues, and this probably relates more to your service center business than ES, but When you think about the outgrowth that you've seen over the past couple of years, do you consider that maybe some of that was driven by availability and could normalize as supply chains come back?
spk00: Well, as I think about it, I think it's from our products, it's from our solutions, that service set that we wrap around it. I think the customer expectations have continued to grow. I think Many are looking at how they consolidate their spend with fewer, more capable providers. I think that the breadth of what they consider or what they need today expands across our technical product range, and we're well set up for that. So I don't look at that as a change going forward. And, you know, as we think about industrial production, you know, perhaps it was, you know, slightly less than one. Obviously, there has been inflation come in to the business and to the marketplace. If PPI is at 6%, to your point, we've had the opportunity to perform and outperform in that. I don't think that's set up for the marketplace and customer expectations, given the other secular trends on reshoring, the desire to do more technical work and integrate automation and how they optimize their facilities, the need to outsource more based on a challenging technical labor environment. I think those set up very well for us for multiple years to come.
spk05: Okay. And maybe one more just quickly. I was looking through some of my old notes and I had that 75% of what you used to call flow control is MRO. And first off, I'm just wondering if I have that right in the first place. And then second, when you think about the kind of the long tail aftermarket of any of the business you do in ES, primarily in that flow control area, and then with the addition of automation, I'm just wondering, does that change the dynamic at all?
spk00: So you have it correct on the setup with flow control being 75% MRO. As automation comes into that segment, there's some flow piece into that, but that business carries project work and will build a backlog. We're encouraged. In the quarter, good order rate. Lighter on the volume out this quarter, but, you know, as we talked about, coming off a high second quarter in this. And so we think the setup there is that high single digit, double digit based on adoption rates around automation. Flow control being later cycle and some of the trends and needs and investments around infrastructure, we think that sets up well. And then in our fluid power business, right, where it carries most of that backlog in the area, you know, it is still going at nice historical levels, perhaps, you know, two to three times that. So we think that is favorable for us as we look forward going into 24. Okay.
spk05: But as it relates to MRO and maybe there's something to be said for the age of the applications, Is it safe to say that automation has a lower MRO component to it than flow control does, maybe again because it's more mature?
spk00: Yes, I would say much lower, much lower than that. Our focus, our work is building out those systems and working with customers. And so afterwards are there base MRO flow materials, but it would be much, much lower.
spk05: All right, thanks very much.
spk06: Ladies and gentlemen, as a reminder, to ask a question, please press 1-4 on your telephone keypad. Our next question comes from Ken Newman with KeyBank Capital Markets. Please proceed.
spk02: Hey, good morning, guys. Dave and Neil, here is I mean, I just wanted to touch back on the margin, implied margin guy for 4Q. Dave, I think you mentioned some expectations for moderating price and maybe some more normalizing seasonality. But I just want to clarify, is there anything else that we should kind of be aware of, particularly within the SG&A line here or maybe the expectations from a LIFO headwind going forward?
spk01: No, really, you know, the guy assumes mobilized levels that we've seen in the last couple of quarters of both inflationary impact and LIFO. You know, it's function of the tougher comps to think about the relative sales growth. It's going to put some pressure on the incremental margin. So we're calling the guy would assume low double digit incrementals as a result of, you know, kind of the continued inflationary impact that we're seeing, as well as the the lower relative volume leverage that we'll have in Q4 on a year-over-year basis. So nothing out of the ordinary, though, in terms of LIFO, other margin assumptions, other than what I alluded to in Chris' question, and, you know, kind of still steady SD&A rates, keeping the focus on the operational controls there.
spk02: Right. Well, I guess to follow up on that, you know, I know you're not ready to get to 2024 yet, but just listening to yours and Neil's commentary, it seems like you aren't seeing any evidence of a material slowdown yet. You mentioned decrementals in the low double digit range and a typical down cycle, and maybe that's a little bit more conservatism. But if market conditions continue to hold in where they are, how do you think about incremental margins if sales are up low to mid single digits in this kind of environment? all else equal.
spk01: I think, you know, we'd still be targeting that low double-digit to mid-single or mid-double-digit, you know, mid-teens, margins, incrementals. I think we've demonstrated historically the ability to, you know, surpass that, obviously, when we had that volume leverage. You know, as things start to subside, we see that pull back to, like I said, that mid-teens rate. But, you know, we're going to stay very focused on the margin expansion. We expect to see, ultimately, you know, life will start to ease, although that does have once again, a much longer tail on it, given the random demand that we do see in this business. And, you know, we'll stay accountable on the SDNA side to, you know, to target those, you know, mid-teens, you know, incremental or decremental as they go that direction. But like I said, you know, just being prudent in terms of our thoughts around, you know, the guide for Q4, just given the continued uncertainty that we're seeing.
spk00: Yeah, and Ken, I'll just add, right, you said it in the remarks, and clearly we'll be out more in August on 24. But, I mean, we do believe we set up well, that we think any slowdown and kind of core in markets would be more transitional, short in nature at this point. And so, right, we know there's many secular positive tailwinds that are out there. And I think our customers have a greater focus on supply chain and that reliability and how they continue to have their capacity to serve markets. And so if we think about this cycle, and I know you do work around the IP industrial cycles, and so perhaps there's a pullback. But, I mean, this could look like something maybe that's more – early 2000s or even prior to that, that if there's a dip, it could be relatively short in nature and set up another three to four year run on it going forward. So how all that plays out and it relates to the next fiscal year, I mean, clearly we'll be providing more detail and more guidance. They're very spot on with what we're providing around Q4 and very specifics and We'll look to have more detail when we get to that August timeframe. Right.
spk02: Maybe one more here. Obviously, just thinking about the cycle, and there's some market worries, obviously, about the tighter credit lending and maybe its broader impact on industrial activity. Neil, maybe can you talk a little bit about whether you've seen a change in momentum in sales trends between your smaller and medium-sized customers versus the national accounts I know you talked pretty positively about the secular trend, which I imagine is more heavy on the national account side.
spk00: But that's a good activity with both. And so if I think about it on our service center side, the team continues to have a good focus. So, no, we would not see any significant material trends. We talked about our top industries, many of them running very well. You know, we talk about the top 30. I think those declining went to eight this quarter versus five. And those are really in the lower tail of that number, kind of the lower 10% of that. So, I mean, hey, we're cognizant. We're aware. We'll be prudent. We'll be mindful. We know we can quickly react if needed. But the date, you know, we can still remain encouraged about the market that's there.
spk02: Very good.
spk03: Take some time.
spk00: Thank you.
spk06: At this time, I'm showing we have no further questions. I will now turn the call over to Mr. Scrimcher for any closing remarks.
spk00: I just want to thank everyone for joining us today, and we look forward to talking with many of you throughout the rest of the quarter. Thanks a lot.
spk06: Ladies and gentlemen, that does conclude today's conference. You may now disconnect. Have a great day, everyone.
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