Applied Industrial Technologies, Inc.

Welcome to the Fiscal 2026 Third Quarter Earnings Call for Applied Industrial Technologies. My name is Alexandra 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 to raise your hand. To withdraw your question from the queue, press star 1 again. Prior to asking a question, please 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 0. 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 now begin.

Okay, thanks, Alexandra, 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 applied.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 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 Scrimshaw, Appliance 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. We appreciate you joining us. I'll begin today with perspective and highlights on our results, including an update on industry conditions and expectations going forward. Dave will follow with more financial detail on the quarter's performance and provide additional color on our updated outlook. I'll then close with some final thoughts. So overall, we reported a solid third quarter underpinned by a stronger organic sales growth across the business. Specifically, sales increased 6% organically over the prior year, which was the strongest growth in over two years. This was up notably from 2% last quarter and at the high end of our third quarter guidance. In addition, orders backlog and business funnel activity continue to build positive momentum. We also delivered another quarter of steady underlying margin performance with growth margins holding firm year over year, inclusive of ongoing LIFO headwinds. These positive dynamics drove record quarterly EBITDA that was at the high end of our expectations, as well as 6% above the prior year. or 8% when excluding the impact of LIFO. At the same time, we continue to invest internally to support our growth potential and strategy. So taken together a very productive quarter with many encouraging signals for the business moving forward. I want to thank our applied team for another solid quarter of execution. So a few key points to emphasize. First, stronger sales growth in the quarter was broad based with several encouraging underlying trends. Of note, average organic daily sales increased 5% sequentially, which was above normal seasonal patterns. Trends strengthened as the quarter progressed with organic sales in March up 10% over the prior year period. The stronger growth was volume driven, with customer spending behavior increasingly positive and showing signs of broadening. More positive underlying demand was apparent in year-over-year trends across our top 30 in markets, where 17 generated positive sales growth compared to 15 last quarter. In addition, two-year stack trends across our top 30 markets improved notably on a sequential basis. Growth was strongest across metals, technology, machinery, aggregates, utilities and energy, mining, and construction. This was offset by declines primarily in chemicals, lumber and wood, transportation, rubber and plastics, and refining. Stronger sales activity was evident across both segments in the quarter with particular strength in our engineered solution segment, which delivered over 9% organic growth year over year. Growth was strongest across automation and fluid power, both increasing by a double digit percent year over year in the quarter. Organic sales growth across our flow control operations also improved and was a contributor. In addition, segment orders were up by a double digit percent over the prior year for the second straight quarter, with backlog and book to bill both increasing sequentially during the quarter. Overall, this performance is an encouraging sign for our engineered solutions segments, expanding and differentiated growth potential as several favorable dynamics are converging. Of note, sales cycles for our advanced automation solutions are turning faster as customers put money to work in brownfield applications to drive production agility within existing capacity and address labor constraints. Our engineering depth, tailored solutions, and comprehensive application support are helping customers navigate automation deployments in both high-tech industries as well as across our legacy industrial verticals. In addition, project activity and investment in process infrastructure across the US is gradually increasing. We're also seeing recovery continuing to take shape in our legacy industrial and mobile OEM fluid power in markets following a prolonged multi-year downturn. alongside structural and secular growth in newer verticals where our exposure has increased in recent years following the ongoing expansion of the segment. On this last point, we're seeing solid demand build across our technology vertical, which today represents over 15% of the engineered solution segment and contributed over 300 basis points to the segment's organic sales growth rate in the quarter our exposure to the technology vertical includes an established and ongoing position across the semiconductor space as well as emerging growth opportunities developing within the data center market on slide eight of our earnings presentation we've added an overview of our position and the solutions we provide within these verticals which spans across all three areas of the segment including fluid power, automation, and flow control. In semiconductor, we provide various fluid conveyance, pneumatic, robotic, and mechatronic solutions that are primarily tied to wafer fab equipment manufacturing, as well as flow control solutions used in material processing. In data center, our deep expertise of fluid management and handling combined with established supplier relationships are presenting growing opportunities supporting various thermal management applications through engineered assemblies. In addition, our automation team provides robotic and machine vision solutions that automate and trace material handling within a data center facility. Our data center service capabilities and coverage were also enhanced through our Hydrodyne acquisition, where they are providing various fluid conveyance solutions and assemblies specified in liquid cooling systems. So overall, a very diverse and embedded position within these key growth verticals that highlights our ongoing evolution and technical capabilities as we continue to expand our engineered solutions segment. I'm also encouraged by the growth potential developing across our core service center segment. Organic sales growth of 4% in the third quarter strengthened from last quarter with average daily sales up approximately 5% sequentially on an organic basis and ahead of normal seasonality. Trends were strongest during March, where organic sales increased over 6% compared to the prior year, including nearly 8% within the U.S. Customer spending behavior continues to strengthen as greater capacity utilization drives more break-fix activity and required maintenance on critical and age production equipment. This drove stronger growth across strategic national accounts as well as our local accounts during the quarter. In addition, 13 of our top 15 industry verticals were up year over year in our U.S. Service Center network during the third quarter. This compares to 10 last quarter and six in the prior year quarter. Benefits from our sales initiative and one applied value proposition are reading through as we support our customers' heightened technical MRO requirements within an increasingly positive U.S. industrial backdrop. This includes our deep knowledge and supplier relationships tied to critical motion control equipment and infrastructure supported by our local service capabilities. I would also note over the past several years, our service center team has been executing on a comprehensive strategic plan, focusing on deepening our customer relationships modernizing our sales processes and tools, and enhancing our speed to market through investments in talent systems and analytics. In addition, our service center team's value proposition has strengthened through the expansion of our engineered solution segment, giving them access to engineering, design, assembly, repair, and integration support. to address our customers' legacy industrial system needs as well as emerging required investments in automation. This is driving new business wins as well as greater cross-selling activity. We estimate cross-selling contributed over 100 basis points to the segment's organic growth in the quarter, which is up from the first half fiscal 2026 levels and an encouraging sign. Overall, these initiatives remain ongoing and provide solid company-specific growth drivers for our service center segment moving forward as in-market demand cycles higher and as customers look to leverage the many secular and structural tailwinds developing across the North American manufacturing sector. So overall, a solid quarter highlighting building top line momentum across applied and our differentiated industry position. Positive sales trends have continued in the early part of our fourth quarter, with organic sales trending up by a high single digit percent year over year, month to date in April. We're also well positioned to drive further EBITDA margin expansion and stronger earnings growth assuming the improved top-line trends sustain moving forward. During the third quarter, EBITDA margins were in line with our expectations, while our year-over-year trends improved as the quarter progressed and sales growth strengthened. As a reminder, on an annualized basis, we target mid- to high-teen incremental EBITDA margins at mid-single-digit organic sales growth. with strong support from our ongoing internal margin initiatives, continuous improvement culture, and structural mixed tailwinds. With that being said, we remain mindful that we continue to operate in a dynamic environment where customers' purchasing decisions remain sensitive to broader macro uncertainty that is persisting. This includes an ongoing dynamic trade policy and tariff backdrop. To date, we have not seen a significant impact from recent tariff and trade policy modifications. Price increase announcements from our suppliers remain steady and over the last several quarters have normalized to a more regular cadence following an active pace this time last year. However, the inflationary environment and suppliers approach to pricing remains highly fluid at this point. We continue to work closely with our suppliers as they assess the evolving backdrop, as well as other inflationary pressures on their supply chains. As evidenced by our performance over the past year, our teams continue to effectively manage broader inflationary pressures. And overall, we remain well positioned. We operate from an agile business model in well structured markets, tied to critical and technical processes with strategic supplier relationships. Combined with structural mixed tailwinds and various self-help gross margin countermeasures inherent to our strategy, we are highly confident in our ability to continue to adapt and execute as the tariff and broader inflationary backdrop continues to evolve. And lastly, before I turn it over today, just a few thoughts as it relates to capital deployment and ongoing opportunities moving forward. Year to date, we've remained active, deploying over 300 million on share repurchases, M&A, and growing our dividend. With regard to M&A, which remains a top priority and key element of our growth strategy, we are actively evaluating various targets across both our segments with our focus primarily on midsize and smaller tuck-in companies. While timing of M&A can vary quarter to quarter, I continue to believe the next 12 to 18 months will be more active period for applied given the work being done and as we continue to execute on our strategy. In that, I think it's important to reflect on the potential. Since 2018, we've closed 18 acquisitions representing over $1 billion in acquired sales. This included key strategic acquisitions that expanded our engineered solutions capabilities into areas of flow control and automation, as well as strengthened legacy positions in fluid power and within our service center network. Over that same period, we've grown EPS by 16%. and free cash flow by 18% on a compounded annual basis. I believe that flywheel position and approach to M&A is even stronger today, given the investments we've made in our team, processes, and systems, as well as the compelling value proposition we offer to many companies looking to join our leading technical industry position within a still fragmented industry. In addition to ongoing M&A activity, we remain proactive with share buybacks. Long term, we see significant value creation potential across supply, considering our strategic initiatives, industry position, exposure to secular growth tailwinds, and margin expansion potential. When appropriate, we will continue to utilize share buybacks to enhance shareholder returns. And as indicated in our press release today, I'm pleased to announce our board has approved a new authorization to repurchase up to 3 million shares. At this time, I'll turn it over to Dave for additional detail on our results and outlook.

Thanks, Neal. And good morning to everyone joining today. Just another reminder, our quarterly earnings presentation is available on our investor site. We hope that you will find this a useful reference as we recap our most recent quarter performance and updated guidance. Turning now to our financial performance of the quarter, consolidated sales increased 7.3% over the prior year quarter. Acquisitions and foreign currency were a modest tailwind in the period, adding 50 and 80 basis points of growth, respectively. The number of selling days in the quarter was consistent year-over-year. Netting these factors, sales increased 6% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 250 basis points in the quarter, which was in line with our guidance and last quarter's trend. Netting this impact, we estimate volumes grew 3.5% over the prior year, a nice acceleration from the prior quarter. Moving to consolidate gross margin performance, as highlighted on page 9 of the deck, gross margin of 30.4% was relatively unchanged compared to the prior year level. During the quarter, we recognized LIFO expense of $5.6 million compared to $2.2 million in the prior year quarter. On a net basis, this resulted in an unfavorable 27 basis point year-over-year impact on gross margins. Excluding the LIFO headwind, gross margins improved year over year, reflecting ongoing progress with our total margin initiatives, price of channel execution, and more favorable mix. As it relates to our operating costs, selling, distribution, and administrative expenses increased 7.5% compared to prior year levels. On an organic constant currency basis, SD&A expense was up 6% year over year. Our teams continue to drive strong cost discipline while also focusing on various efficiency initiatives tied to technology investments, shared services, and sales tools. This helped offset ongoing inflationary headwinds, annual merit increases, higher incentives, and ongoing growth investment into the business during the quarter. SD&A expense as a percentage of sales was at 19.4%, which was relatively unchanged from the prior year, but improved approximately 40 basis points sequentially. We saw cost leverage improve nicely through the quarter as sales growth strengthened. Overall, stronger organic sales growth, modest M&A contribution, and favorable underlying gross margin performance resulted in reported EBITDA increasing 6.2% over the prior year. This is inclusive of greater LIFO expense year-over-year, which negatively impacted EBITDA growth by 2.3 percentage points compared to the prior year quarter. Reported EBITDA margin of 12.3% was down 13 basis points from the prior year level with year-over-year LIFO headwinds negatively impacting EBITDA margin by 27 basis points. EBITDA margins were in line with our third quarter guidance range of 12.2 to 12.4%. In addition, year-over-year EBITDA growth and EBITDA margin trends strengthened as the quarter progressed. Reported earnings per share of $2.65 in the third quarter increased 3.1% from prior year EPS of $2.57. On a year-over-year basis, EPS was impacted by a higher tax rate and net interest expense, partially offset by a lower diluted share count. Results this quarter included $1.7 million or approximately 5 cents per share of non-routine discrete tax expense related to prior year tax provision adjustments. We expect our tax rate in the fourth quarter to be within a range of 24.4 to 24.6%. Turning now to sales performance by segment, as highlighted on slides 10 and 11 of the presentation, sales in our service center segment increased 4.2% year-over-year On organic daily basis, this excludes 20 basis points of contribution from acquisitions and a positive 130 basis point impact from foreign currency translation. Organic sales growth was driven by stable price contribution and stronger volume growth across our US service center operations. Partially offset by softer international sales. Segment EBITDA increased 2.7% over the prior year. while segment EBITDA margin of 14.2% decreased 42 basis points. Year-to-year segment EBITDA and EBITDA margin trends were impacted by LIFO headwinds and higher employee-related costs, including incentives, as well as a difficult prior year comparison. On a year-to-date basis, segment EBITDA growth of approximately 5% is slightly ahead of reported sales growth while segment even margins are relatively unchanged year-over-year. With our engineer solutions segment, sales increased 10.2% over the prior year quarter with acquisitions contributing 90 basis points of growth. On an organic basis, segment sales increased 9.3% year-over-year, primarily reflecting strong volume growth across our fluid power and automation operations, as well as improved growth across our flow control operations. Segment EBITDA increased 11.9% over the prior year or approximately 14% when excluding the impact of LIFO expense. In addition, segment EBITDA margin of 14% was up 21 basis points from prior levels, inclusive of a 50 basis point year-over-year LIFO headwind. The strong EBITDA growth and EBITDA margin performance in the quarter primarily reflects solid underlying incremental margins on stronger sales growth, firm gross margin performance, and ongoing cost accountability. Moving to our cash flow performance, cash generated from operating activities during the third quarter was $100.1 million, while free cash flow totaled $95.4 million, representing conversion of approximately 96% relative to net income. Compared to the prior year, free cash was down 8%, reflecting greater working capital investment in relation to stronger sales growth, partially balanced by ongoing progress with internal initiatives. From a balance sheet perspective, we ended March with approximately $172 million of cash on hand and net leverage at 0.3 times EBITDA. Our balance sheet remains in a solid position to support our capital deployment initiatives moving forward, including accretive M&A, dividend growth, and share buybacks. During the third quarter, we repurchased over 346,000 shares for $93 million, bringing the year to date total to over 897,000 shares for $236 million. Turning now to our outlook, As indicated in today's press release and detailed on page 14 of our presentation, we are tightening our full year fiscal 2026 guidance toward the high end of our prior range following our 3rd quarter performance. We now project EPS within a range of 10 dollars and 60 to 10 dollars and 75 cents based on sales growth of 7.2 to 7.7%. including a 3.8% to 4.2% organic sales growth assumption, as well as EBITDA margins of 12.3 to 12.4%. Previously, our guidance assumed EPS of $10.45 to $10.75 on sales growth of 5.5 to 7%, including 2.5 to 4% on organic basis and EBITDA margins of 12.2 to 12.4%. Our updated guidance assumes a fiscal fourth quarter EPS range of $2.85 to $2.96 on organic sales growth of 4 to 5.5% year-over-year, as well as EBITDA margins in a range of 12.6 to 12.8%. We expect inorganic M&A sales contribution to be slightly lower sequentially in the fourth quarter as we anniversary our IRIS factory automation acquisition at the beginning of May, combined with ongoing initial contribution from our Thompson industrial supply acquisition, which we announced last quarter. Our fourth quarter organic sales growth assumption takes into account more difficult prior year comparisons in May and June. In addition, while we are encouraged by the positive sales momentum developing, we remain mindful of ongoing geopolitical developments and trade policy uncertainty, which may continue to influence customer spending behavior. As a result, we continue to assume a degree of variability persists across our end markets near term. Lastly, from a margin perspective, we expect fourth quarter gross margins to be relatively stable sequentially. This assumes slightly higher LIFO expense compared to the third quarter. With that, I'm going to turn the call back over to Neal for some final comments.

So as we prepare to close out fiscal 2026, we do so from a position of strength with several growth catalysts beginning to emerge across our business. As Dave highlighted, we remain prudent with our near-term assumptions and outlook. as we are still navigating an evolving and dynamic market backdrop influenced by geopolitical and trade-related uncertainty. As we've seen over the past year, this could still present a choppy and uneven in-market demand as customers continue to balance this complex landscape. That said, the trajectory of our sales and broader industrial macro indicators year-to-date in calendar 2026 are currently more indicative of an early in-market recovery beginning to take shape, followed by a prolonged stagnant period of deferred maintenance and capital spending throughout the last two years. Business funnel and order momentum is sustaining positive trajectory, while technical MRO spending requirements are high, given aged manufacturing equipment across North America. As these trends progress, we expect customers to partner with larger, more capable providers like Applied, given our comprehensive solutions and technical service capabilities. At the same time, Applied Automation growth is accelerating as adoption of co-bots, mobile robots, machine vision, and IoT solutions are increasingly viewed as need to have. We are also favorably positioned to benefit from multi-year growth tailwinds continuing to develop across our technology vertical while our cross-selling initiative is gaining traction. So overall, the momentum is building in the right direction. Our teams are executing well. The industry and competitive position we've assembled is strong. We are excited about the opportunities in front of us and remain highly focused on translating our growing momentum into superior long-term shareholder value creation. With that, we'll open up the lines for your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please pick up your handset and press star 1 on your telephone keypad to raise your hand. To withdraw your question from the queue, press star 1 again. 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. Your first question comes from the line of Christopher Glynn with Omnicom. Your line is now open. Please go ahead.

Thanks. Good morning, guys. I WAS CURIOUS IF YOU MAY HAVE MENTIONED A LITTLE BIT BUT WANTED TO AT ANY RATE GO A LITTLE DEEPER INTO THE TREND YOU'RE SEEING WITH LOCALS VERSUS NATIONALS AND GUESSING SOME OF THE SEQUENTIAL ACCELERATION MAY HAVE BEEN LED BY THE LOCAL ACCOUNTS, YOU KNOW, PICKING UP SOME MOMENTUM. BUT I'LL SPECULATE.

OK, so I can start coach. So Chris, let's say we saw good growth with both. So local accounts year over year were up 5% versus 3 1⁄2% in Q2. But we also saw good growth and progress with national accounts up 7% year over year and versus the 4% that we saw in the second quarter.

Great, thanks. And then also wanted to, you know, you got some real exciting things going on with automation and the fluid power comparisons were so down. Flow control's been kind of more of a narrower sine wave trajectory, but clearly some broadening out there. Wondering if you could

also kind of go down a layer or two into the flow control the process arena sure so if you think about flow control they benefited from the tech vertical segment really 300 basis points to flow control in the side in in the quarter they had six percent so high single digit I mean mid single strong mid single digit growth we also saw benefit in primary metals general industry and energy and the utilities on the side. You know, chemicals would be the one that would be still down year over year, but the trend is improving on that front. So we're encouraged as we close the year and then move into the next fiscal year.

Okay, and just interesting comment you made about I think was the automation side where kind of sales lead times and conversions were shortening up a bit. Are you seeing that as a trend on the process side as well?

Yeah, that reference was really around customers moving from their projects moving faster. So when we're part of a larger project, we're seeing good speed there. And when we're providing productized solutions, it just seems more customers are interested in accelerating automation projects for what they can do for their productivity or ongoing quality assurance in their offering. So that is encouraging as well as the order rates and the backlog that we've been building.

Thank you.

Your next question comes from the line of Ken Newman with KeyBank Capital Market. Ken, your line is now open. Please go ahead.

Hey, good morning. Thanks, guys. Maybe for the first question, on engineered solutions, the operating leverage there seemed a little bit lighter than I would have expected, just given the 9% organic growth there. I know you guys are still kind of talking to mid-single-digit growth with mid-to-high-teen incremental margins on the EBITDA side. Maybe can you talk about what we saw in the margins, how much of that was maybe driven by LIFO headwinds or mix? And then, Dave or Neil, if you want to just talk about what you think about normalized operating leverage in just the ES segment alone as we go into fourth quarter and beyond.

So I think incrementals in the quarter for ES were 16%, ex-LIFO more than 19% on that front. So we feel good about that performance in the side. Within that, within flow control, They had some projects that came in lower, but, you know, depending on the mix, that can be typical in the front. And then, Ken, you'll recall, right, Hydrodyne to date really at fleet average for the company, so under the engineered solutions average, but with continued focus and continued improvement. So we're well pleased on that front. So I think that's what we would see from the performance side.

again and i just would add i think through the quarter we saw um incremental margins and even the margins in the segment on a year-over-year basis strengthened as as the top line uh strengthened as well so overall uh i'd say the the results from the incremental margin and operating leverage standpoint were in line with our expectations and nice improvement as the quarter played out got it okay and then you know for the follow-up uh

It was really nice to hear about the orders within engineered being up double digits for the second straight quarter here. How should we think about the timing of those orders flowing through the P&L into fiscal 27? And I'm just curious how much conservatism might be built into this fourth quarter guide as it relates to what you're seeing from the order front.

So I think, one, we want to be prudent, as we talked about, with a little bit of either trade policy moderations that could go on or some of the geopolitical. We are encouraged by the orders. We've talked about timing of the order conversion can vary. One's going to be around the complexity of the order and our engineering time. But also some of these projects are tied to overall customers projects. So we're in a sequence of an overall project Gantt chart. So there are some that will go in a 60 to 90 day time period. There'll be others that can extend out.

Okay. If I could just squeeze one more in, can you just remind us how big the step up is in the May and June comps versus last year?

Yeah, so compared to the May compared to April will be 200 basis points higher. And then the May time period or the June time period will be another step up of 200.

Got it. Thanks so much.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand. If you would like to withdraw your question from the queue, press star 1 again. Your next question comes from the line of Andrew Oven with Bank of America. Your line is now open. Please go ahead.

Yes, good morning. Good morning, Andrew. Just maybe dig in on M&A environment because it's such a big driver for value creation. Just maybe a little bit more color. You know, your M&A has been sort of slower post-COVID. What are you seeing that encourages you? Because, you know, I think you've been constructive for a while, but we haven't seen a huge acceleration in the M&A activity. So what do you think is changing or what's remaining stable and what would it take to sort of unlock you know, the M&A potential?

Well, you know, I think as we talked, I mean, we've got clear priorities that we're working in engineered solutions, prospects or targets around fluid power, around flow control and automation, good bolt-on opportunities as well as mid-size companies and opportunities like Hydrodyne presented. And then we also have in the pipeline, you know, adjacency work that we could have or geographic around the service center side of the front. So we are active and engaged at various stages of the M&A process. So I think that's what builds. I think an improving environment may cause some of these companies to look at the opportunity as well. So I just gauge it by we've got clear priorities. I know where we're engaged, the level of the team's work, and that I expect M&A to be a stronger contributor over the next 12 to 18 months.

Thank you. And maybe a couple of markets that you highlighted as headwinds, and I think one of them was refining and chemicals, and I think you addressed chemicals. And the other one, transportation. We've heard on sort of refining chemicals that I think generally do what's happening in Iran. Global companies have sort of paused some of the spending, but the view is that it is going to come back in the second half of calendar 26, particularly given what high prices are doing to profitability of North American assets. So that's question number one. And question number two,

on transportation are you guys going to be impacted positively if or when trucks come back thank you yeah so uh if i think about refining in chemicals i could agree with the logic on uh second half improvements and activity there i would also say given our our north american footprint and focus Uh, with geopolitical in the Middle East, we are likely to see more activity occur in US North America on those fronts. And I'd say a broadly across transportation, not our largest segment, but we will participate. So an improving environment would be good for us.

Thank you very much. Thank you.

Your next question comes from the line of David Manthe with Baird. Your line is now open. Please go ahead.

Hi, good morning. This is Anara Khan hopping on for Dave this morning. Apologies if I missed this in the opening remarks. But for my first question, I know pricing can be imperfect to measure since you don't sell every SKU every year. But with that caveat, can you give us your best framing of how the 6% organic growth this quarter split between price and volume? And if Price realization tracking ahead of the 1 or 2% range.

We said pricing in the quarter was about 250 basis points. We estimate based on the analysis where we do have like skews and extrapolate that. That would indicate obviously about 350 basis point benefit from volume. That 250 basis points was consistent sequentially and in line with expectations. In terms of pricing, we expect, you know, kind of a Q4 guy, assumes that to moderate just a bit, really a function of some of the year-over-year kind of tariff and other visionary impact-driven price increases that we saw in our Q4 prior year. So a nice contributor, but also a nice volume rebound as well in the quarter.

Super helpful. Thank you. And if you could provide an early April read on volume specifically through the first few weeks, that'd be great too. You know, if you're seeing customers pre-buy or pause given the dynamic policy environment. And lastly, can you remind us and define what one applied specifically means to you today and how you're measuring progress internally? Thanks.

Sure. If we start with the, you know, kind of what we're seeing in terms of volume, month, the date. You said high single digits were up. did remind everybody that the comp does, you know, kind of the comparative steps up in May and June, about 200 basis points each month. So, you know, a little bit tougher comps as we move across the quarter, but encouraged by the start that we see month to date. I'm sorry, the other part of the question.

Yeah, I can take it. It was on, so one applied. And if you think about it from an in-customer standpoint, there's really nothing moving inside of their facilities that our products, our services, our solutions are not a part of. So our service center teams have great operating know-how of the customers moving equipment and that functionality and how the customers make money with uptime and production. And then from a one applied standpoint, we're supporting those plant operations with greater engineered solutions expertise, whether that be in fluid power systems, process flow control, and now more on the discrete automation side, as many look to utilize collaborative robots or mobile robots in their facility vision systems for quality control and inspection. and really more IoT or connectivity to pull performance data off that operating equipment within a facility or across multiple facilities. And so we see a growing capability or growing need of customers for that full utilization, and our teams are comfortable in doing this. We have a growing pipeline of projects in that. We've touched on in the comments really contributing over 100 basis points to the service center this quarter, and we expect that to continue to grow.

That's all great to hear. Thank you.

At this time, I'm showing we have no further questions. I will now turn the call over to Mr. Scrimshaw for any closing remarks.

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

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.