Ladies and gentlemen, welcome to the fiscal 2024 Fourth Quarter Earnings Call for Applied Industrial Technologies. My name is Abby, and I'll be your operator for today's call [Operator Instructions]. Please note that this conference is being recorded. And I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Okay. Thanks, Abby. And good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our fourth quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, just a reminder, we'll discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to 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. And with that, I'll turn it over to Neil.

Thanks, Ryan. And good morning, everyone. We appreciate you joining us. 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 fiscal 2025 guidance, and then I'll close with some final thoughts. So first, I'd like to acknowledge and thank our Applied team for their hard work and consistent execution throughout fiscal 2024. While we faced a more mixed end market backdrop during the year, the commitment to our strategy and relentlessly serving our customers is standing out across the industry and strengthening our long term potential. It's an honor to be part of this team as we work together as One Applied to achieve our commitments now and fully capture the tremendous opportunity we see ahead for the company. Overall, the strength of our team and strategy was apparent in our fourth quarter. We delivered double digit earnings growth on strong execution, positive margin momentum and cost control. This more than offset weaker than expected end market demand as the quarter played out, which I'll touch on more shortly. As it relates to our margin performance, it was very encouraging end to another solid year of progress in expanding our margin profile with gross margins close to 31% and EBITDA margins exceeding 13% for the first time. While lower LIFO expense provided some benefit in the quarter, it's important to note LIFO expense is normalizing from record levels in prior years. Additionally, when excluding LIFO expense, both gross margins and EBITDA margins expanded nicely over prior year levels in the quarter. We saw benefits from several areas, including strong channel execution, favorable mix across our Engineered Solutions…

Thanks, Neil. Just as a reminder, as in prior quarters, we have posted a supplemental quarterly investor presentation to our Investors site for your additional reference. We hope that you will find this useful as we recap our most recent quarter performance and initial fiscal 2025 guidance. Turning now to the details of our financial performance in the quarter. Consolidated sales increased 0.2% over the prior year quarter. Acquisitions contributed 150 basis points while the difference in selling days had a positive 80 basis point impact. This was partially offset by a negative 10 basis point impact from foreign currency translation. [Excluding] these factors, sales decreased 2% year-over-year on an organic daily 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 Slide 7 and 8 of the presentation, sales in our Service Center segment decreased 0.7% year-over-year on an organic daily basis when excluding a 1.2% positive impact from acquisitions, the positive 0.8% impact from the difference in selling days and a negative 10 basis point impact from foreign currency translation. On a sequential basis, segment sales per day decreased 0.5% from fiscal third quarter 2024, which was below normal seasonal patterns, though primarily reflecting April and May trends. From a vertical market standpoint, softer demand in the segment was primarily concentrated across machinery, fabricated metals, aggregates and energy. We continue to see positive sales growth across national accounts, while international sales were also positive year-over-year. This was offset by softer trends across local accounts and our maintenance supplies and consumables business. Segment EBITDA increased 16% over the prior year while EBITDA -- segment EBITDA margin of 14.6%…

Thanks, Dave. So to wrap up, fiscal 2024 was another meaningful year for Applied. We executed well within a slower demand environment while positioning the company for long term success through several acquisitions and internal growth investments. We entered fiscal 2025 with strong conviction in our potential while focused on executing and managing through a muted end market backdrop near term. We expect customers will continue to conservatively manage operational and capital spending near term amid ongoing business and economic uncertainty. As such, we're taking a prudent approach to our initial guidance, pending additional clarity on the direction of broader macro and industrial activity. Ultimately, we believe near term slowness will be shortened duration and we're positioning the business accordingly through ongoing investments and growth initiatives. In addition, our track record shows we know how to operate in any environment with various self help opportunities, active cost controls and operational discipline that provides support if a softer demand backdrop prolongs. That said, we see several potential catalysts on the horizon, including a possible reacceleration in US industrial production following subdued activity the past 18 months. This appears reasonable when considering structural tailwinds positively impacting US manufacturing activity and a greater level of deferred maintenance over the past several quarters. In addition, tailwinds should emerge in coming quarters as the Fed begins easing interest rates and we move beyond election uncertainty, while demand across our technology vertical and automation operations is poised to rebound following over a year of reduced activity. Combined with easing comparisons and our M&A pipeline, we see a path for year-over-year sales trends to gradually improve through fiscal 2025 and potentially accelerate into the back half of the year. We also remain favorably positioned to benefit from various secular megatrends developing across North American industrial market. This…

[Operator Instructions] And your first question comes from the line of Kenneth Newman with KeyBanc.

So sorry if I missed it, but I think in the past you would give what was embedded at the midpoint of your guidance, your expectations for the macro outlook, whether it’d be industrial production or capacity utilization. Did you guys mention what's embedded there at the midpoint today? And if not, could you please provide that?

Ken, I'll start. I'd say for us, right, the midpoint assumes first half declines by mid single digit organically and the second half increases low single digit organically. And then as we think about it from a market assumption standpoint, it would assume mid single digit market declines at the low end and low single digit market declines at the high end of our guidance.

And then for my follow-up, Obviously, a lot of puts and takes here on the margins [looking] forward into the first quarter. And obviously, you had a really good margin performance in Engineered Solutions despite the weaker organic demand. Just how resilient can Engineered margins be relative to 4Q on what seems like pretty muted growth here 4Q to 1Q?

And so just -- maybe I'll talk about it overall from a margin standpoint and what would be in probably the implied or the first quarter type guidance is that we think gross margins could be down sequentially from the fourth quarter and right, obviously in printed results, and we show the LIFO good improvement into the activity. But with mix and potentially some lower sales on the engineered solutions side that's where we would think would impact those margins sequentially in the site.

I'd add, we're very optimistic about the performance of the Engineered Solutions segment margins and contribution in the most recent quarter. And what that does demonstrate is the ongoing evolution towards more value add, which continues to improve that margin profile as we move forward. So we really see that business rebound that's going to contribute nicely to the overall AIT gross margin performance and EBITDA margins.

What I was going to say then as we move through the year, we see the potential local accounts accelerate or pick up into the side as well as others that will be mix positive or mix accretive across technology and automation.

Yes, that was going to be my clarifying question there is, does the incremental margins in Engineered Solutions look like legacy growth numbers or better just given all the cost out that you've had there?

I would say -- the starting point, I would say, would be similar. Obviously, we have initiatives going forward that's going to help them further accelerate, and those continue to be in process for us.

[Operator Instructions] And your next question comes from the line of Chris Dankert with Loop Capital.

I guess maybe if we could stay on the cost out of the equation here, really nice margin performance in the quarter. I guess, how much of that was maybe discrete actions versus just pulling the reins back on some of the discretionary costs? Maybe just if you could give us some additional color on kind of how to think about SG&A in the quarter here.

So as I think about it in the fourth quarter, I think it shows kind of the resiliency of the model. And there's sales activity or some reductions in the area. What fluctuates as we think about it from incentive sides, we can think about temps, requirements on overtime in those other areas. And so with 30% of the cost stack basically a variable we saw that nice adjustment and fluctuation in the side and we've demonstrated those capabilities in the model. And so as we look going forward, we would expect those to continue to contribute into the first quarter and really the first half.

And then maybe to zoom out a little bit. We've been talking about some of the major drivers reshoring recapitalization, what have you. I guess it seems like a lot of customers are just kind of hitting pause into the back half of the year here. Is there any way to quantify how many of these projects are high level conceptual stuff that people are talking about versus actual kind of shuffle ready stuff that could move forward more quickly in the first half of calendar '25?

Well, a few things there. So I would say from a reshoring standpoint, and I think one of the best ongoing indicators now would be the industrial manufacturing capacity the Federal Reserve shows, right? And it's been up the last 26 months, the longest expansion that they've had in over 20 years. So it tells me the activity continues at a high rate. It's sustainable. I think even from 2022 to now, it's up 2.5%. And so that's going to create more opportunities for our service center side of the business. And then our work with the teams as we see infrastructure projects planning around technology spend and that infrastructure that's coming and that we see in data centers and the localization in chips manufacturing those continue on. And so we just think we have customers near term responding to rates and some economic uncertainty, basically tightening belts and deferring, not making large material changes. And dialog with them as they look further beyond into the start of the calendar year, our fiscal second half, I think many are more optimistic on their type of activity that's going to be going on. And obviously, we're going to be well positioned and prepared to help them execute those projects.

And if you’ll maybe just indulge one more housekeeping one, and forgive me if I missed it. But any comment on just kind of the margin profile of TMS or Stanley Proctor and kind of how that impacts the business from a margin perspective?

I would say similar would be the looking at.

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

Thank you very much. I know we have some away in holiday at this time of the year, but we appreciate you joining us. We know and look forward to connecting with many in the upcoming quarter. So again, thanks for being with us today for the ongoing support. And we look forward to talking with many of you in the coming days. Thank you.

And ladies and gentlemen, this concludes today's conference, and we thank you for your participation. You may now disconnect.