Applied Industrial Technologies, Inc. (NYSE:AIT) Q1 2024 Earnings Call Transcript

So still remains at a good healthy level. And the answer to the cancellation question, no, you typically wouldn’t see cancellations in that Engineered Solutions piece of the business given the nature of that business. You may see some rephasing of OEM shipments based on demand, but that’s pretty modest. Really that 2 times backlog just continues to be driven by kind of strong order trends. And we are still seeing ongoing supplier constraints that are impacting adversely some of that shipment timing and getting those projects out the door. So continuing to see that impact the Engineered Solutions side of the business, some of that reading through to the lower growth for the quarter.

Chris Dankert: Got it. Thank you so much for the detail, and congrats on the quarter here, guys.

Neil Schrimsher: Thanks.

Operator: [Operator Instructions] And our next question comes from Ken Newman with KeyBank Capital Markets. Please proceed.

Ken Newman: Hey. Good morning, guys.

Neil Schrimsher: Good morning.

Ken Newman: Maybe if we can just start off with the automation demand and just how you’re thinking about the cadence of that coming back in the back half. Just touching on the last comment. And Neil, some of your comments, in your prepared remarks, I think you talked about some timing of more complex shipments maybe being pushed out a bit. Can you just expand on that a little bit? I mean, what is still tight specifically in those orders? And then again, just how do you think about the cadence of those shipments for that vertical into the second half?

Neil Schrimsher: Yeah. So as I think about it, kind of the — first, I’ll start with kind of what’s holding up. Two things. At times it can be small components, small things holding it up. It would be cabling or connectors or interface, PLCs in that area that can create. And then sometimes these projects are part of a larger project that the customer is working on. So those project managers will work their extended Gantt charts on managing that project. And if something else that we’re not related to extends out, it impacts that window or that timing. And so as I think on some of those projects, we’re going to see them move beyond our Q2 into the start of the calendar year perhaps in some of those. So as I think about overall for the back half, we would expect growth to resume in our automation business in that side. But if I look at that window, it could set-up that it might be similar in Q2 from a demand or a sell standpoint.

Ken Newman: Got it. Is there a way to, from a high level, kind of parse out the magnitude of what is more? Is it evenly split between these small components versus big project timing or is one a larger impact than the other?

Neil Schrimsher: Well, it’s hard to parse out each contributing factor to that. Is it external with projects or inputs or suppliers or components in that, but the teams are working it. We’ve covered in our operating reviews with them in the side. So we feel like we have a good line of sight. And the other that’s encouraging, by the amount of sales collaboration and what the sales engineers are doing and the advanced work by the application engineers, I think it’s building a good funnel of conversion opportunities. We touched on the set-up to address needs and problems around labor and material movement. So for collaborative robots and mobile, but we’re also seeing it in vision opportunities of how that can positively impact quality and performance plus address some labor challenges that could exist from a customer’s operations standpoint.

So hey, we remain encouraged in that. Can’t control perfectly the timing on some of this project release in the side, but again, we like where we’re at. We know as we go into the second half and especially look forward into ’25, we’re going to expect continued outsized outgrowth contributions from the automation space.