Welcome to the Fiscal 2019 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Mariama, 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. [Operator Instructions] Please note this conference is being recorded. I'll now turn the call over to Julie Kho. Julie, you may begin.

Thank you, Mariama, and good morning, everyone. This morning, we issued our earning release and supplemental investor deck detailing latest quarter results. These documents are available in the Investor Relations of our Web site at applied.com. A replay of today's broadcast will be available for the next two weeks as noted in the press release. Before we begin, I'd 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 various industry sectors and geographies, the success of our various business strategies and other risk factors provided in our press release and 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 Web site at applied.com. Accordingly, 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, whether due to new information or events or otherwise. In addition, the conference call includes the use of non-GAAP financial measures. These measures are explained in our press release and in the supplemental presentation material and are subject to the qualifications referenced in those documents. 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 Dave Wells, our Chief Financial Officer. I will now turn the call over to Neil.

Thank you, Julie, and good morning, everyone. We appreciate you joining us. I will start by providing an overview of recent developments, then Dave will follow-up to review our financial results in more detail, and also cover our updated guidance. As referenced in our press release, we are pleased to post year-over-year increases in our fiscal '19 second quarter results. However, our sales and earnings were below our planned performance. We understand the key performance drivers which included: one, decelerating growth through the quarter, culminating in significantly weaker sales in the final week of the calendar year. More specifically, we went from December 21 month to date sales that were within the 5% to 7% full-year guidance range to core year-over-year sales growth of less than 1% for the full month of December. Second, we had some softness in project timing delays in our Fluid Power businesses, including lower demand from technology markets, primarily electronic equipment and component manufacturers. And lastly we experienced an adverse impact on our margins from a $2.7 million LIFO inventory charge related to more pronounced inflation experienced in the quarter. In light of the softer top line and inflationary headwinds, we initiated appropriate cost measures alongside our continued actions to drive efficiencies and execute our business plans. Our revised full-year fiscal '19 guidance issued this morning reflects the moderating industrial environment and current Fluid Power market dynamics with the sales guidance assuming nearly 2% to 4% increase in second half daily sales rates compared to the first half, excluding acquisitions. Further broken down, this assumed second half Fluid Power & Flow Control daily sales rates remaining essentially flat with the first half of the fiscal year, and a 3% to 5% increase in the second half daily sales rates in our service center segment. During…

Thanks, Neil, and good morning, everyone. Before we move on to cover further details on our most recent quarter financial performance, a reminder that the supplemental investor deck issued this morning recapping key financial and performance talking points is available for your reference on our investor site. Turning now to our second quarter results. Sales for the quarter ending December 2018 increased 25.9% over the prior year quarter with acquisitions driving a 21.3% year-over-year increase. Organically, sales grew 3.7%, while the impact of foreign currency exchange decreased sales by 0.7%. There was one extra selling day in this year's quarter, which generated a 1.6% benefit to reported organic growth. Second quarter sales in our service center based distribution segment increased by $33.7 million or 6.1% year-over-year. Excluding the adverse impact of foreign currency translation, sales increase by 6.9%. This includes a 1.6% benefit from one additional selling day in this year's quarter. As previously mentioned, in our service center based distribution segment, as well as our Fluid Power & Flow Control segment, we saw the adverse impact of 2018 holiday timing including reduced year-end shutdown maintenance activity. Overall, Applied organic sales growth was up nearly 6% through December 21, but finished up less than 1% for the month of December after the final week of the calendar year. Moving to our Fluid Power & Flow Control segment, second quarter sales increased $139.2 million or 124.7% as compared to the prior year. Acquisitions within this segment namely the addition of both FCX performance and more recently Fluid Power sales increased sales by 127.4%. Excluding the impact of acquisitions, sales were down $3 million or 2.7% as a 4.4% decline was partially offset by the 1.7% benefit of one additional selling day in the quarter. Our Fluid Power & Flow Control segment…

Thanks, Dave. Moving into our 96 year of doing business, we know our individual and team responsibilities to deliver our fiscal '19 commitments, including a continued focus on our five strategic elements, core growth, product expansion, fluid power & flow control, operational excellence and acquisitions. As we move through the second half of fiscal '19, we will maintain an emphasis on profitable sales growth driving our core business growth with current customers reaching new end-users and leveraging our value-added capabilities. Our margin expansion, mitigating the inflationary pressures, SG&A management, maintaining diligence in our operational spend and continued working capital improvements, strengthening our business and fueling future investments. We’ve a strong foundation, expanding business capabilities and outstanding potential and we're working to win each and every day. And with that, we'll open-up the lines for your questions.

Thank you. [Operator Instructions] Your first question comes from Jason Rodgers with Great Lakes Review. Your line is open.

Good morning, guys.

Good morning.

So just talking about the deceleration here and the weakness in the last week of the quarter, was that widespread or concentrated mainly in the Fluid Power technology area? And also along those lines, I wonder if you could talk about the commentary you’re hearing from customers? They think this is a beginning of a trend and then the sales so far in January?

Right. So I would say the last week really all aspects of the business participated. If you think about it specifically, December of 24 is a half day for us of work as is 12/31. And if I look back -- if I look at that performance back to the past few years, we were less than half efficient or productive of sales output on that day this year, and that was across. And on 12/31, we were roughly 60% of what we had been and while they were half days the rest of the week more productive, but with those two days being an essence almost nonexistent, it had an impact. And so in talking with customers and really the teams, I think many took advantage of weekend to extended between the holiday not to be as op -- not to be open or operational on those days. And then as we work with and plan with our customers on preventative maintenance type projects, I think more either just took the timeout or would have 2 to 3 day type projects, and maybe not the longer ones that could last 5 to 7 days. And so if I look forward, what does that mean, it could mean more break fix activity in the first half of the year. It could mean additional 2 to 3 day projects going on in the first half of the year, or some of those longer preventative maintenance activities occurring in July or the mid year timeframe as we get there. And then, looking forward or now in the January, overall, we're performing in the mid single-digit sales rate.

And it looks like the guidance is assuming none of these delayed Fluid Power technology projects are realized in the second half. I wonder if you could just talk about how much of visibility you have around that? And if you could provide some figures around that Fluid Power backlog?

So our Fluid Power backlog sequentially had a little bit of improvement in the quarter. And if we look at it year-over-year, it's probably up or single digits higher, but if we get into it and really look at the Fluid Power company performance, we’ve over half the group that is growing. Out of the remainder 25% of those are very close, and then we'll have 25% at a little further off. And a couple of those projects or linkage to some of these industries including higher technology, we expect that to continue as we work through the second half. Many of those other projects we will continue to book bill projects and we will have productive output there. But given that impact around those technology segments, that’s impacting our guidance or our outlook into the second half of the fiscal year.

Okay. Thank you.

Your next question comes from Chris Dankert with Longbow Research. Your line is open.

Good morning, guys. Thanks for taking my question.

Hi, Chris.

I guess to kind of build on that a little bit further, could you give us the total top 30 market breakdown and kind of what you’re seeing across energy and some of the other markets besides technology?

Sure. So in this past quarter we’d have had 20 industries showing increases. So that's down sequentially. I look back, I think, in Q2 of last year, we would've had 20 up. So positive continues around primary and fabricated metals, aggregate, oil and gas, building products and such. In the quarter and especially later in December, I think machinery OEMs softened up. I think some of that could be around the timing. And then the more weaker comparables were around lumber wood products, some durable goods, the computer and electronic manufacturing segment that we called out and coal mining would be as well.

Got it. That’s very helpful. Thanks.

Okay.

And then just on pricing a little bit more, could you kind of just broad strokes kind of what the impact was in the quarter. Do you still expect kind of a similar level in the first or the back half of '19 here?

So our look going into the second half is that we can and we will expand margins. If I set aside and we don't from a result standpoint, but if we set aside LIFO business performance, teams performance and seeing inflation come in our handling of tariffs whether they be the 232 which we really processed on steel and aluminum and the various list of the 301 tariffs I think we're doing a very good job of matching at year-end or building up to it, we would see some additional manufacturers coming in with increases that we will process going forward. But if I look at how we do in our local businesses and local accounts, we’re matching very well. And with the other segment of our business those will be based in as we work through this quarter right now. So from that, I feel like we have and we will continue. I’m a fundamental believer, especially on the tariff side of it, right. The end customer, the end household, the end-user has to pay. We’ve shared at times when they come in large and lumpy. They don’t perfectly get through in a period, but we are committed that they do in pretty fast order.

Got it. Got it. And then just last -- one last one if I could. I know it's difficult to breakout, but did any of your managers or anyone highly destocking as a negative headwind in whether with December or just the broader quarter at all?

I think the short answer around our business is no. We talk about not a big stocking destocking phenomenon in the business especially with break fix MRO, criticality of the products. We think from a user standpoint on our side, our customers are not heavily stocking those products. They’re relying on us to be there and prepare to serve the random demand that can occur and of course be there with technical solutions and services also.

Yes. Understood. Thanks guys.

Okay. Thanks.

Your next question comes from Adam Uhlman with Cleveland Research. Your line is open.

Hey, guys. Good morning.

Good morning, Adam.

Can we circle back to the electronics business again. Exactly how big is that business for Applied as a percent of sales?

So it's in our top 30 industries. And it maps to our reported segment in our general industry. So right, it's below any of the other callouts. So it's low single digits in that. And if I look back, right it's kind of had steady progression and growth over prior periods. And I think just more recently, maybe a little bit in the past quarter, but definitely in this quarter a little more of a step down. Now if I look forward, right, we like our participation around the segment and we expect a return to growth. Now the timing cannot call perfectly, but if we think about artificial intelligence, Big Data, internet of things, if we think about machining making more decisions than humans and that growth trend, if we think about 4G to 5G products, those providers of those electronics and computer equipment will have growing demands. I just think we’re working through a little bit of that cycle right now of those players that are supporting or feeding some of those end markets or those industries, but we expect that to be turning at some point as we go through calendar 2019.

Okay. Got you. And then back to Chris's question on price realization. How much of that contribute to the 4% organic sales growth this past quarter? Was that a point or two, is it bigger than that now? And then as I think about the gross margin rate for the second half of the year, what's like a reasonable estimate going forward?

Adam, we view the price realization here, again, you’re tracking that very discreetly for our same SKU sales year-over-year, particularly in our service center network. Once again, that represents about one-third of the business and the service center is just given that randomness of demand. But we are seeing up 2% to 3% in terms of that price realization in that piece of the business. We think that extrapolates truly across the balance of the business just seeing despite lower volume, some improved step up in our Fluid Power margin. So, clearly offsetting the inflationary impact in those piece of the business where we don't have that unique same SKU tracking year-over-year. If you think about the back half, certainly, we’ve talked about slow, steady inflation very good for industrial distributors when it comes a little bit lumpier like it did this quarter. We don’t always take it perfectly in any given quarter. So as Neil referenced doing well with the smaller local accounts and the ability to pass that on. We will see some more price realization as we move through this quarter and that really is the key driver by high net 15 to 30 basis points step up in our gross margin performance that we had assumed in our second half guidance.

Okay, got you. That’s helpful. And then you had mentioned some SG&A countermeasures. Some of that obviously is going to come through with commissions and everything else, but I’m wondering if there's -- if you could talk about other areas where you’re doing belt tightening? Is their facility rationalization that’s come on to plan now, any more color?

Yes, we will continue to look at facilities and as we’ve expanded our footprint, we see opportunities to combine or co-locate in some markets. And so there's little bit of that happened in Q2 and we’re confident we’ve more those opportunities going forward, which will really help ability to serve and cost productivity. We are also just continuing to get more efficient in the back office of our operations and that’s allowing us to have a differentiated staffing level there as we get retirements or transitions. But our biases continue to have strong forward facing resources, investments in those resources that touch customers and help the business to continue to grow. So we have made technology investments and we’re reaping benefits from that and we will continue to drive continuous improvement initiatives across the business whether it would be our DCs or in our shop operations or in our service centers or branches that just helps that productivity.

I think Q2 does reflect nice leverage there. And as Neil indicated, continue to exploit the investments that we’ve made in technology as well as the operational and excellence initiatives that we have ongoing. So I think we're still funding some of our strategic priorities in the quarter. So we made reference to it, up 2.7% for the quarter in terms of SG&A spend, with 1.2% of that driven by just higher self-insured medical costs given some unusual claims that came through this quarter. And another 1.4% driven by our focal merits year-over-year. So back half of the year we would to continue that diligence, while still funding the strategic initiatives we do have the addition of Fluid Power sales that will reflect a bit of an increase in SG&A expense plus our focal merits to take place January 1 or did take place January 1, so we will see that impact in the back half of the year, but continue to offset that with the workaround the leverage of technology and driving those operational initiatives as an offset.

Got it. Thank you.

[Operator Instructions] Your next question comes from Ryan Cieslak with Northcoast Research. Your line is open.

Hey, good morning, guys. My first question, I just wanted to go back, Neil, and if you sort of strip out the weakness in late December which seems like a lot of distributors experience that. And maybe even the tech market you guys called out in Fluid Power. How would you maybe characterize the other end markets how they trended through the quarter and certainly here into early January. Are they trending relatively in line or below, what you’ve expected at this point?

Yes, so if I look back, October was really in the middle of the sales guidance range. If I look at November sequentially improved a little probably year-over-year comparable would have been slightly lower. And then as I shared, right, as we went through that December 21 time period really that mid single digits middle of that guidance range on that and so really the step down in that final week driven especially by a couple of those days. If I look forward, right, it's still same. Just I haven't seen today yet or yesterday, but 15 of 22 days were in that mid single-digit range in that. So, I think the things we talked about on the 30 industries, those are probably likely continuing. I don't know that we're getting a big spillover from shutdown in those concerns into this side. As we look forward, I can't get a little bit more optimistic. They will settle up and then look to do something more productive from a government standpoint, which could bode some positive for infrastructure projects, which would be good for us at some point as we work through. That highway billings in 2020's, so somebody's got to get in front of that and once they do, that’s good for heavy industry, aggregate cement and earthmoving type equipment. So those are things that either in the back half of our fiscal year or as we look forward into the early part of fiscal '20 could also be a help for us.

Okay. Just to be clear, so I mean, what you’re saying is you’re not really seeing a material change in the underlying momentum of your end markets right now that you would call out?

No, not from big step down in the last week of December and right now we're seeing it is more the same.

Okay. And then, can you just give some color around the oil and gas businesses, sorry if I missed, the growth you had there in the recent second quarter. And then what is your guidance assuming the back half? Is it relates to year-over-year growth in those businesses? Was there any revision to that as you think about the next couple of quarters?

From an oil and gas standpoint, we are really in the mid-teens performance in quarter and really that's in our guidance outlook for the rest of the year. We think, perhaps, there's a potential to be better. Activity around the Permian continues where we have nice presence. And if I look at drilled, but uncompleted wells, the ratio to the drilling rigs is probably 8x to 10x. So our view is activity remains solid at the level that we are at, potentially with the ability to improve, but get guidance is really along that continuing in the mid-teens range.

On a year-over-year basis is what you’re saying?

Yes.

Okay. And then when you look at the Applied organic growth or I guess the organic declines in Fluid Power sales in the back half of the year, outside it seems like as the tech market being one that declines. What other end markets or business segments within Fluid Power, do you expect in sales to be down year-over-year?

I don’t know that we got steep declines in any other markets. I mean, we’re broad-based participants there in agriculture, in mining, in power generation. There is some support around oil and gas. So we think many of those mobile and industrial OEMs are continuing to have good outlook, good plan. So, right now it's around tech. A couple or one of the other groups that has done well around utility projects is seeing a little softness as well, which we can understand a little bit with that segment also, but clearly looking at ways to diversify and fully participate in other end segments.

Okay. And then my last question is, it seems like FCX in terms of the accretion there is running ahead of the original guidance that you laid out. Dave, can you just reaffirm, I guess, the original guidance what I have was $0.15 to $0.20. Have you updated that at this point? What sort of assumed in the accretion run rate in the back half guidance that you now have? Thanks.

Yes. So, if you recall out the gate, we did talk about up $0.10 to $0.20 in terms of fiscal '19 accretion. As we saw the amortization expense settle in a bit favorable to what was assumed in that. We updated that to -- kind of basically that was a $0.04 benefit, so you can take that range 14 to 24. We’ve strung together a couple of quarters now of $0.06 in terms of the impact for the quarter. So it's certainly trending to the higher end of that range, continuing to like I said on a 11 month basis of ownership now did exceed the top line and doing slightly ahead of plan on the synergy case. So continuing to be pleased with the progress there and we would expect that to continue into the second half -- our second half guidance.

Okay, great. Thanks, guys.

You bet.

Your next question comes from Steve Barger with KeyBanc Capital Markets. Your line is open.

Good morning, Neil and Dave. This is Ryan Mills on for Steve.

Hi, Ryan.

Yes, there's been a lot of investor concern around the heavy equipment cycle. And I know you called out some OEM machinery softness. So I guess my question is what's your view on that cycle and are you seeing machinery OEM customers get more cautious around order visibility and production?

I don’t know that we'd see more cautious. We talked early, we think we saw some of that as an end market segment as it worked through December now is that you're in calendar timing is that their outlook, is that what they do and plant shutdowns or maintenance for many of the larger guys obviously, right? We're not on equipment. We would be supporting their plans for midsize guys with our Fluid Power business. We are part of the solution, we are in the equipment, including products plus electronics on those controls. So I think it's a continue on to the start of the year. I think there is still many or positive as they work through '19. I think there is Fluid Power Association and some others that may show a weakening or softness of a percent, probably not to, but a percent or two around some hydraulics and pneumatics would feed into those solutions with a much more positive outlook in '20. So if that comes to fruition, right, we will be working through it to grow our content in that period. But is there a lull in some time in calendar '19? Some are pointing to that. As we start this year, this calendar year 15 or so days into it, I don’t know that we would necessarily be seeing that.

Okay. And then I’ve a couple of questions around free cash flow in the balance sheet. Free cash flow realization was good in the quarter. You have quite a bit of cash on balance sheet. I guess my question is of things do moderate from here, what is the capital allocation plan? Do you start to reduce debt more or are you still more deal focused. And how is the Board thinking about opportunistic share repurchases?

We continue to evaluate that best allocation of the capital into your point. We have given the stronger cash flow in the quarter, cumulated some cash in the quarter. So we are going to maintain our discipline in terms of still our robust M&A funnel. We think we can drive significant shareholder value just given kind of the accretive board on opportunities in the space as you think about, particularly, Fluid Power Flow Control remain true to our priorities there, while continuing to evaluate obviously the delevering that we had committed to making nice progress there then opportunistically potentially looking at share buyback, depending on where stock-price ultimately drives.

Okay. And then the free cash flow year-to-date is around $60 million. Did you feel confident enough in the cash flow generation in the back half to achieve that implied guidance of $200 million to $220 million.

Yes, sure I do. So I think take about the seasonality of the cash flow in this business. We are committed at the back half of the year, which is typically stronger. I really like the momentum that we posted in the most recent quarter in terms of some of our collections initiatives, some of the payables initiatives. So that's really helped to underscore and shore up confidence level in terms of delivery of that full-year commitment that we’ve socialized, so we would reiterate that guidance on the -- at the free cash flow.

Okay. And then just to wrap up, you sound more confident on the call today about ongoing conditions than the commentary in the press release, is that fair? Did you just take a more conservative approach because what happened in the back half of December.

Go ahead.

Okay. We did try to think the picture between really trying to call up the nuances of still a service center business that’s doing very well that we’re pleased with and nice growth and step up here again that back half, trying to draw up the nuances of the -- some specific and market exposure in our Fluid Power business, but given what we've seen in terms of those first few weeks of -- kind of that mid single-digit growth given the backlog portfolio that we do have in the Fluid Power and the Flow Control Segment. That’s helped to underscore that back half confidence. And as I think here again, we do have some tough growth comps that when you think about kind of the guidance assumes, pretty much a continuation of what we’ve seen in the last couple of quarters on the fluid power side of the business, but that yield some difficult comps, so just trying to make sure we represent a balanced view there.

And from an internal standpoint, we’re not letting go or we’re not changing internal plans. So we will be working hard to secure profitable growth everywhere we can.

Good to know. And then, just one last question to make sure I was thinking about it right. I believe you said the tech exposure was low single-digit. Was that companywide? And if so, could you give a little color on the exposure to your Fluid Power business?

It is across the -- it is across business segments that there would be participants and Ryan, it's not just one company or just one end user in that side. So, I don’t know perfectly how it breaks up. And then maybe a little more Fluid Power than there would be service center on that break down, but they both have participation.

Thanks for taking my questions.

Okay. Thanks, Ryan.

Your next question comes from Jason Rodgers with the Great Lakes Review. Your line is open.

Thanks for taking the follow-up. So just to sum up the guidance, is it a fair statement to say that the reduction is due to the second quarter shortfall and the technology project delays and Fluid Power. Clearly those two items or is there something that you see that makes you more cautious in the second half other than those two items.

Those were obviously the key drivers, Jason, as you think about the Q2 impact both in terms of some of the softer top line as well as the LIFO, non-cash LIFO charge that we recorded in the quarter. So those would be the certainly the key drivers and looking out forward in terms of that continued trend in the fluid power kind of the tech exposure just incorporating that is the guidance. But here again, step up and balance the business, particularly in the service center segment. So those were the key drivers.

And what’s the possibility that these projects could -- not get delayed, we get realize quicker than you expected.

There's that potential, tough to call. We’ve taken, I’ve said it, I think a realistic view based on discussions with the key customers and what they’re seeing in terms of that project activity and your secondary demand, but there's certainly that potential.

All right. And just a few number of questions, if I could. Do you have the updated cash flow target for fiscal '19.

Free cash flow once again, 205 to 215.

All right. And how many shares were repurchased in the quarter? It looks like he had bought like 23 million.

No shares to repurchase the most recent quarters. We maintained focus on dividends and debt paydown and [indiscernible] for M&A activity.

Okay. I was just looking at the cash flow statement. As far as the tax rate the second half in the second half.

Yes, second half tax rate, we were guided 23 to 25. We saw some favorability again this quarter. Certainly we had the discrete item in Q1 that we talked to there was a $0.10 benefit. That didn’t repeat obviously in the most recent quarter, guiding the second half a 23% to 25% and seeing some ongoing favorability from being able to offset some of the global intangible tax with foreign tax credits is where the key driver plus mix of our earnings that we’re seeing.

And finally what is the target leverage ratio and by what time period.

As we continue to generate cash took in the back half of the year. We would see as kind of moving down to that 2.5x target. And as we’ve talked we are really wanting to maintain a balance between putting the balance sheet to work and doing that accretive MLA Where we think we can drive significant shareholder value. It's going to ebb and flow based on deal flow, but on an average kind of long-term 2.5x will be our target leverage.

All right. Thanks very much.

All right. Thanks very much.

Thanks, Jason.

Your next question comes from Ryan Cieslak with Northcoast Research. Your line is open.

Hey, thanks. Yes, just a quick follow-up. Dave or Neil, could you just remind us again what as a percentage of your sales, what the oil and gas businesses represent today. And then just going back to my prior question, Neil it sounded like you felt confident that the sales growth rate within those businesses can sustain mid single-digit growth -- sorry, mid-teen growth into the back half of the year. And that’s sort of what’s implied in your back half guidance. Is there -- I just want to make sure I understand what you’re seeing there. Do you have visibility there that gives you confidence there, certainly. But oil lower, it would imply that you would see some softness or some deceleration at least. I just want to make sure I understand the type of visibility you guys have in those businesses are for next two quarters or so? Thanks.

Right. So I will start, maybe Dave will get to the percentage in the business. So just a reminder, right. Our participation is predominantly upstream and as we think about upstream in the segments of drilling completion and ongoing its really upstream and a lot of ongoing production. And so, if we look at rig count and activity, that is going on in the Permian and some of the other deposits or place that really the Permian. There's good activity and as wells go from free flow, for which we’ve participation to part official lift and requiring parts and components or mechanical. To do that, that’s good for our business and really through the activity and change in oil price and from 60s to I believe it's around 52 now. A lot of those producers, I mean, they worked well on their breakeven point. So our view is that continues at its rate activity in those geographies. And if we look ahead what’s been drilled and not completed. There's a lot that can or will come online at some point now, hey, does global demand play into that? Does the supply play into that? But I think supply is what 8% above its five year average. It doesn’t seem to be having a slow down effect right now, especially in that geography given its take away to the refinery. So that’s what’s driving our view. Of course there's discussions with customers and producers in there, but that’s what driving our view that the -- our second half is a lot like our first half. Maybe probably with potential to be a little bit better.

Yes, just to elaborate here again. Neil referenced the high teens growth that we’ve seen in that business. Given that still, less than 10% of our overall sales in terms of our energy related businesses. And here again, this customers have worked through the last downturn on this breakeven point. So view is they could be productive at $35 a barrel. So we’ve not seen any adverse impact at all from these lower oil and gas prices.

Okay. Thanks. Appreciate the color, guys.

Okay.

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 to many of you throughout the quarter.

This concludes today's conference call. You may now disconnect.