Welcome to the Fiscal 2015 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Julian, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Julie Kho. Julie, you may begin.

Thank you, Julian, and good morning, everyone. Our earnings release was issued this morning before the market opened. If you haven't received it, you can retrieve it from our website at applied.com. A replay of today's broadcast will be available for the next 2 weeks, as noted in the press release. Before we begin, I would like to remind everyone that we'll discuss Applied's business outlook during the conference call and make statements that are considered forward-looking. All forward-looking statements, including those made during the question-and-answer portion speak only as of the date hereof and are based on current expectations that are subject to certain risks, including trends in the industrial sector of the economy, the success of our various business strategies and other risk factors identified in Applied's most recent periodic report and other filings made with the SEC, which are available at the Investor Relations section of our website at applied.com. Accordingly, actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to publicly -- to update publicly or revise any forward-looking statement, whether due to new information or events or otherwise. In compliance with SEC Regulation FD, this teleconference is being made available to the media and the general public as well as to analysts and investors. Because the teleconference and its webcast are open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed. Our speakers today include: Neil Schrimsher, Applied's President and Chief Executive Officer; and Mark Eisele, Chief Financial Officer. At this time, I will turn the call over to Neil.

Thank you, Julie, and good morning, everyone. We appreciate you joining us today. As noted in our release this morning, we're pleased with the continued sales and earnings growth in our fiscal 2015 second quarter. Our net sales of $691.7 million reflect a 19% increase from the prior year quarter, and our earnings per share of $0.72 are up 18% as compared to the same period last year. Our efforts reflect a recurring theme across Applied to realize our full potential. We continue to focus on growing sales with existing customers and winning new business; strengthening our product expansion, including our maintenance supplies and solutions offering; leveraging our Fluid Power capabilities into value-added services; enhancing our operational excellence and continuous improvement activities; and lastly, accelerating acquisitions, including delivery of the synergy plans. During the quarter, we completed the acquisition of Ira Pump & Supply. Ira is an experienced supplier to the upstream production segment for the oil and gas industry in West Texas, and they're well-positioned to service the Midland and client shale plays in the Permian Basin. We are active in the integration process and we remain encouraged about the mid- to long-term opportunities across our oil and gas businesses. Looking forward, we see an industrial economic environment that continues to present opportunities for organic and acquired growth. While the recent decline in oil prices create some challenges, we are fully engaged in executing our acquisition integration plans as well as our broader industrial growth initiatives across our industrial-served markets. Entering the second half of fiscal 2015, we are narrowing our full year guidance range for earnings per share to between $2.95 and $3.10 per share on a sales increase of 13% to 15%. In this morning's release, we also announced that the company's Board of Directors declared a $0.02 or 8% increase in the quarterly cash dividend to $0.27 per common share. This is our sixth dividend increase since 2010, representing a cumulative increase of 80% in the quarterly dividend over this 5-year period. We were also active in share repurchases during the quarter with the purchase of 249,900 shares of common stock for $11.5 million. These actions further demonstrate our confidence in our business position and our commitment to generating increased shareholder value. I'll now turn the call over to Mark for some more detail on our financial results.

Thanks, Neil. Good morning, everyone. I'll provide some additional insight regarding our second quarter fiscal 2015 financial performance. Our sales-per-day rate during the quarter was $11.2 million, 18.9% above the prior year quarter and 1.7% above our rate in the September quarter. We had 62 selling days in both the December 2014 and 2013 quarters. Acquisitions had a positive impact on sales of 15.8% during the quarter, and foreign currency impacts decreased sales by 1.4%. Therefore, overall core same-store operations experienced a 4.5% increase in sales compared to the prior year. In addition, we believe the impact of vendor price increases was minimal during the quarter. Our product mix during the quarter was 25.9% Fluid Power products and 74.1% industrial products. Second quarter sales in our Service Center-Based Distribution segment increased $104.1 million or 22.1%. All of the $91.7 million of acquisition impact on sales is within the Service Center-Based Distribution segment. The remaining increase in this segment was driven by our U.S. service centers, which experienced a 2.0% sales increase in the quarter. The sales in our Fluid Power businesses segment increased $6.3 million or 5.5%. This increase was focused within our U.S. Fluid Power operations. From a geographic perspective, sales in the second quarter from our overall U.S. operations were 14.7% higher compared to the prior year quarter and experienced a positive impact of $53.7 million or 11.2% from acquisitions. Our Canadian operations benefited from $33.6 million of sales from acquisitions during the quarter. The core Canadian operations experienced a sales increase in local currency of 10.2% and had negative foreign currency translation impact of 8.6%, resulting in a combined sales increase of $35.8 million or 52.8%. Consolidated sales from our other country operations, which include Mexico, Australia and New Zealand, had an overall increase of $3.7 million…

Thanks, Mark. So just a few points in closing, and say: first, we have seen momentum and executing our strategic plan across the business since the start of the fiscal year and we are committed to accelerated progress in the second half; second, we remain a broad-based, value-added industrial distributor, serving a wide range of customers in virtually every industry. While energy markets contract in the near term, many other industrial segments are growing; and third, we remain committed to generating shareholder value through our capital allocation, through our business execution and through our strategic investments, specifically, around technology and acquisitions. So with that, we'll open up the lines for your questions.

[Operator Instructions] Our first question comes from the line of John Baliotti from Janney Capital Markets.

Hey, Neil, I was curious. I think this might the strongest core growth quarter you've had since -- toward the end of 2012. And if I'm right, any -- is there any particular sector or vertical that positively surprised you?

I don't know that any of that positively stands out. For the segments we track, we're probably up in, I think, 16 of 30 of those segments, like food, sports[ph] products, paper, auto, transportation, maybe mining off a lower base. Those all contributed. I really just think it's continued gaining of traction and working our growth strategies and plans across our U.S. Service Centers, our Fluid Power businesses and our other segments.

Okay. And there's obviously been a lot of negative news coming out in terms of oil and in terms of just some of the related markets, and it seems like you've managed probably for your own internal strategy, you've managed to outgrow that -- some of those headwinds in these verticals. Is that kind of how you would categorize it?

Yes, I'd -- I really like our businesses, their capabilities. Our focus has been on looking and working with them on the customers because we have growth opportunities within current customers, how we expand our product offering, and then also how we look at the supply chain and how we can help with some efficiencies, including use of a master or large distribution center to provide stock and service from an ongoing standpoint. So we like our businesses. We like our position. We know there are cycles in the segment. We think we move from underweight in an end-market participation to kind of market weight with that, and so we're pleased.

And just finally, in terms of how the quarter progressed, was there any notable differences month-to-month in how you -- how the quarter started versus how it ended?

No, I'd say really good progression, October to November. November, really, too much of December. Sometimes you get a little noise around the holidays to end of year to start a year, and then I'll expect there's a little interest. I mean, we look at it from January. We've seen nice progression, really, to the kind of the mid to the upper end of our sales guidance. And we've got a couple of days to go, but typically, we close strong. So January is progressing just fine as well.

Our next question comes from the line of Matt Duncan from Stephens, Inc.

Can we start with maybe diving a little bit more on the oil exposure there, Neil. I'm trying to make sure we have sort of a clear picture of sort of what percentage of your business it is now. If I look at Reliance, Knox, Ira and TOPS, it looks like you're on a, call it, $90-ish million quarterly run rate in revenues for those businesses. As you guys look forward, given what's happening, obviously, with oil prices and rig counts and CapEx budgets, help us sort of balance out the big picture headwinds with some of the changes you guys are making to those businesses that might help offset that a little bit? How much do you think the quarterly run rate may come down for those businesses?

Well, I'll start out a little bit on that, Matt. We had a solid quarter with our acquisition results, obviously, from the numbers that we've presented in the -- in today's press release. We're having active dialogues with all of our oil and gas companies, as well as all of our operations on an ongoing basis to make sure that we're making the right moves and doing the right things to run the business efficiently. Obviously, there's a lot of noise, let's say, around the oil and gas distributors that we've recently bought, and so we're having a lot more conversations with them to make sure that we're being proactive in the right way so that if things are happening, we can make sure that we do the right things on that. And I think if -- when we look going forward into the acquisition impact on our sales in Q3 and Q4, we have -- some of these acquisitions are hitting their anniversary date. So the TOPS acquisition hit the anniversary date December 31, and then Reliance will hit the anniversary date in -- on May 1. So the impact, if you just look -- if you just do the math in Q3 and Q4, will be slightly down just by -- where those numbers are. And then if oil prices continue to stay low, we're looking and seeing, okay, how is that impact going to be on their run rates in the second half of the year versus the first half of the year? So our perspective is that in Q3, our projected sales increase, based upon our guidance, gives around 12% to 15% increase in Q3, which we believe is a 3% to 5% core, 9% to 10% acquisitions. Then in Q4, a similar core sales increase of 3% to 5% in our guidance and then an acquisition of 5% to 6%. So to utilize those numbers in the sales projection, then it sort of flows into the overall annual guidance of 13% to 15% in total.

And so, Matt, I'd add that we were with many of the guys last week, some more this week, and so there's a lot of discussion, right, as we share the capabilities of each across the business into our Service Center network, as we review current customers and opportunities that we have to be a little better, a little bigger width. We went in with plans around product expansion and looking at those offerings, especially for those in upstream. And hey, we move forward on geographic additions in some of the markets which, we think, positioning us and going to be positive for us going forward as well. So hey, the price will drive activity, and we watch the rig counts and the other ones, we believe we have offsets and then we were standing close on our cost, our serving position there as well to make sure we deliver a good result moving through the cycle.

Okay. And last thing for me, guys, on gross margin, you guys seem to be sort of standing out as one of the few that's been able to give some gross margin expansion in what looks like a little bit of a tough environment there. What are you guys doing beyond just the acquisition mix that's obviously helping there a little bit to help out with your gross margins? Are we maybe seeing the benefit of SAP to an extent? And then, Mark, what type of gross margin should we be using going forward?

I think that when we look at the gross profit percentage, we have been talking last quarter that we had a few one-time things that sort of had it a little bit lower than our expectation. Our view is our benchmark, our bottom line benchmark is 28%. We should always be above 28%. And then our strategies and the activities that we're doing is to keep driving it upwards from 28%. So we were able to get to 28.3% this quarter. Our expectation is that our GP percent should see some slight improvements in Q3 and Q4 from where we were at the December quarter. Obviously, there's lots of hard work and heavy lifting for that, but that's our perspective. And so where is that coming from? Golly, it's just coming from the work that we're doing.

And actually, too, Matt, right, so acquisitions, you can see product expansion helps us in that, our work around customer mix and especially having good local presence with local customers as additive and helpful as we go through that. And then, hey, just good execution to reduce variability and maybe plug some of the leaks that we've had before. And they're right that the system and kind of the visibility and the more real-time visibility of some of that information helps us do that.

Right.

And then one other thing, just to add, is the gross profit percent impact of our acquisitions in the December quarter is exactly the same as it was in the September quarter. So all of this improvement that we saw from a sequential run rate was from our core operations. And that was really driven by operations in the U.S. Service Centers. So...

Our next question comes from Jeff Hammond from KeyBanc Capital Markets.

So if I just look back at the envelope, and correct me if I'm wrong, your acquired businesses were up kind of 20% year-on-year? I mean, are you just seeing very good strength in oil and gas now and the expectation is that, that starts to roll? I mean, I also noticed that, I think, you said Canada was plus 10%, which tends to be oil and gas-related as well?

The core Canadian business was plus 10%, right? That excludes the Reliance-specific grown gas business. And yes, we do have a meaningful presence with some of the other oil-sand-type businesses within Canada, but...

Other segments as well, Mark.

Exactly, yes. So I think, Jeff, from our perspective is we have -- yes, our -- we had a solid quarter from our acquisitions in the December quarter. And our view going forward for the rest of the year is that while we're expecting them to continue to perform, and we have synergy plans to do that, we are acknowledging that there is a lower oil price out there and so that may have an impact on their sales amounts going forward. So -- then that's in front of us.

Okay. So have you gone -- just kind of in light of the oil price drop, have you gone back and reviewed kind of these acquired businesses and your Canadian business and then how they acted in '08, '09 when we saw the last kind of drop in oil prices, how much was the revenue decline peak-to-trough? Where's -- how much cyclicality is there in the margins? Yes, any color on kind of what a down-cycle would have looked like pro forma would be helpful.

Right. Obviously, we've had lots of conversations with our guys about this over the last couple of weeks just to try to get some clarity going forward and looking at how the numbers are going to come forward to us. I would say, when you look at the last downturns in the last cycles, our guys were saying that they saw sales declines of potentially 20% to 25% with similar situations that they're potentially seeing today. But that's still in front of us because we're still doing -- we're okay through the December quarter and...

So Jeff, I'd just add that, hey, we've got experienced leaders that kind of live through and work through these cycles. They've seen them. And so obviously, start to make the adjustments on your costs. You continue to look for opportunities because you have to be ready for when the return comes as well. So yes, that's the balance that we're going through with those guys. So -- and we kind of acknowledge, right? Acquisitions helped us in the first half. We think they contribute in the second half, and we know we've got a roadmap with them but also the other segments of our business for our second half plans. And in those, right, we like the momentum. Oil on one side becomes a lower input cost to some of the rest of the industrial economy in time. It doesn't ripple through immediately. But hey, we broadly believe the industrial economy is stronger than the general economy in this year and many would say in 2016 as well. So we think that's good for our overall business.

Okay. And then just on the organic growth rate uptick for the base, do you think the markets are getting better? Or is this where we're starting to see this kind of ERP disruption going away and you've been able to refocus your efforts on selling and new products and the like?

Yes, I don't know that I can parse out both. I mean, I think markets are improving, that's helpful, and I think we are improving as we go through that. And again, when I'm out with the teams, we're spending a lot more time on customers and targets and growth initiatives than we were at a period ago on organizational change management and readiness for ERP implementation. So they threw our phase deployment. We've continued to anniversary each one of those as we go through. So I think it’s a combination. Hey, the broader industrial economy is pretty good and we're committed to getting better within it.

Our next question comes from the line of Jon Tanwanteng from CJS Securities.

Not to beat a dead horse here, but I did want to dig a little deeper on the energy side. Can you give a little more granularity on the strength in your oilfield acquisitions? Are you currently seeing benefits from pent-up maintenances as rigs come offline? And do you think there could be a bigger impact heading into '16 -- or fiscal '16 once that maintenance cycle is over?

I think, again, I -- so it's early as we watch some of this. I think our presence upstream is on the drilling side which, right, as rigs go down, there's impact to work through. It's also on completion if some of that slows, but there is ongoing production and -- which is a part of our presence. And I think in ramps and up, everyone is focused on maximizing. As things slow, you start to work, repair service and efficiencies. I think the other thing that helps us were onshore. Our geographic plays are close to refining centers. So as people focus on cost and efficiencies, we are well-positioned in Permian and Eagle Ford and places in West Texas and other U.S. markets that are committed to producing as well as Canada because, hey, oftentimes, those are very long-term decades focus-type investments in oil sands, so there is still work that goes on. If things stay at a very low level for a long period of time, I'm sure there's further adjustments and we'll adjust our business as well. But there will be work and opportunities throughout the cycle.

Okay, great. And what are the energy price and currency assumptions that you have in your guidance right now?

We took into account the currency impacts of where the foreign currencies where as of mid last week, and just assume that those rates would be constant for the rest of the fiscal year. So obviously, when the U.S. dollar continues to strengthen, when we make money in our local currencies outside of the U.S., those just translate into smaller dollars in the U.S. dollar. And so we think that, that impact for the second half of the year would be right around $0.03, potentially.

And then I'd say, on oil in West Texas intermediate, I mean, we really think it's at where it's at through end of our fiscal year, somewhat point to perhaps it improves, but we'll be looking at that as we close the fiscal year and start another fiscal year. But we think it doesn't necessarily dramatically change or improve through the balance of our fiscal year through June.

Okay. And then finally, can you give us an update on your acquisition pipeline? What are you focusing on? Maybe talk about the multiples that you're seeing out there.

Yes. We continue to be focused on our priorities, on geographies that we think we can strengthen or fill some gaps broadly across our business and bearings and power transmission, also Fluid Power and some of the geography basis as well in our served market. So our pipeline reflects our priorities. We are active on really each and every one of those areas, and we've said and we'll continue to say, we want to be as busy as we were last year every year. We don't perfectly control the timing, but we will continue to work those that are in our priorities and have the ability to be a good acquirer and then integrated those back into our business.

[Operator Instructions] Our next question comes from the line of Jason Rodgers from Great Lakes Review.

Just a follow-up on the acquisition question. Looking at the energy sector, are you satisfied with your exposure at this point? Or could there be more acquisitions in that space?

Yes, we think we're well-positioned. I mean, it's a segment that we'll continue to have interest in so there would will be prospects within the acquisition pipeline. And actually, when you get this much activity going on, there may be a separation in the perception of values around them, but they are in our pipeline just like our other segments would be.

Okay. And then looking at the last quarter guidance on RIP and Knox, you talked about $0.17 to $0.22 of accretion for fiscal '15, what is the updated guidance there?

Yes, I would say, how we look at the results for them, when we look at the first half of our year, you could say, hey, we were at the top end of that EPS guidance from the actual results. And as we look at the remaining part of the year, I think we're targeting sort of the lower end of that just to take into the acknowledgment that, hey, sales might not be quite as robust in the second half of the year than they were in the first half of the year.

Okay. And then just looking at some of the longer-term targets on sales and margins, I wonder if you could provide any updated thoughts there.

I would say, our view has not changed on any of the longer-term views on things that -- yes, we're still expecting that our gross profit percent should grow year-over-year for the next couple of years and that our operating margin should continue to expand over the next couple of years, too. So we don't have any changes at this time.

Our next question comes from the line of Brent Rakers from Thompson Research Group.

I was hoping you can provide some more detail on the core change in SD&A[ph] year-over-year. I know the -- obviously, the revenue in the gross margin side has gotten a bit better, but maybe give us some of the puts and takes with -- related to the compensation in some of the other items driving that increase this quarter.

Hey, Brent, I'll take a shot at that. Yes, we do have some additional headcount at our customer-facing cokes out in the U.S. Service Centers within our Canadians core service center operations as well as Mexico and U.S. Fluid Power. And that's part of our strategy, is to be more customer-facing and so I think we're doing that. And so we're seeing some of an increase there in compensation for that. When I look at the overall SD&A going forward into Q3 and Q4, our expectation is to have a slight downward view of SD&A as a percent of sales as we go forward. We were at 21.5% in Q2 and my thought is that I should see a slight downward tilt to that going forward from that from a run rate perspective.

So Mark, just in terms of clarification, you added some customer-facing, some sales people, it looks like, in the current quarter. Is that something that over the back half of the fiscal year that's going to be something that's going to be continued at this pace?

I'll jump in and then Mark can. I'd say, some of the others, if we look back, right, the guys will show me some one-times on the impact comparables. I think the other one we have some cost in as we do financial system transformation and implement the general ledger and the consolidation, so those would be. We work out of those in time. I don't know if we work out of them perfectly all in the second half. So though we like our forward-facing investments, they're to the plan. They yield benefit as we go through. We've got some support cost that are in there that we'll continue to look at, especially as we operate in the macro environment. So hey, we'll expect a glide down. And if the environment changes, we'll be responsible, right? We know how to operate in an industrial environment and we will react.

Okay, great. And then again, I guess harp more back on the oil and gas acquisitions. Obviously, since you guys have made these deals, the growth rates have been well in excess of the rig counts in the market that you're serving. When you go back prior to the your acquisition for each of these businesses, with that level of outperformance versus the local rig counts in the market they serve, was that above rig count levels prior to the AIT acquisition of these companies?

Yes, I don't know if I have all of that. I could say, right, the businesses are very good. They had capabilities. They were making investments that grew their performance, especially as they expanded into geographies, expanded into capabilities. So none of them were just static and kind of holding on in those areas. And so as we model through with them right now, I mean, we're working through, hey, what's our sales expectations and then what's the rest of the things that we can do to help and what should be the things we do to control costs as we just work through the cycle? And the segment has cycles. We knew it from our smaller participation before. We know it with our little bit larger participation now. We'll work our way through.

And then, I'm sorry, just one last question on these deals. You spoke a lot about synergies. I guess, some cross-selling, some utilization of some AIT regional DCs, and I think you also referenced some maybe new branch openings and things like that within the oil and gas side. Could you maybe talk about each one of those growth opportunities and maybe even give us a -- cast a little bit of light on how much each of those has contributed to this growth outperformance?

Yes, so we're at different stages. The one that anniversaried were operating in a larger facility, which is just helping them scale for growth. With Reliance, we've got some added location, including a move to Houston. That's going to be beneficial for us looking forward. We've taken the opportunity in some shared sites to say, can we be more productive together? So that helps us from an operating standpoint going forward. And just as we network across these businesses, there's a lot of expertise, customer presence. And so as we share our positions, our leads in those opportunities, there's just more that we can do as a broader group, as broader Applied with those customers. And I'd say in all of those, hey, we've made progress, and some of that would show in the result. And others, that potential is in front of us and that's what we will be working in the rest of this fiscal year and next year as well. So I like our progress. We're not complete. And so that gives us some opportunities, especially as we work our way through the cycle.

Our next question comes from the line of Suzari Nadeki [ph] from Schroders.

Just had a few clarifying questions. Maybe Mark, start with a little bit on the guidance. The core guidance 4% going forward, is that inclusive of FX? And what is the FX impact?

I think the short answer is yes. We did try to model that in there. I don't have the exact percentage. I mean, we did the calculation by country to figure out what the potential EPS percentage was and I don't have the sales percentage with me.

Okay. But you just called out the 1.4% in this quarter. Is that indicative? Or should it get worse than this when you look at the rates you used in your calculations?

Well, it did get worse because it got worse the first 3 weeks of January with the rates.

Okay. So if we look at the organic growth x FX, we're really looking at something north of 4.5%. So clearly, you're expecting growth from these levels in the core business x FX?

Right. And I think, a good story to talk about on that is our U.S. Service Center. So you forget about the foreign currency. But in the U.S. Service Centers, we've now seen sequential improvements in our quarterly results from -- you look back at the June 2014 quarter, our U.S. Service Centers had a 3.8% sales decline year-over-year. Then in the September quarter, slightly positive but close to 0. And then in the December quarter, we had a 2% improvement, and we've seen that continue to improve in January. So our expectation is that, that will continue to improve throughout the rest of this fiscal year. And then the other businesses as well should continue...

Glad to hear. And then maybe clarify a little bit on the balance sheet. Your inventories have spiked and you called it out a little bit to vendor support. But I know recently, or over the last few quarters, you guys also hit some ERP numbers. So can you maybe quantify a little bit what is the impact of supplier support? And is there any ERP we should start counting on going away as well? Or is that already flushed out?

I would say, the added inventory that we did for the ERP implementations, that was really for fiscal 2014. I'd say, that's pretty much flushed out through our day-to-day normal operations. So what we see now in our core operations, it's about a $25 million increase in inventories from June to December and we can really highlight -- target those for the special buys that we did to try to capture some benefits from the suppliers, and most of those are right around calendar year-end. [indiscernible]

So if I was to take that 25 -- Yes, if we were to take that $25 million off, it seems like these inventory levels, looking by DSOs, are still elevated versus historically where you guys have been prior to this cycle.

So there's some -- yes, there's some acquisition in there and there's also some product expansion around the acquisition. So we know there's benefit in the second half as we work those investments down and also, as we centralize some of these inventories. And so we're sort of able to aggregate at a higher level. That means each individual stocking location, in time, we'll be able to reduce some of those. So hey, we know we've got work and improvements to deliver in the second half and we're focused on doing that.

Okay. And my last question around M&A, it seems that a lot of the acquisitions you've made over the last year were oilfield-related and you called out the acquisitions being around 16% of the revenue. Can you kind of help me understand that? I mean, how does that relate to being 10%, 11% from where I remember you guys talking about energy exposure? I'm assuming you had some energy exposure going into all these acquisitions. So are we looking at it right? Or is there a big chunk of it that's not energy-exposure-related in your acquisitions?

So when we look at the acquisitions, we've been acquiring now for the upstream oil and gas markets. Whereas previously, our core business was all downstream with the refineries. So when we are talking in the past, we said, "hey, about 2% to 3% of our business was in petrochem, but that was really refinery based." And so this 10% to 12% of our sales today that we're talking about is this upstream oil and gas through these acquisitions that we've gotten. So it's a very different business that we're carving out. Because when we think about refineries, we just think of them as plants. They run like a plant.

So if we distort[indiscernible], does it -- yes, go ahead.

Yes. When we did some of the acquisitions, we also purchased a company in Mexico on July 1 and a small entity in Australia, New Zealand that were not oil and gas-related. So they're spiking the sales percentages from the acquisitions up a little bit that don't really relate to oil and gas.

And then I'd say to add to that, some of the companies that are in -- like Reliance, have participation and do well in other segments around fluid -- around products like fluid conveyance. So while they have very good oil and gas expertise, they do serve other customers and other segments out of the geography they play, especially back to that Western Canada.

But our run rate today for the December quarter, for upstream oil and gas is in the 12% to 13% of our sales for that quarter.

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.

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