Welcome to the fiscal 2023 Fourth 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 a listen-only mode. Later we will conduct a question-and-answer session. 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.

Okay. Thanks, Frank, and good morning to everyone on the call. This morning we issued our earnings release and supplemental investor deck detailing our fourth 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 qualifications referenced in those documents. Our speakers today include Neil Schrimsher, 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. We appreciate you joining us. I'll start today with some perspective on our fourth quarter results, current industry conditions and our expectations going forward. Dave will follow with more specific detail on the quarter's performance and our forward outlook including fiscal 2024 guidance. I'll then close with some final thoughts. So first, I'd like to start by acknowledging and thanking our Applied team for their hard work in delivering a record and pivotal year. We continue to exemplify best execution and commitment to consistently serving our customers with industry leading technical expertise from our core legacy operations to our expanding engineered solutions. Our customer focus and operational execution are evident as the evolution at Applied continues to unfold. This is apparent when considering the strong finish to fiscal 2023 with fourth quarter sales, EBITDA, EPS and cash flow growing nicely and exceeding our expectations. EBITDA grew 17% on 9% sales growth, driving full year fiscal 2023 EBITDA growth to 28% on 16% sales growth. This is on top of significant growth achieved last year and against normalizing end market demand during the quarter, so really solid performance that is top tier within our core markets. We're achieving this growth while continuing to expand gross margin and EBITDA margins with both reaching new record highs in fiscal 2023 despite meaningful LIFO headwinds. Another point to highlight is the strong cash generation in the fourth quarter, bringing our full year fiscal 2023 free cash to a record level of approximately $320 million. This is nearly a two-fold increase over the prior year and inclusive of working capital investment and higher CapEx. Very encouraging progress and a strong indication of the enhanced cash flow power of Applied as we scale and optimize our operations and margins as well as drive various internal initiatives. Furthermore, our competitive position and operational rigor had never been stronger. This is evident by the significant improvement in our return on capital metrics throughout the year, which are the highest in over 10 years. Overall, in a year that faced ongoing headwinds from supply chain constraints and persistent inflation to a mixed macro and demand backdrop, we exceeded our commitments and created meaningful value for our customers, suppliers and all stakeholders. Once again thanks to the entire Applied team for driving this performance. So several key points to highlight in more detail. First, in terms of underlying demand, we saw generally firm trends through the quarter including a solid finish during June. Average daily sales increased 3% sequentially, largely in line with normal seasonal trends, while organic growth was strong on a two-year and three-year stack basis at 27% and 47%, respectively, which compares favorably relative to prior quarters. Growth was strongest in many of our top industry verticals and across our larger national account base. We saw particular strength across food and beverage, pulp and paper, energy, utilities, lumber and wood, and mining verticals during the quarter. Ongoing backlog conversion across our engineered solutions segment provided further support. In addition, we believe we're capturing incremental growth opportunities from our industry position and service capabilities, as well as building momentum from our cross-selling initiatives. Of note, growth contribution from cross-selling actions continue to build during fiscal 2023 with related sales growth accelerating at a notable level compared to the prior year. While still in the early innings, we see solid potential from cross-selling going forward with business unit alignment and sales effectiveness gaining traction across our legacy service center customer base. From fluid power and process systems to advanced automation solutions and indirect consumable support, the breadth of our solutions and application expertise provides our customers coverage across all areas of their operations, a compelling value proposition that is driving a strong funnel of new business opportunities entering fiscal 2024. It's great to see the sustained growth momentum within our business, particularly when considering broader macro market activity, continued to normalize as we expected. Of note, we saw some incremental softening within metals, technology and chemical end markets during the quarter, as well as delayed capital spending across certain pockets of our customer base. Into early fiscal 2024, organic sales were up by a low single-digit percent. While early trends in the quarter are always difficult to gauge given typical seasonality in the summer and some normalization following our year-end close, we remain mindful of ongoing macro headwinds and easing customer production activity that is presenting a more modest near-term end market backdrop. That said, we have yet to see any meaningful signs of a broad material slowing to date and customer feedback remains generally optimistic. Additionally, we believe emerging reshoring activity and investments in US industrial infrastructure are creating incremental demand layers for our technical MRO and Engineered Solutions both directly and indirectly. All these considerations suggest to us that current market easing is more reflective of a modest cooling in customer activity rather than a retrenchment or contraction in our core end markets, but we're keeping a close eye on the environment and will adjust if required. Digging a little more into each of our segments. Sales growth within our Service Center network remains encouraging with Service Center segment sales up over 9% organically over prior year levels during the fourth quarter and on top of 21% growth last year. Into early fiscal 2024, we're seeing relatively firm sales trends across our US Service Center network which is an encouraging sign for general demand as well as the ongoing outgrowth we see in this core area of Applied. In particular growth remained solid during the fourth quarter across larger national accounts and fluid power aftermarket sales. Transactions through our digital channels including EDI and applied.com are also growing nicely with related sales up over 30% during fiscal 2023. Our digital channels are benefiting from systems and process tool investments in recent years which are helping drive new customer growth. In addition, we see greater sales force effectiveness as we continue to deploy and utilize prescriptive analytics to drive more robust benchmarking, wallet share gains, product penetration and geographic coverage. Combined with ongoing talent initiatives and our local service capabilities, we are capturing new growth opportunities across both legacy and emerging end markets. Within our Engineered Solutions segment which includes fluid power, flow control and automation offerings, we saw underlying growth moderate slightly from prior quarters. Those sales were still up by a high single-digit percent over the prior year. Component delays and supply bottlenecks remain hurdles within this system build and assembly focused area of our business albeit at a lesser degree compared to prior quarters. Within Fluid Power, we saw strong backlog conversion, as the quarter progressed and solid growth within our core off-highway mobile and industrial verticals, where sales were up in the low teens year-over-year and orders continued to grow during the quarter. This helped offset softer demand we continue to see across technology-related end markets. Our Fluid Power backlog exited fiscal 2023 still well above normalized levels and we expect a reacceleration in orders across the technology-related vertical as fiscal 2024 plays out given structural growth tailwinds underpinning this market and our channel position. In addition, our design engineering and software coding expertise are in greater demand as customers focus on reducing power consumption and CO2 emissions, navigate a tight labor market and integrate more autonomous features into their equipment. Demand also remains positive for our higher-margin process flow control products and solutions. During the quarter, MRO activity and capital spending on process infrastructure remains solid in core end markets such as chemicals, food and beverage, utilities, energy, and pulp and paper. As noted in prior quarters, our flow control solutions are increasingly used in applications tied to our customer decarbonization efforts and other required infrastructure investments as end markets transition around new energy requirements. This includes providing technical support for the configuration, assembly, and testing of process systems. We see further momentum building into fiscal 2024 as we execute on this meaningful opportunity. As it relates to our expanding automation platform focused on next-generation robotics machine vision and digital solutions, we continue to see positive demand backdrop. Year-over-year organic sales growth improved to 9% in the quarter against ongoing supply chain constraints and slightly longer sales cycles across certain verticals. Demand remains strong across biotech, life sciences, data centers, and consumer packaging, partially offset by slower trends across semiconductor and electronic markets. Importantly, customer interest in new business opportunities remains elevated with our sales funnel and presales engineering activity at record highs. We also have more than 100 open projects tied to our joint cross-selling efforts, which is up meaningfully from prior year and represents a notable sales contribution opportunity heading into fiscal 2024. So, overall underlying growth momentum remains resilient and promising as we continue to navigate an uncertain macro environment. And then lastly, we ended fiscal 2023 with a healthy balance sheet and over $300 million cash on hand net leverage below one times over $1.5 billion in balance sheet capacity. We deployed over $180 million in fiscal 2023 on capital allocation actions including two automation acquisitions, a greater level of CapEx investment supporting organic growth initiatives, ongoing debt reduction, and growth in our dividend. Looking ahead we expect favorable cash generation to sustain as our working capital requirements moderate following heavy investment in recent years. This provides significant firepower to drive ongoing organic investment as well as potentially accelerate M&A. Our top M&A priorities remain focused on automation fluid power and flow control markets. We also continue to evaluate select M&A opportunities across our service center network, aimed at optimizing our market coverage, talent, and service capabilities as we look to fully leverage and capture the significant growth potential continuing to develop in our core service center business. This includes tailwinds tied to reshoring, customer CapEx investments, and technical supply chain requirements. In addition, we remain flexible to return capital through other avenues if necessary including a potentially more active approach to share buybacks given our long-term earnings potential and the intrinsic value we see across the company. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

Thanks Neil. Another reminder before I begin as in prior quarters, we have posted a supplemental quarter recap deck to our investor site for additional reference. Turning now to details of our financial performance in the quarter, consolidated sales increased 9.1% over the prior year quarter. Acquisitions contributed 70 basis points of growth, which was partially offset by a 20 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 8.6% on an organic basis. Average daily sales rates increased over 3% sequentially versus the prior quarter and were largely in line with normal seasonal patterns. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was in the low single-digits in the quarter moderating as expected from mid-single digits in prior quarters. Turning now to sales performance by segment. As highlighted on slide seven and eight of the presentation, sales in our Service Center segment increased 9.1% year-over-year on an organic basis when excluding the impact of foreign currency. Growth was strongest across our US Service Center network as well as within MSS or Maintenance Supplies & Solutions, our indirect consumables business focused on vendor-managed inventory and vending solutions. This was partially offset by more modest growth across our international operations. On a full year basis, segment operating income increased a solid 24% in fiscal 2023, while segment operating margin of 12.6% was up 80 basis points. Within our Engineered Solutions segment, sales increased 9.7% over the prior year quarter, with acquisitions contributing 220 basis points of growth. On an organic basis, segment sales increased 7.5% year-over-year. Growth in this segment continues to be supported by strong performance and backlog conversion tied to our industrial and off-highway mobile fluid power solutions, as well as sustained customer MRO and CapEx spending into process flow infrastructure. Organic sales growth within our automation operations was also ahead of the segment average at over 9%. This was partially offset by slower activity within fluid power technology verticals and ongoing inbound component delays, impacting the timing of some system shipments. On a full year basis, Engineered Solutions segment operating income increased a strong 30% in fiscal 2023, while segment operating margin of 14.1% was up approximately 150 basis points from the prior year, as well as over 300 basis points from fiscal 2019 levels. Moving now to our consolidated gross margin performance on page nine of the deck, gross margin of 29.2% increased 35 basis points, as compared to the prior year level of 28.9%. During the quarter, we recognized LIFO expense of $8.1 million compared to $10.8 million in the prior year quarter. This net LIFO tailwind had a favorable 24 basis point year-over-year impact on gross margins during the quarter. This is the first quarter in two years, where LIFO expense was lower year-over-year, which is directionally in line with our expectation of easing LIFO expense near term, as broader inflation normalizes and we take a more balanced approach to inventory growth. Our underlying gross margin performance continues to showcase strong execution and our margin expansion potential. During fiscal 2023, we expanded gross margins 12 basis points to 29.2% inclusive of an 18 basis point headwind from higher LIFO expense. In addition, gross margins were up more than 80 basis points over the past two years, when excluding LIFO expense. Our team continues to manage broader inflationary dynamics well, delivering on our gross margin initiatives, including the application of enhanced analytics, freight recovery and channel execution. As it relates to our operating cost, selling, distribution and administrative expenses increased 7.3% compared to prior year levels. SG&A expense was 18.3% of sales during the quarter, down from 18.6% during the prior year quarter. Prior year SG&A benefited from slight favorability, tied to our self-insurance performance, as well as lower deferred compensation expense. When excluding these favorable prior year items, SG&A expense was up approximately 4% over the prior year period. We continue to leverage labor costs well, a reflection of talent and systems investments, as well as benefits from shared services deployment and operational excellence initiatives. For full year fiscal 2023, SG&A expense as a percent of sales was 18.4%, representing a 130-basis-point improvement over the prior year and a 290-basis-point improvement of fiscal 2019 levels. These results are evidence of our team's operational rigor and the structural improvements we have realized in recent years from our ongoing evolution and business enhancements. Our solid sales growth, gross margin management and cost leverage, combined to drive a 16.7% increase in EBITDA over prior year levels during the quarter, while EBITDA margin of 12.1% increased 79 basis points compared to prior year levels. This includes a favorable 24-basis-point year-over-year impact due to lower LIFO expense. Including reduced interest expense and a slightly higher tax rate relative to prior year levels, reported earnings per share of $2.35 was up over 16% from prior year earnings per share levels. Moving now to our cash flow performance. Cash generated from operating activities during the fourth quarter was $179.9 million, while free cash flow totaled $174.3 million, representing strong conversion at 189% of net income. For the full year, we generated free cash of $317 million, which was up 87% from the prior year and a record high, despite greater working capital investment and CapEx over the past year. We ended June with approximately $344 million of cash on hand and net leverage at 0.5 times EBITDA, which is below the prior year level of 1.2 times EBITDA. Our leverage remains below our normalized target range up to 2.5 times, partially reflecting the significant EBITDA growth we have experienced in recent years. 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, which is detailed on page 11 of our presentation, we are establishing full year fiscal 2024 guidance, including EPS in the range of $8.80 to $9.55 per share, based on sales of flat to up 4% year-over-year and EBITDA margins of 11.9% to 12.1%. Our outlook takes into consideration, sales trends through early August, ongoing economic uncertainty, strategic growth investments, and easy price contribution as the year plays out. We also are assuming additional moderation in broader market activity near term as customers continue to normalize production levels and manage through a higher interest rate environment. While we have not seen any meaningful signs of the broad material slowdown to date and remain constructive on our company specific growth opportunities, we believe it is prudent to take a balanced approach to our initial outlook. The midpoint of our guidance assumes lower year-over-year sales growth trends in the first half of the year relative to the second half, partially reflecting more difficult comparisons prior in the year. In addition, based on quarter-to-date sales trends through early August, we currently project fiscal first quarter organic sales to grow by a low-single-digit percent over the prior year quarter. From a margin and cost perspective, we assume ongoing inflationary pressures albeit at a more modest level than in fiscal 2023, partially offset by slightly lower LIFO expense year-over-year. As usual, the year will include the impact of our annual merit pay increase January 1. Combined with lower top line growth and lingering supply chain constraints, guidance assumes more modest operating leverage relative to fiscal 2023 pending further transparency on broader economic conditions and our near-term growth trajectory. Lastly, from a cash generation perspective, we expect another solid year of free cash flow performance, given easing working capital investment into the front half of the year as well as some benefit from the release of working process and additional progress on our working capital initiatives. In addition, we expect ongoing organic investment supporting our growth strategy and value proposition as well as further investments in technology and supply chain with capital expenditures targeted in $27 million to $29 million range for fiscal 2024.

Thanks, Dave. So to wrap up, our performance in fiscal 2023 provides strong evidence of our favorable industry position and the operational execution potential of the Applied team. This is partially the result of strategic investments and initiatives that have positioned Applied for stronger growth relative to our legacy trends and improved returns on capital. From our financial results to the feedback we receive from customers, suppliers and other stakeholders, our value proposition and evolution is resonating at a high level across our core marketplace. Similar to a year ago when we began fiscal 2023, the current macro backdrop is driving uncertainty as to how industrial activity will track into fiscal 2024. Higher capital costs, tighter credit conditions and ongoing labor and supply chain constraints will likely remain drags on end market spending and customer budgets in the near term. Combined with difficult comparisons following significant growth in recent years, our initial outlook for fiscal 2024 incorporates moderating sales growth into the first half of the year, which we believe is prudent in the current environment. That said, we remain constructive that our industry position and self-help opportunities can sustain above-market performance and continue to drive a robust business funnel that presents many new and diverse growth catalysts both near and long-term. In addition, regardless of the trajectory of cycle dynamics, we are focused on continuing to enhance our underlying operational strength in scaling our business as we progress towards our next strategic objectives. Our team and alignment are strong as the underlying flywheel effect embedded in our strategy is building momentum, which at its core is centered around optimizing and leveraging our legacy Service Center operations as secular tailwinds gain speed while expanding across higher-margin Engineered Solutions tied to advanced automation, industrial power and process technologies. Our multifaceted strategy presents many new growth catalysts within our Service Center network; we are expanding into new vertical markets tied to electric vehicle production, semiconductors, renewable energy, life sciences, logistics and wastewater. We're also engaging supplier partners and developing solutions for the adoption of IoT and smart systems. Our domain expertise and technical sales knowledge are invaluable assets in the channel as these emerging business opportunities accelerate. In fluid power operations, we're leading the way in developing and integrating solutions supporting the acceleration of digital control technologies as well as autonomous and electrified equipment. Our engineering capabilities set us in a strong competitive position to secure this fluid power growth tailwind. We're also adding capacity in regions supporting the technology end market, including further strengthening our fluid power systems growth potential across the semiconductor sector for years to come. We also see notable growth potential in expanding our solutions tied to sustainable initiatives in the energy transition. Of note, our Flow Control business is engaging strategic suppliers and identifying opportunities around biogas and carbon capture as well as hydrogen and lithium production. Our broad flow control product portfolio combined with our engineering capabilities are integral to the ongoing build-out of various flow systems and processes utilized in these emerging green market opportunities. And lastly, we remain excited about the ongoing expansion of our next-generation automation platform. Now representing close to 15% of our Engineered Solutions segment sales, we expect greater organic growth contribution from this advanced area of our business in fiscal 2024, particularly as we accelerate our cross-selling efforts. We're making traction with our greenfield expansion initiatives and continue to develop new approaches to best serve our embedded customer base and further enhance our market position, including through proprietary turnkey solutions and leading application expertise. We see significant potential to further scale this platform into fiscal 2024 and beyond with both, M&A and organic initiatives. Given these dynamics and the strong performance in fiscal 2023, we're increasing our intermediate financial targets with our sales objective now over $5.5 billion and EBITDA margins over 13%. We believe these objectives are well within the company's capability and can be achieved within the next five years or sooner depending on broader macro conditions, the cadence of M&A and other factors. Overall, our team is engaged and ready to execute on these next milestones which we believe provide the framework for significant value creation for all stakeholders. Once again, we thank you for your continued support. And with that, we'll open up the lines for your questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from David Manthey with Baird. Please proceed.

Thank you. Good morning, guys.

Good morning.

First question is related to capital allocation. So I believe you still have 1.5 million shares available under the current authorization. And maybe more broadly, could you talk philosophically about share repurchase just given the state of the economy, your leverage ratios and the state of your acquisition pipeline?

Sure. In terms of rank order, we've talked about it before. Certainly our first priority is going to be organic investment. You saw more significant organic investment in the business in the past year in fiscal 2023, anticipating that in 2024 as well, really focused around continuing to build out capabilities on the Engineered Solutions side of the business. Certainly, still active M&A pipeline you would like to continue to see us drive significant shareholder value with the bolt-on acquisitions still very much in line of sight for fiscal 2024. As we made reference in the earnings release and the script, I think, in addition to kind of could it be a dividend payer with the track record of 14 years of increases we would expect to be a bit more active in terms of share buyback, just given cash position low leverage levels and kind of that near-term view on the cash generation characteristics of the business. We're well setup to drive continued significant cash flow, as you think about moving through 2024, leading off some of these, still slightly elevated work in process inventory levels and continue to see the improvement in the profitability of the business. So expect us to be a bit more active there in terms of share buyback, as we move through 2024.

It seems like a big opportunity. Your debt levels have decreased by almost 1.5 turns over the past two years, and this has not limited your ability to make acquisitions. With $1.5 billion in availability, it makes sense to allocate a few hundred million toward share repurchase in addition to your other activities. But am I correct in understanding that your current guidance, as you mentioned, does not factor in any unannounced acquisitions? Also, should we assume it excludes any additional capital redeployment beyond investments in operations and capital expenditures?

That's correct. The guidance would be a normal course of business for the existing operations. So I would exclude the incremental M&A that would be upside opportunity or anything unusual in terms of capital allocation.

Yes. Okay. And then second, maybe you could give us an update on customer receptivity towards your discrete automation applications. And more specifically, maybe you could give us some examples of some of the top sort of replicable solutions that you're seeing success with today?

Yes. So Dave, I can start. I think from the numbers in the quarter we were pleased. The teams are active, both our sales engineers and application specialists engaging with customers and a real focus is understanding their operations and how we help solve their problems. And think about applications that can be replicated we would see interest in projects and conversion around collaborative robots and machine tending which can help customers with labor. We would see applications and use of vision systems, where customers would apply them for quality control. Enhancements or perhaps also address some labor challenges or constraints when those previously were perhaps manual inspection versus using technology. We can see trends in consumer packaging, right? There's high standards on consumer packaging on accuracy and labeling and of course, barcoding as those go through more retail environments. And so there's a high requirement there, and so we see vision systems that can get applied into that. So they continue to grow. We look at how we can set up some of these productized solutions, which we think helps our Service Center teams identify those opportunities and then connect with our application resources to increase that conversion rate. We made reference to there's more projects in the pipeline there, but I'm also encouraged by our automation team continuing to grow in their targeted vertical segments and with current customers as well as prospects and targets they have.

All sounds really good. Thanks, Neil.

Thank you.

Hey, good morning, guys.

Good morning.

Curious can you just talk a little bit more about the confidence in the organic sales guide, particularly for the back half. Neil, I know obviously, we've heard a bit more about customers destocking across a lot of industrial distributors this quarter as the supply chains normalize. But obviously, you're a bit more break/fix relative to a lot of your peers. Any way you can kind of quantify what you've seen from a destock perspective this quarter and how do you expect that plays out into the back half of 2024?

Yes. So again, we've talked about it. I think at times I think given the technical nature of our products, the random break/fix demand. Oftentimes, many of those – a little more customized solutions, we do not get a favorable lift from stocking. And then therefore, I think we get some natural resistance to destocking trends. Our customers are really counting on us, given those break/fix requirements around those products and solutions. So I won't say it's zero, as it goes, but it's much lower than other forms of products and consumables in that front. So as we think about the environment and the guide right our focus is pay will be prudent to some of the cross currents or the trends or publications but we also have a strong focus on our customers and those opportunities and our sales effectiveness that we can operate to continue to perform in any environment.

Right. Make sense. And then in the past, I think you've talked a little bit more about your macro assumptions that underlie the full year outlook. And I'm curious, can you just share what you're assuming for industrial production or capacity utilization at the midpoint of the guide for this year?

Yes. So I'd start and say right we're not perfect economists as we think, we'd like to say we're more focused on or hope to be better operators than economists. But if I think about guidance, I would say to your question then around the midpoint, we'd assume kind of a low single-digit year-over-year declines in the first half and then perhaps in the second half more muted or just a slight contraction to the market in the second half.

Understood. Maybe just please one more in. I wanted to talk about the low end of the guide. Obviously, it assumes higher margin and EPS of flat sales. Maybe just talk a little bit more about bucketing the various drivers of that margin expansion in that scenario, how much of that is going to be from a mix shift versus cost-out initiatives? Any help there would be appreciated.

We believe there are still opportunities for improving our gross margins through various initiatives we have in place. We are focusing on executing at the point of sale. In the current slowing environment, the customer mix may pose some challenges, particularly for local accounts, which might feel the impact more than larger national accounts. We will continue to offer technical solutions to enhance our sales mix and will also leverage other strategies to improve gross margins. We have shown consistent cost management in the business, which should provide some resilience if we experience a downturn. Regarding LIFO, we anticipate it could be around or slightly below $8 million per quarter in the first half, and while it's uncertain for the second half, it may also contribute slightly.

Very helpful. Thanks guys.

Our next question comes from Chris Dankert with Loop Capital. Please proceed.

Hey good morning, guys. Thanks for taking the question. I guess, thinking about the guide for fiscal 2024, are we assuming kind of a return to a much more typical pricing dynamic where it's modest to maybe like a 1% contributor, or is it something in that ballpark?

We definitely saw some improvement, with mid-single-digit figures dropping to low single digits in the most recent quarter. As we progress through the year, I expect that to remain in the low single digits. We are maintaining very modest inflation expectations throughout the year, which we will address with pricing adjustments and other margin enhancement strategies. Overall, this isn't expected to be a significant factor on a year-over-year basis compared to what we experienced in 2023.

Got it. Yeah. No it's good to return to something more normal I guess. And then maybe just on the backlog side of things, how should we be thinking about the impact of backlog growth in the near-term? Are we assuming engineered solutions benefits from that in 2024 outgrows the service center business we're looking at the guide overall?

I believe that in the first half, the service center business is expected to perform well, especially in the US where it's currently doing strong. However, we might see a slower start in Canada and Mexico, which could affect our overall numbers slightly. We anticipate that performance in service centers might be even stronger. The backlog is mainly concentrated in our fluid power segment within engineered solutions, and while we observed some growth in flow control and automation during the quarter, the significant backlog we focus on is in fluid power. We had a good conversion rate in the quarter, and our backlog levels are still about double the normalized rate, which we see as a positive sign that should provide underlying strength as we advance through the first half of this fiscal year.

Got it. Thanks so much for the color, and best of luck in the new year guys.

Thanks Chris.

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

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

Ladies and gentlemen, this does conclude today's conference. You may now disconnect your lines. Have a great day, everyone.