Welcome to the Fiscal 2024 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Rob 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 call 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, Rob, and good morning to everyone on the call. This morning we issued our earnings release and supplemental investor deck detailing our second 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 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 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. 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. Overall, our team continues to execute at a high level, which was apparent in the second quarter, considering ongoing normalization in industrial activity industrywide. Of note, sales exceeded our expectations and held relatively firm over the prior year on an organic basis, despite facing our most difficult quarterly growth comparison of the year. This was with continuing muted demand within the technology sector as we highlighted last quarter. Nonetheless, we sustained margin expansion and earnings growth against this backdrop. Part of this performance reflects normalizing LIFO expense that is providing a clear view of our underlying margin progress and earnings profile, as well as sustained operational execution and lower interest expense. Results include some temporary mix headwinds, which Dave will discuss in more detail in a moment, as well as ongoing investments supporting our growth potential moving forward. In addition, we generated solid cash flow during the quarter that puts us on track for a record cash generation year. This is inclusive of ongoing investment in working capital year-to-date as we continue to support our growth opportunities, while strong cash flow has always been a hallmark of our business. We believe our cash generation potential has been enhanced by our expanding margin profile, ongoing efficiency gains and working capital initiatives. This positive trend is augmenting our growth capacity and capital deployment opportunities moving forward. This was demonstrated in the second quarter where we started to buy back some of our shares. We also announced a 6% increase in our dividend this morning, and we have ongoing scope for additional buybacks for the remainder of fiscal 2024 based on our current cash position and the intrinsic value across our company long term. In addition, our M&A pipeline and related due diligence activity continue to increase. We remain disciplined and tailored with our approach, but see a productive backdrop that should accelerate M&A activity in the coming quarters. As it relates to the underlying operating environment, we continue to see normalization in customer activity across areas of our business, as end markets recalibrate around stabilizing supply chains and higher interest rates. This has presented a more muted growth environment near term, consistent with broader macro indicators including year-over-year contraction in U.S. industrial production during the second quarter, as well as sub-50 PMI readings for the past 14 months. Combined with difficult prior year comparisons, we saw slightly more mixed trends out of our top 30 end markets during the quarter where 18 generated positive sales growth year-over-year compared to 22 last quarter. Growth was most favorable across food and beverage, mining, refining, pulp and paper and transportation verticals during the quarter, offset by declines in areas such as machinery, energy and rubber and plastics. In addition, we continue to face a headwind from reduced activity across the technology sector, which we estimate negatively impacted year-over-year organic growth by over 100 basis points in the quarter, including over 400 basis points within our Engineered Solutions segment similar to last quarter. The technology sector has adversely impacted our year-over-year sales performance for the past four consecutive quarters at this point. That said, sales tied to this key end market have stabilized and related orders were up over 10% sequentially in the second quarter. Prior year comparisons also ease moving forward. And so while uncertainty remains, these dynamics make us increasingly constructive on this key growth vertical, including the positive impact it can have on our underlying year-over-year sales performance as we progress through the second half of fiscal 2024 and into fiscal 2025. We also continue to see positive momentum across many areas of our business in the U.S. This includes sustained growth across our service center and our flow control operations, as well as core industrial and mobile fluid power business during the quarter. Related sales across these areas on a combined basis were up by a low single-digit percent over the prior year during the quarter, and up over 25% on a two-year stack basis. Within our Service Center segment, we saw strong growth across larger national accounts and fluid power aftermarket sales during the quarter. Our sales initiatives continue to drive new growth opportunities as we leverage technology investments to streamline sales processes and enhance our use of analytics within our service center network. Utilization of our proprietary sales management tools continues to increase, which is driving greater account penetration, market intelligence and speed to market around new growth opportunities. In addition, our Service Center segment is exposed to more secular and company-specific tailwinds today than in prior cycles, providing a greater level of sales support in the current muted industrial environment, as well as representing a powerful growth multiplier as underlying industrial activity reaccelerates. Within our Engineered Solutions segment, our mobile and industrial fluid power OEM and Engineered Solutions sales continue to benefit from a healthy backlog with related sales up by mid-single digit percent over the prior year during the quarter. Underlying demand in this area of our business remains relatively firm with related orders up sequentially from the first quarter. Our technical and engineering capabilities are in greater demand from mid-tier OEMs as they face rapid innovation and accelerate integration of advanced features into their equipment. In addition, we're integral to our customers’ sustainability initiatives, from enhancing the overall efficiency and life cycle of hydraulic systems and power units to helping design and integrate new electrification features within fluid power systems. Further, capital spending on process infrastructure remains firm across our flow control operations. New business tied to our customers’ decarbonization and energy transition efforts remains high with related orders on a strong trajectory heading into the second half of our year. As the largest distributor of process flow control solutions in the U.S., we are uniquely positioned to support our customers’ decarbonization initiatives. This includes providing technical support for the configuration, assembly, and testing of process systems for carbon capture and storage, as well as producing alternative fuel sources. We did see some modest slowing in everyday MRO activity across our flow control operations late in the quarter, though we believe this was primarily related to temporary and seasonal factors. Further, we remain positive on our underlying fundamentals and strategic growth initiatives across our automation business. While automation sales declined over the prior year during the quarter as expected, part of this reflects a very tough comparison from a record second quarter of system shipments last year. That said, sales were up by mid-teen percent on a sequential basis. Order trends are improving, and comparisons get easier in the second half. Supply chain headwinds in this area of our business are improving as well, potentially augmenting system shipment activity moving forward. In addition, customer interest in our advanced automation solutions remains positive with our sales funnel and pre-sales engineering activity remaining active, including greater cross-selling opportunities developing at some of our top national service center customers. We're also making progress, expanding our automation footprint and growth capacity moving forward. This includes ongoing progress with our greenfield initiatives, a facility expansion in the Pacific Northwest, and an active M&A pipeline focused on targets across North America. Overall, we've worked extensively over the past five years to establish our automation platform with leading engineering and application expertise across next-generation technologies that have a significant and growing addressable market. We've developed strategic supplier relationships and brought together top engineering talent and leadership that have solidified our market position as a preeminent value-added distributor and solutions provider in this advanced area of industrial technology. We look forward to seeing this business scale further over the next couple of years and become increasingly accretive to our consolidated organic growth and margin profile. Overall, the progress we continue to make across our core operations and emerging solutions remains encouraging, particularly when considering ongoing inflationary pressures. We believe part of this reflects structurally higher inflation across the industrial sector as the industry faces technical labor constraints, required technology investments and sustainability initiatives. Reshoring activity and required infrastructure investments will also remain key considerations for inflation moving forward. These dynamics are apparent in the ongoing supplier price increases we continue to manage through. While having moderated from heightened levels seen the last two years, the overall number and magnitude of supplier price updates year-to-date remain elevated compared to historical levels. As always, we remain strategic with our approach as we recognize the important role we play in the critical areas of the industrial supply chain. This includes helping our customers mitigate inflationary pressures by delivering value-added solutions and reducing their owning and operating expenses, as well as by leveraging our scale and leading technical capabilities to help drive and monetize their growth potential. Within an increasingly technical and labor constrained industrial complex, our value proposition is more relevant than ever across the industrial channel. And our Applied team continues to stand out with their top-tier execution and service. At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

Thanks, Neil. Just as a reminder, consistent with prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for your additional reference as we recap our most recent quarter performance. Turning now to details of our financial performance in the quarter. Consolidated sales increased 1.6% over the prior year quarter. Acquisitions contributed 140 basis points and foreign currency translation had a positive 30 basis points impact. The number of selling days in the quarter was consistent year-over-year. Netting these factors, sales declined a modest 0.1% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was in the low-single-digits for the quarter and slightly below last quarter. Turning now to sales performance by segment as highlighted on Slides 7 and 8 of the presentation, sales in our Service Centers segment increased 1.4% year-over-year on an organic basis when excluding a 1.6% positive impact from acquisitions and a 0.4% positive impact from foreign currency translation. Growth was strongest across our U.S. Service Center network and MSS consumables business, partially offset by more muted sales trends across our international operations. Segment operating income increased 6% over the prior year, while segment operating margin of 12.5% was up 28 basis points year-over-year. Within our Engineered Solutions segment, sales decreased 2% over the prior year quarter. This includes a positive 1 point of growth from acquisitions. On an organic basis, segment sales decreased 3% year-over-year, which was largely in line with our expectations. As mentioned earlier and highlighted last quarter, segment growth continues to be adversely impacted by current technology and market demand, which negatively impacted the year-over-year change in segment sales by approximately 400 basis points in the quarter, consistent with the last quarter's impact. In addition, sales within our automation operations declined over the prior year on an organic basis. The decline was in line with our expectation and partially reflects more normalized sales of Engineered Solutions this year following outside shipment activity last December. That said, automation sales were up sequentially during the quarter and we're seeing encouraging order trends out of a strategic growth area. Reduced sales across the technology sector and our automation operations were partially offset by sustained growth across our industrial and off-highway mobile fluid power solutions and our process flow control operations. Segment operating income declined approximately 1% over the prior year, while segment operating margin of 14.7% was up 16 basis points from prior year levels. Moving to gross margin performance as highlighted on Page 9 of the deck. Gross margin of 29.4% increased 34 basis points compared to the prior year level of 29.1%. During the quarter, we recognized a LIFO expense of $3.4 million compared to $8.9 million in the prior year quarter. This net LIFO tailwind had a favorable 51 basis point year-over-year impact on gross margins during the quarter. Normalizing LIFO expense is directly in line with our expectation following abnormally high levels over the past several years, driven by the broader inflationary backdrop. In addition, we estimate gross margins in the second quarter include 20 to 30 basis points of unfavorable mix impact compared to prior year levels. This primarily reflects lower engineered solution segment sales as well as strong national account sales growth and a lower mix of automation engineered solutions compared to the prior year. Overall, we continue to manage broader inflationary dynamics well through our ongoing focus on various gross margin countermeasures and initiatives including enhanced analytics, freight expense management, and channel execution. As it relates to our operating cost, selling, distribution, and administrative expenses increased 3.5% compared to prior year levels. SD&A expense was 18.8% of sales during the quarter, up from 18.4% during the prior year quarter. On an organic constant currency basis, SD&A expense was up approximately 1% over the prior year period. We had some modest deleveraging in the quarter as expected given the muted sales growth we saw, though we continue to manage costs well as we balance expense controls against our growth initiatives and constructive outlook as well as face ongoing inflationary pressures. SD&A expense this quarter also includes higher deferred compensation cost. As a reminder, fluctuations of deferred compensation cost in SD&A are primarily driven by market values of investments tied to our non-qualified deferred compensation plan. There is a corresponding offset to these fluctuations in other income and expense, which we report below operating income. This offset in the quarter was a $2.9 million gain reported in other income. So overall, factoring for these dynamics, we are holding underlying operating costs relatively flat, highlighting solid performance and execution. Combined with gross margin management and lower LIFO expense, reported EBITDA increased 4.2% over prior year levels during the quarter, while EBITDA margin of 12.1% increased 31 basis points year-over-year. We also continue to benefit from lower net interest expense, which was down over $4 million from the prior year and primarily reflects reduced debt levels and greater interest income from higher cash balances and investment yields. Taken together, adjusted earnings per share of $2.24 was up over 9% from prior year levels. As highlighted in our press release, adjusted EPS in the quarter excludes a tax benefit of $3 million or $0.08 per share resulting from the release of deferred tax valuation allowance within our Mexico operations. Moving to our cash flow performance, cash generated from operating activities during the second quarter was $101.8 million, while free cash flow totaled $96.2 million or 109% of adjusted net income. Compared to the prior year, free cash was up over 73% and at a record second quarter level, reflecting higher earnings, stabilizing working capital investment, and ongoing working capital initiatives. From a balance sheet perspective, we ended December with approximately $413 million of cash on hand and net leverage at 0.3 times EBITDA, which is below the prior level of 1.0 times. Our balance sheet is in strong position to support our capital deployment initiatives moving forward, as well as enhance returns for all stakeholders. Our capital deployment priorities remain consistent with organic growth and acquisitions, our primary focus areas. In addition, our strong cash generation is allowing us to deploy capital in other areas, including share repurchases. During the second quarter, we repurchased 63,000 shares for approximately $11 million. Turning now to our outlook as indicated in today's press release and detailed on Page 11 of our presentation, we're updating full year fiscal 2024 guidance to reflect second quarter earnings performance and our current second-half outlook. We also expect lower net interest expense partially offset by higher depreciation and amortization expense assumptions. Specifically, we now project adjusted EPS in the range of $9.35 to $9.70 per share based on sales growth of 1% to 3%, including a 0% to 2% organic growth assumption, as well as EBITDA margins of 12.1% to 12.3%. Previously, our guidance assumed EPS of $9.25 to $9.80, sales growth of 1% to 4%, and EBITDA margins of 12% to 12.3%. Our sales outlook continues to take into consideration economic uncertainty and assumes underlying industrial activity continues to gradually moderate near-term. In addition, based on sales trends in January, we currently project fiscal third-quarter organic sales to be flat-to-down by a low-single-digit percent over the prior year quarter. Our updated guidance assumes the year-over-year technology vertical headwind persists for the balance of the year and sales growth in our automation operations remains relatively muted near-term, considering ongoing uncertainty around the cadence of shipment timing. Overall, while we remain constructive on our setup moving forward, considering easing prior year comparisons and sustained benefits from our internal initiatives, we believe it remains prudent to take a balanced approach to our near-term outlook, pending more definitive signs of a positive inflection in macro conditions and underlying industrial activity. Lastly, from a margin perspective, we expect third-quarter gross margins to increase slightly sequentially and third-quarter EBITDA margins to be flat to up slightly over the prior year. These assumptions take into account potential expense deleveraging near-term on modest organic sales declines, as well as ongoing inflationary headwinds, growth investments, and our annual merit increase, which is effective January 1st, offset by lower LIFO expense compared to the prior year. We are also assuming mixed headwinds persist to some degree in the third quarter, but start to subside into the fourth quarter. With that, I will now turn the call back over to Neil for some final comments.

Thanks, Dave. So to wrap up, I'm proud of the Applied team and our performance through the first half of fiscal 2024. We're delivering on our commitments and making strong progress towards our interim financial objectives of $5.5 billion of revenue and 13% EBITDA margins. Near-term, we expect the underlying demand environment to remain muted as customers settle into the New Year and operate at a steady pace pending a more defined direction on the economy. This is partially reflected in January sales trending down an estimated low-single-digit percent on an organic basis over the prior year. I would note this is against an over 20% prior year comparison as we experienced higher than normal scheduled maintenance activity and capital spending from our service center customers last January, and weather is also having a negative year-over-year impact on January-to-date sales. That said, I remain constructive on our setup moving forward given the potential for reaccelerating sales and earnings growth as the second half of fiscal 2024 plays out and into fiscal 2025. This considers several positive dynamics including prior year comparisons becoming less difficult, particularly across our operations tied to the technology vertical. We also believe break-fix activity could reaccelerate across our service center network into the spring and summer as production schedules ramp back up following the recent operational reset and some deferred maintenance activity over the past several quarters. Incremental infrastructure spending and related stimulus should further support our sales momentum, with many of our Top 30 end markets tied either directly or indirectly to this megatrend. In addition, we expect technical MRO and capital spending requirements to remain heightened as customers modernize equipment and expand production facilities to meet a multi-year secular growth cycle across North America that's just beginning. We see many powerful forces influencing this trend including greater evidence of reshoring to North America over the past year, aged industrial infrastructure, and strategic actions to reduce energy consumption across industrial capacity. Our technical domain expertise and access to core industrial equipment puts us in a leading position to help customers manage through these operational requirements. We also continue to invest to support our long-term growth. This includes expanding facilities in our Engineered Solutions segment to position for meaningful growth potential we see across the technology sector and our scaling automation operations. In addition, we're making investments in advanced machining, IoT offerings and engineering talent in our Fluid Power operations. Other examples include investments in underlying business intelligence systems, which are driving faster and more streamlined access to data and more robust business capabilities that align with our suppliers' and customers' growing service expectations. Lastly, we continue to augment our local technical market approach with investments in digital and e-commerce channel capabilities, including targeted updates to applied.com that will go live in the coming months. Overall, these are just some of the examples of the ongoing investments we're pursuing to strengthen our industry position, extend our ability to generate outsized organic growth, and continue to enhance our returns on capital long-term. We look forward to showcasing this potential in the quarters and years to come. As always, we thank you for your continued support. And with that, we'll open up the lines for your questions.

Thank you. Your first question comes from David Manthey from Baird. Your line is open.

Thank you. Good morning, guys.

Good morning.

So typical execution in a tough environment, should we assume that the upside versus the downside of your guidance range is mostly based on timing and the magnitude of macro outcomes here? Because, Dave, you mentioned in the outlook that you're assuming the industrial market continues to moderate in the near term, and you cited weakness in January, which is consistent with what we're hearing from others? But approximately when does your guidance assume that the macro bottoms out and starts to improve here?

We'd say Q3 here again, potentially down low-single-digits to flat. That does assume that continued moderation. I think we've got some things we think about secular tailwinds and some of the other drivers, as well as some opportunities in terms of shipment timing that are still somewhat unclear on the automation side. I'd say we'd start to see kind of assume a bit of recovery in Q4, but obviously continue to be very optimistic for our position, the secular tailwinds benefiting us and the opportunities in front of us as we move into our Fiscal 2025.

Okay. And could you tell us what the revenues of Bearing Distributors and Cangro were in the second quarter, and were those about as expected for you?

Those were about as expected. That added about 140 basis points of growth to the Service Centers segment as we had indicated in the script.

Yeah. Okay. And then, Dave, following up on the – could you talk about the source of other income that $2.9 million, and how we should think about modeling ahead?

Yeah. Sure. Here again that's really the offset that you're seeing to the hit we would have taken in SD&A in terms of that deferred comp, the impact of fluctuations in the investments related to our deferred comp plan. So net neutral from the overall P&L standpoint; but a good guy another income a hit to SD&A. So here again, you start to normalize that SD&A spend for the organic view of the world, and then strip out some of that noise, which is not operational spend essentially flat. So again, that's all driven by changes in investment returns on that deferred comp plan.

And that should happen next quarter?

Yeah. I can't say that, obviously, it depends on what happens to the market. Largely market driven in terms of the impact plus or down, it can go either way, obviously, but once again a net neutral to the P&L.

Got it. Okay. I'll get back in the queue. Thanks, guys.

Thanks, David.

Your next question comes from the line of Chris Dankert from Loop Capital. Your line is open.

Hey, morning, guys. Thanks for taking the question. I guess, first off, as we're looking into the back half of the fiscal year here, are you expecting ES sales growth to be fairly similar to kind of Service Centers sales growth in the back half? And I assume that's part of why that mixed headwind improves sequentially into the third quarter here?

Yeah. We would expect the gap to close in the second half and be more similar, though we could see the service centers be above but perhaps the rate of improvement in the engineered solutions to be higher in the back half.

Got it. That's helpful. And then I think the implicit guide you guys have given on the third quarter is a little bit softer than at least I was expecting, particularly with seasonality in your favor. Is it really that technology piece that's still driving some of the caution, or is it broader than just technology here?

I think one. Hey, we want to take a prudent approach as we come into it, right. We're mindful of January, but it's early still in the month on that side. And just our view on market assumptions for the second half as earlier would be kind of the low-single-digits from a market condition's down with that improving as we get into the fourth quarter in the side. So really it's a prudent approach as we go through. Obviously, we're going to be working initiatives to be better.

Got it. Makes sense. Makes sense. And then maybe just last for me. You cited some of the internal sales initiatives and growth opportunities; obviously, we're aware of automation, some of the advanced technology pieces. Anything else you'd call out as kind of something that's exciting you in terms of those internal sales initiatives and kind of what you're looking at internally to kind of juice growth a little bit here?

I think they really go across the business. I think the work in the service center on sales process, use of data, the execution of that site is very positive. They're bringing the cross selling potential of the engineered solutions really in fluid power, in flow control, and now the ramping opportunity that we have in automation is positive for the service centers, for our customers and engineered solutions. And then some of the things we touched on in Fluid Power, not the biggest impact in the next quarter, but we will see more advanced solutions and we will see more electrification. We're making those investments in engineering capabilities and facilities that can help with technology throughput, that's going to be positive. And then the work that we have, a new expanded facility in the Pacific Northwest around automation and some of that build-out of the capabilities will play well for us, we believe as we conclude this fiscal year, but really into the setup for Fiscal 25 and beyond.

Understood. Thanks so much for the color there. Really appreciate it.

Mighty Chris too. The January comp is a difficult one. We were about 20% prior year January. So as you think about the context of that low-single-digit year-to-date or January projection.

Got it. I appreciate that for sure. Well, thank you. I'll jump back in line here.

Your next question comes from the line of Ken Newman from KeyBanc. Your line is open.

Hey, good morning, guys.

Good morning.

I want to jump on the back of that last question from Chris here on January. I'm just curious, any color on just how the cadence of monthly sales comps from last year kind of progresses through the quarter, 20% plus here in January. Do we see a pretty substantial step down in that monthly adds comp starting in February, or is that a March driven number?

Yeah. I'd say directionally, I think it would go roughly February, mid-teens type increase last year and March still double-digit in that side. So, but that would be kind of the step down of that cadence.

And then into the fourth quarter is where you really start to see the comps become even more easy?

Yes, right. That makes sense.

So my next question here is, I guess I'm trying to make sense of the commentary on technology versus the guide for 3Q, right? Because if I remember correctly, Neil, you kind of mentioned sales impacts are up mid-teens sequentially. It sounds like the orders, they are stabilizing here or were stabilizing in 2Q, but you still expect that to be a headwind here. Maybe help me square that comment a little bit and then maybe also some color if you could, just on where in technology are you seeing that biggest improvement? Is it in the semiconductor side? Is it data center? Is it consumer electronics? Any help there would be great.

Sure. So we think about it, right? We've talked about the magnitude of the headwind, total business, the 100 basis points or in the engineered solution segment, which is where a predominant amount of the activity would be the 400 basis points in that side. Just as we look ahead at the cycle of some of those projects or activity and release, we think that trend can continue – could continue in the current quarter, this third quarter as we go along. If we look back at past cycles, there typically are four to maybe five quarters in that side. So we take that as a positive. So we think there's a positive influence, some relief coming. Obviously, the comparisons will get a little easier in that as well to help in the second half. As I look at it today, probably more start to be fourth quarter impact and then as we go into 2025. And so places that we are playing, one would be to support wafer fab equipment and some of those producers and providers. Obviously, we can be a little bit ahead of that activity. But I think most are projecting that re-acceleration to occur late in this calendar year or into 2025. And so we could get a little earlier there. And then we've been active from data warehouse and cooling systems and material movement in some of those projects, we would expect that to continue. But I think that the pace of some of that implementation has been a little uneven and we probably see more of that coming either potentially in our fourth quarter of this fiscal year or as we get into our 2025.

As we said, Ken, we were encouraged though in the quarter regarding the sequential increases that we saw both in order rates and shipments on the automation side of the business. Just a very difficult comparison that masked some of that from the prior year. So on a two-year stack basis to upload double digits organically in that business in the most recent quarter.

Right. No, that makes sense. Maybe one more from me. Obviously, the balance sheet is essentially unlevered and it sounds like you guys are still open for business as it relates to M&A here, just maybe any color on the pipeline and what's your take on potentially tapping the balance sheet for the share repurchases even more if those deals get delayed?

So we are active in from an M&A standpoint to our priorities that we're consistent on in the Engineered Solutions. So across fluid power and flow control and automation, much like we did in the last quarter the nice bolt-on to the service center. So we'll continue to look and be active there as well. I would expect more M&A activity this fiscal year. And as we go into 2025 on the side we were active in share repurchase. We would expect that to continue this fiscal year, the dividend increase that we just announced. And then some of the things that we will make while they're not outsized in the amount, but we have more growth investments and that can support our organic that we think will be favorable as we go into 2025 and beyond. And so we'll look to continue. So we're knowledgeable, we're aware of where we're at. We'll continue to work the growth opportunities that we have, acquisitions and organic growth into that side. And then return money to the shareholders via the share repurchase and dividend.

Excellent. Thanks for the color.

Yes. Thanks for taking a few more questions here. What are MSS revenues today and of those sales, what percentage is delivered via vending technology?

We've not disclosed discreetly Dave, the kind of the relative contribution of MSS. There is a component of that business, that does and does the vetting machine piece of the equation. Certainly, a profitable business for us, one that's accretive from the mix standpoint and a nice complement to the position you got the one-stop shopping, we provide across the other industrial solutions so we can be all to customers. So – but nonetheless, piece of the business we like just do not talk separately and have not disclosed what the revenue contribution is there.

Okay. Fair enough. What percentage of ES segments sales would you say are capital investments versus expense items for your customers? I know there's a number of different verticals within ES and there's probably different expense capital dynamics there.

Yes. That's probably another one. Just for pure CapEx I don't think we've talked about individually. I would say that it is going to be lower in our Service Center segment. And then I think the places that it would show up for us would be around flow control in some of those projects and then perhaps around the automation systems less in fluid power given some of that work is supporting OEMs and their equipment that they are taking forward to the marketplace in that. So those are the places I'd say overall, Dave, my view is there's not such a capital project reliance or input into the business that impacts it through on the service centers are really heavily across the Engineered Solutions side of the business.

Okay. Thanks for that. And then last question on inflationary pressures, and I hope this is understandable. But when you think about the ratio between your COGS inflation and the sort of potential benefits there and then the SD&A inflation that you're experiencing and the negatives there, is there any significant difference in that, what I would call a spread between those two things? I'm just meaning are the inflationary pressures that you're experiencing as a company more intense, less intense, or the same as they were relative to the inflationary pressures that you are enjoying, I guess on the top line?

Yes. Let me see if I can answer that well, a couple ways or a few areas of the consideration. I think overall and in the quarter, I think we touched on, right. From a price cost standpoint, I'm pleased, right, slightly positive in that side. I think across our business and the operating teams, we're very mindful on the inflationary inputs to our operating side of the business and how we help ourselves in use of technology and other tools and shared services and such that can help us. And the investments that we talk about are really going to be in engineering talent and forward-facing resources that can help with customers and customer solutions into that side. So I think overall, we are doing an effective job at the pricing to value and recognizing the importance of our solutions, especially at either an engineered solution or at the break-fix time.

I just remind you too, Dave, the times we don't – you see a bit of a lag in terms of when you see that read through is price realization specifically, especially as it pertains to some of the activity with some of our larger national accounts where there are those contractual arrangements, we've got vendor agreements because they want to participate with us in that business to absorb. And there's other mechanisms so that we're still able to grow margins during those inflationary periods even during the time where we're not able to pass on a price increases. So there's other mechanisms not coming through as price, day one, but where you'd see that offset before we're able to pass these price increases on. So may not be a one-for-one in terms of when it hits the top line read-through versus the impact on COGS and SD&A.

Got it. All right. Thanks, guys.

At this time, I'm showing we have no further questions. I will now turn the call 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 you throughout the quarter.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.