Applied Industrial Technologies, Inc. (NYSE:AIT) Q2 2023 Earnings Call Transcript

Neil Schrimsher: I think it’s a lot of the buildout of our capabilities, not only service centers and bearing and power transmission and the importance of those products, but what we’re doing in Engineered Solutions around fluid power, the addition of process flow control and now the start with automation. With its run rate now at $175 million to $180 million, that’s adding to our value proposition and offering that’s very important to customers, plus our participation and presence in maintenance supplies and consumables on that front. So, as we buildout those capabilities, very helpful because I contend the customers are looking to consolidate their spend with fewer, more capable suppliers to partner with someone that can help them deal with their labor constraints and challenges and their operational desires for much greater uptime as they continue to serve their industry demand.

David Wells: And as we’ve said kind of regardless of what depth kind of comes at us in terms of a market slowdown, really feel like because of that more comprehensive offering, the ability to continue to drive kind of market outperformance with cross-sell, we have the ability certainly to soften that impact as we work through the next cycle as it comes. And regardless, we still know how to be operators and like I said, gauge the business accordingly as we’ve demonstrated through each of the downturns.

David Manthey: Okay. Thank you for that. I guess I’ll stick with the theme of three questions, if it’s okay with you guys. Could you talk about the average order size of an average discrete automation solution, maybe a little bit about the sales cycle there? I assume these are capital items for customers. Just anything you can share with us regarding the — what that type of sale looks like in terms of magnitude and the sort of the length of time it takes to gear up, something like that?

Neil Schrimsher: Yeah. So, I don’t know that I have the average order size, but let me come at it a couple of ways. I’d say; one, we are doing more to have productized solutions that can make this sales process go very quickly. And so, if a customer wants to deal with labor constraints and has machine tending, and they want to have fewer operators to each fabrication equipment, they can leverage collaborative robots and perhaps have one operator per four pieces of equipment. And so that’s been an area that’s been helpful. We’re doing more in palletizing and help distribution oriented companies or to help the volume of outflows that people have dealt with challenges perhaps around warehouse labor. We’re also active in envision for safety type products.

And so, move from manual inspection on those. So, great enhancements and improvement, but also on consumer packaged goods, where you cannot have a labeling or product defect, especially if it’s going to some key retailers, that packaging has to be pristine. And you just can’t afford or do it effectively from a manual vision standpoint. So, those systems are very helpful. So that’s helping the sales process go quickly. I’d say, Dave, on the other side, then we have sales engineers and application engineers that are connecting with customers, especially on our — now our legacy service center side where we know their production equipment so well in solving a discrete automation problem or challenge. And so, we’ll start focused and perhaps small of how mobile or mobile and collaborative robots can help our vision or motion control type products or maybe connectivity in the plant, and we’re solving small projects.