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00:02 Welcome to the Fiscal 2022 Second Quarter Earnings Call for Applied Industrial Technologies. My name is Shelby, 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. Please note that this conference is being recorded.

00:32 I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin..

00:36 Okay. Thanks, Shelby and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our second quarter results. Both of these documents are available in the Investor Relations section of applied.com.

00:53 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, including the potential impact from the COVID-19 pandemic, as well as trends in sectors and geographies, the success of our business strategy and other risk factors. 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. 01:24 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. 01:39 With that, I'll turn it over to Neil..

01:41 Thanks, Ryan and good morning, everyone. We appreciate you joining us and hope everyone is doing well. I'll begin today with some perspective on our second quarter results, current industry conditions, and our expectations going forward.

Dave will follow with more specific detail on the quarter's performance and provide some additional color on our outlook and guidance, which we raised this morning and I will then close with some final thoughts. 02:10 Overall, we reported a strong second quarter that highlights the enhanced earnings potential across Applied.

We achieved record second quarter sales, EBITDA and EPS with respected growth of 17%, 36% and 49% over prior year adjusted levels. We are benefiting from a solid fundamental backdrop, as well as our team's consistent execution across strategic initiatives. These dynamics are increasing our growth momentum and returns on capital across Applied.

02:46 I want to thank our entire team for their ongoing effort and focus on optimizing and positioning the company to achieve these results. It's rewarding to see as we continue to leverage our leading technical industry position. As it relates to the quarter and our views going forward, I want to emphasize a few key points driving our performance.

03:10 First, underlying demand and sales growth accelerated as the quarter progressed. Second, our team is responding and executing well in the face of ongoing supply chain and inflationary pressures. And third, our enhanced operational capabilities and organic growth potential leave us increasingly favorable with our outlook.

03:34 In terms of underlying demand, trends will broadly positive across both segments during the quarter. Sales growth exceeded our expectation, with strength persisting each month, including strong sales activity during December.

We saw a strong year end budget and capital spending across our customer base, strength was broad based across our served end-markets including demand improvement with heavier and later cycle verticals. 04:05 Trends were strongest across technology, metals, lumber and wood, machinery, aggregates and chemical markets.

In addition, our technical solutions capability, inventory availability and expanded addressable market are positively influencing our growth. Combined with greater price contribution, sales increased a healthy 16% organically versus prior year levels.

On a two-year stack basis, organic sales were up 6% strengthening from the 3% reported last quarter, while sequential trends in daily sales were seasonally strong.

04:51 In our service center network, customers are increasing production output and running facility equipment harder and longer to address pent-up orders and higher demand for durable goods.

This is driving greater break fix and required maintenance activity, as well as ongoing release of capital spending as customers look to optimize their equipment and production capabilities, following pandemic and supply chain related challenges over the past several years.

05:22 Our technical support and local inventory availability are vital to our customers in the current supply and labor constrained marketplace. In addition, we're seeing stronger sales execution across our service center team.

We believe our investments and initiatives around analytics, sales process and talent in recent years have been key to our performance, as well as the ability to cross-sell more technical fluid power, flow control and automation solutions.

Overall, our service centers are in a great spot to capture incremental organic growth as the industrial up cycle continues to play out.

06:04 In Fluid Power & Flow Control segment, various secular tailwinds and company specific growth initiatives are supplementing an ongoing cyclical recovery across this more technical and solution based area of our business. Year-to-date, the segment represents approximately 33% of total sales, up from 31% a year ago and 16% during fiscal 2017.

06:34 From an end market perspective, the segment continues to benefit from strong demand with the technology sector, where we are designing and producing various solutions that are integral to areas tied to semiconductor manufacturing, 5G infrastructure and cloud computing.

We estimate these technology related industry verticals represent over 15% of segment sales to date on a direct and indirect basis.

07:05 In addition, Fluid Power customers are proactively investing in solutions that optimize the productivity, safety and efficiency of their production infrastructure and off-highway mobile equipment, as they focus on reducing power consumption and CO2 emissions and manage through a tight labor market.

This is driving demand for our leading fluid power service and engineered solutions. This includes electro hydraulic control and automation integration, customized software programming and digital IoT solutions.

07:44 From tailored approaches to turnkey applications, our team is deploying and developing cutting-edge technology solutions across both mobile and industrial fluid power equipment. We see sustainable growth potential across these customer solutions, as reflected in our ongoing increases in our fluid power backlog.

08:06 Combined with the sustained recovery and longer and later cycle markets, such as industrial OE and process flow as well as a growing position across areas such as life sciences and metrology, we believe the underlying demand backdrop across our fluid power and flow control operations remains favorable.

08:29 As it relates to our expanding automation platform, we continue to see strong growth with related sales up over 25% organically compared to the prior year.

Our teams are uniquely positioned to capitalize on a growing secular automation trend, giving application expertise and engineered solutions, as well as an accelerated adoption of more advanced technologies that are aligned with our product focus, including collaborative robots, machine vision and digital solutions.

09:06 Overall, we're encouraged by the demand potential we see across this new and emerging growth area for Applied. And remain focused on expanding our automation reach and capabilities in coming quarters.

This includes the potential for additional M&A, as well as organic footprint expansion as we identify new markets, leverage our internal resources and collaborate with suppliers.

09:34 Our progress while notable is just beginning in this area and we look forward to developing ongoing business opportunities, aimed at connecting our automation and smart technology capabilities across varied markets, such as semiconductors and electronics, medical and life science, food processing, logistics and data centers.

10:09 Overall, the demand environment remains positive and we're seeing ongoing contribution from our internal growth initiatives moving forward. At the same time, we continue to manage through supply chain constraints and inflationary pressures across the industrial space.

These dynamics remain challenges though our teams are responding well and leveraging our industry position to mitigate related pressures on underlying operations while supporting our customers' growth requirements. This is reflected in our second quarter results, including ongoing strategic expansion of our inventory levels.

10:43 In addition, our price actions and strong channel execution drove year-over-year and sequential improvement in gross margins during the quarter.

Combined with our cost discipline, enhanced internal processes and greater operational efficiencies, we reported strong high-teen incremental margins in turn driving record second quarter EBITDA and EBITDA margins.

Overall, these are great results and an indication of our capabilities and earnings potential as cyclical, secular and company specific tailwinds gain momentum. 11:24 At this time, I'll turn the call over to Dave for additional detail on our financial results and our outlook..

11:32 Thanks, Neil. Just another reminder before I begin. Consistent with prior quarters, we have posted a quarterly supplemental investor presentation to our investors site for your additional reference, as we discuss our most recent quarter performance and updated outlook. 11:46 Turning now to our results for the quarter.

Consolidated sales increased 16.7% over the prior year quarter. Acquisitions contribute 1.6 percentage points of growth and foreign currency drove a favorable 30 basis point increase. This was partially offset by one less selling day over the prior-year period, was negatively impacted sales growth by 1.6 percentage points.

12:12 Netting these factors, sales increased 16.4% on an organic daily basis. Average daily sales rates increased roughly 3% sequentially on an organic basis versus the prior quarter.

As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was between 230 basis points and 270 basis points in the quarter. As a reminder, this assumption only reflects measurable top line contribution from price increases on SKUs sold in both year-over-year periods.

12:46 Looking at sales performance across our segments. As highlighted on Slide 6 and 7 of the presentation, sales in our service center segment increased 15.1% year-over-year on an organic daily basis when excluding the impact from foreign currency and one less selling day in the quarter.

13:05 On a two-year stack basis, segment organic sales were up nearly 5%, an improvement from fiscal '22 first quarter trends. End markets such as machinery, lumber and forestry, mining, food and beverage, and pulp and paper had the strongest growth on a two-year stack basis during the quarter.

We are also seeing ongoing demand improvement across heavier industries, including primary metals, energy, and transportation related verticals. 13:33 Within our Fluid Power & Flow Control segment sales increased 22.9% over the prior year quarter, with acquisitions contributing 5.2 points of growth.

On an organic daily basis, segment sales increased 19.3% year-over-year and over 9% on a two-year stack basis. Segment sales continued to benefit from strong demand within technology end markets as well as across life sciences, chemical, utilities, metals and machinery end markets.

14:06 By business unit, segment growth remains strongest across fluid power and automation, partially reflecting strong demand for our engineered solutions and system build capabilities.

Demand across our later and longer cycle flow control operations also continues to improve, with customer core activity and order momentum further building in the quarter. 14:29 Moving to gross margin performance. As highlighted on Page 8 of the deck, gross margin of 29.4% expand its 51 basis points compared to prior year adjusted margin of 28.9%.

During the quarter, we recognized LIFO expense of $4.7 million compared to $0.9 million of LIFO expense in the prior year quarter. 14:55 The net LIFO headwind had an unfavorable 42 basis point year-over-year impact on gross margins during the quarter and reflects headwinds from supplier price inflation and strategic inventory expansion year-to-date.

Overall, our team is responding well to broader inflationary dynamics as evidenced by the sequential and year-over-year gross margin improvement in the quarter.

15:18 The favorable performance was broad-based across the businesses and reflects channel execution, pricing actions and ongoing margin countermeasures, as well as solid freight expense management.

Business mix was also favorable in the quarter, reflecting growth across local accounts and our Fluid Power & Flow Control segment, as well as more favorable business mix across our international operations.

15:43 Putting into our operating costs, selling, distribution and administrative expenses increased 10.8% compared to prior year adjusted levels or approximately 9% on an organic constant currency basis. SG&A expense was 20.5% of sales during the quarter, down from 21.6% on an adjusted basis during the prior year quarter.

16:09 We had another solid quarter of SG&A expense control, reflect in our leaner cost structure following business rationalization initiatives, undertaken in recent years as well as ongoing benefits from our operational excellence initiatives, shared services model and technology investments.

These dynamics are helping mitigate the adverse impact from inflationary pressures, higher employee-related expenses, lapping of prior year temporary cost actions and normalizing medical expense.

16:38 Combined with solid sales growth and gross margin improvement, EBITDA grew 35.6% over prior year adjusted levels, while EBITDA margin of 10.6% was up 147 basis points over the prior year, including reduced interest expense and a slightly lower tax rate reported earnings per share of $1.46 was up over 49% from prior year adjusted earnings per share levels.

17:09 Moving onto our cash flow performance, cash generated from operating activities during the second quarter was $32.6 million while free cash flow totaled $28.7 million. Year-to-date, our free cash generation of $74 million represents approximately 67% of net income.

As expected, we are seeing greater working capital investment across our operations, as AR levels continued to cyclically build combined with our focus on supporting growth, through ongoing strategic inventory expansion. 17:45 Of note, our operational inventory levels are up 8% year-to-date, including 11% across the U.S.

As it relates to other areas of capital deployment, we repurchased 35,000 shares for approximately $3.5 million during the quarter, bringing the year-to-date share amount of share repurchases to approximately 112,000 shares or $10.1 million. 18:12 In addition, we successfully execute refinancing of our credit facility in early December.

The new $900 million all revolver facility expands our available liquidity, provides more favorable terms and creates additional balance sheet flexibility moving forward. In conjunction with the refinancing, we paid down $98 million of outstanding debt with available cash on hand.

18:38 Since early 2018, we have paid down over 30% or approximately $350 million of outstanding debt. We ended December with approximately $155 million of cash on hand and net leverage at 1.6 times adjusted EBITDA, which is below the prior year level of 2.1 times and the fiscal '21 fourth quarter level of 1.8 times.

19:02 Our new revolver currently has approximately $460 million of available capacity, and additional $500 million accordion option. Combined with incremental capacity on our AR securitization facility and uncommitted private shelf facility, our liquidity remain strong. 19:21 Turning now to our outlook.

As indicated in today's press release and detailed on Page 10 of our presentation, we are raising full year fiscal 2022 guidance to reflect strong performance year-to-date and a more favorable outlook moving forward.

We now project EPS in the range of $5.70 to $5.90 per share based on sales growth of 11.5% to 12.5%, including a 10.5% to 11.5% organic growth assumption, as well as EBITDA margins up 10.1% to 10.3%.

19:58 Previously, our guidance assumed EPS of $5 to $5.40 per share, sales growth of 8% to 10%, included 7% to 9% organic growth assumption and EBITDA margins of 9.7% to 9.9%. We are encouraged by year-to-date operational performance and the ongoing opportunities pulling our growth and earnings potential in the back half of fiscal 2022.

20:26 That said, we remain cognizant of ongoing supply chain, inflation, labor and COVID-19 related dynamics, which continue to present challenges across our business and do remain key variables to how the remainder of the year could play out. We also will face more difficult sales growth comparisons in the second half of the year.

Our updated guidance incorporates these various factors. 20:50 In addition, based on month-to-date sales trends in January and our near-term outlook, we currently project fiscal third quarter organic sales to grow by a high-single digit percentage over the prior year quarter.

We expect gross margins at/or higher than 29% during the quarter, which assumes slightly higher LIFO expense versus second quarter levels, as well as a normalization and mix benefits and overall performance following the favorability we saw in the quarter.

21:21 As it relates to operating costs, based on high-single digit organic sales increase assumption and our annual focus merit increase which is effective January 1, we would expect selling, distribution and administrative expense in the high $180 million range during the fiscal third quarter.

In addition, if sales follow normal sequential patterns for the balance of the year, we would expect a similar to slightly higher SG&A range in our fiscal fourth quarter.

21:52 Lastly, from a cash flow perspective, we expect free cash flow to remain lower year-over-year in the second half of fiscal 2022 as AR levels continued to cyclically build and we continue to replenish and grow inventory to support our growth opportunities. 22:07 With that, I'll now turn the call back over to Neil for some final comments..

22:12 Thanks, Dave. So to wrap up, we feel very good about the momentum building across our business today. We're delivering on our commitments and moving closer to our interim financial objectives of $4.5 billion of revenue and 11% EBITDA margins.

While supply chain inflationary and COVID-19 related challenges continue to present some uncertainties entering the second half of the fiscal year, our team is executing at a high level with strong engagement and alignment, across our growth and margin strategy.

22:48 Bookings within our service center network remained broadly favorable with increasing demand across heavier and later cycle end markets, such as metals, mining and machinery.

In addition, backlog within our fluid power and automation businesses is at record levels, and we continue to see incrementally positive signs emerging across longer cycle areas including specialty flow control.

23:14 We also believe our diversification and expansion in the verticals such as technology, life sciences, and hygienics are enhancing the breadth and sustainability of our growth trajectory. Greater evidence of manufacturing reassuring and investment in U.S.

production capacity are other encouraging signs, this includes recent announcements for domestic capacity additions across the semiconductor space. 23:42 Our team remains focused on fully leveraging our industry position, addressable market and enhanced internal capabilities to drive stronger organic growth across our business.

We are seeing this emerge in our results, providing encouraging evidence of the opportunity that lies ahead.

24:04 From critical break fix MRO support at a local level to an expanding portfolio of emerging technologies and specialized engineering solutions, our products, services, team and value proposition had never been stronger, as customers deal with an aging technical workforce, equipment optimization initiatives and increased manufacturing investment across the U.S.

24:33 Lastly, we enter the second half of fiscal 2022 with our balance sheet and liquidity in a solid position to support strategic M&A opportunities. This includes an active and building pipeline across our key priority areas of fluid power, automation and flow control.

We're maintaining a disciplined approach as we focus on assets that drive strong double-digit returns on capital and enhance our competitive position, while increasing our differentiation and growth potential long-term. Overall, I'm very encouraged by what I see developing across our company. Once again, we thank you for your continued support.

25:14 And with that, we'll open up the lines for questions..

25:19 Thank you. We will now begin the question-and-answer session. Your first question is from Adam Uhlman of Cleveland Research..

25:44 Hey, guys. Good morning. Congrats on the solid performance. Couple of questions here for you. First of all, the price realizations been pretty strong. I guess, where do you see that unfolding here over the next few quarters? And then, the gross margins are expected to stay strong as well into the next quarter.

I'm just wondering, if you could remind us kind of what's your longer-term goals are of gross margin expansion?.

26:19 Yeah. So Adam, I'll start, and thanks. I think in the quarter just very strong execution on margins across and team executed well on point of sale in pricing. I think it goes back to good practices, leveraging our systems, focus on variation.

I think we had a good understanding of inflation that was coming at us and its impacts on costing, moving average cost, replacement cost. So good execution on that side. I think contributing to margins was overall mix.

I think the teams did a nice job, at supporting customers, we're seeing strength in local customers, so that's beneficial on a customer mix side. But also as we sell more technical solutions and services in that, it helped us on that product service mix in the side.

I think good recognition and performance around freight and in some other areas on that. 27:19 As we look forward at margins, right, they have laid out expectations there for the second half.

We could see mix from perhaps a little bit of the international market contribution be slightly less in the area, but still very good performance across the business.

And then on the ongoing targets, I mean, we just target on an annual basis, continued improvement in that side and right if you go back and look at us from 2016, 2017, we increased 100 basis points in that period. In '20, we had some good performance and the ability to hold margins in those times.

And we feel like we're executing very well and so gross margins will just be one of the components that will play in and contribute to our view of reaching the 11% EBITDA margins and beyond..

28:17 Okay. That's great. And then it seems like inventory availability has been a competitive advantage for you guys.

How should we think about like further inventory growth here in the second half of the year?.

28:32 Yeah. We would expect inventory to continue to increase in the second half, be a use of cash in the side, we think that's important as we work with our suppliers. But also look to insulate our customers from some of these supply chain dynamics.

I mean, our view is, this is the opportunity, this is the need when quality distribution performs in these times. So we would expect inventory to continue to increase. But we're focused, we're engaging with our suppliers, what products make most sense, understanding backlogs, understanding SKUs, any increased lead times and productions in the side.

So it's just not putting in any inventory, our SKU is to put in the right inventory across our supplier base..

29:26 Great. Thank you..

29:28 Your next question is from David Manthey of Baird..

29:34 Thank you. Hey. Good morning, guys. First question, Neil, you touched on this a bit, in terms of capital allocation. And I remember couple of years ago, you told me, prefer not to go below 1.5 times net leverage, given your opportunity set.

Could we see more aggressive share repurchase in the near term or are you just tend to sit on more dry powder today, given the pipeline that you referred to?.

30:05 As we think overall, I mean, one, we will continue to look at organic growth opportunities that we have and make right smart investments. With that said, the business doesn't have high, high capital intensity in those requirements but we intend to generate great returns.

In the quarter, the Board -- we increased the dividend, and so that's the 13th increase since 2010, we will continue to look at that modest share repurchase activity there, really just to look at accrete or any dilution on that side. And so we think in this space there -- it is an attractive M&A time we’re busy on that front.

And so we're at a healthy -- we have a healthy balance sheet, we're at a good position. We think our optimized leverage across a longer term is more 2.5 times, with the ability to go over and migrate back. We are under it right now, but we'll continue to look for right M&A and then right ongoing capital deployment as we work through the cycle..

31:22 Okay. Thank you. And second, there is a lot of positivity here around the quarter and the outlook. But as you look over the past 100 days and sort of think about the future.

Were there items either internal or external, that didn't quite go as well as you planned? Just what are you focused on in terms of opportunities here over the next quarter?.

31:50 Yeah. So I think about the performance and the results, I mean, there was really broad-based contribution in the side. And I've shared it with the team, there is a lot to feel good about in it. But it is a broad belief across the company. With that said, we still have many opportunities going forward.

And so we think about underlying demand dialogue with our customers. I think in many respects, the mid to later cycle the heavy industries are just getting started in this similar with near shoring and re-shoring. 32:33 From that perspective, I think about the CapEx cycle, it's really below long-term contributions as a percent of GDP.

I expect that to move up. I think many companies are going to be making investments in the side. So I can -- there is a good industrial end market for calendar 2022 and 2023. We talk about even infrastructure, those contributions haven't started yet and we know those monies will come in and benefit heavy industry.

And then we take on our technology side, our backlog across fluid power expanding in flow control and our automation opportunities and how we can connect that to with our legacy position across many of these end-market segments. We think we're in a very good operating environment for a good period of time..

33:33 Sounds good. I suppose if Intel drops $20 billion into Ohio that can hurt either. So, best of luck, Neil..

33:42 All right. Thanks..

33:45 Your next question is from Chris Dankert of Loop Capital..

33:57 Hey. Good morning, guys. I guess looking at the automation growth, 25% organic very impressive. And I fully appreciate where the scale is today, were pretty early days.

But I mean how does that 25% growth kind of compare with what the team had been expecting here? I mean, we kind of trending ahead of what you really been looking for end of the quarter?.

34:15 I would say, as we think about it in the quarter, a little ahead of expectations so pleased. I think there is great engagement with customers, more ability to get on-site and commission and pull projects through with the end customers on their side.

And good work between sales engineers and application engineers on new solutions and teaming with other areas of the business, whether it'd be in service centers or other aspects on working new opportunities.

So I'd say a perhaps a little bit ahead, still those businesses working with some supply chain constraints at various times, that can impact project timing. Not great moves but can impact some project timing. So pleased, encouraged by the backlog in the building momentum across that space..

35:10 Got it. Glad to hear it. And then you touched on analytics is being a contribution to some of the gross margin execution here. I guess, going forward, what's kind to the additional investment in analytics that could be helpful here.

I mean, AI, is it kind of helping improve the speed and cadence of repricing, are there kind of other opportunities for investment there in the medium-term?.

35:33 If we talk about, I think there is greater use for automation and intelligence across the business, but aren't -- they're not going to be high, high investment requirements.

And so, I mean we'd have work today with robotic process, automation in various other businesses that can help us in back office streamline and just be more productive and effective. We have the ERP systems, and data analytics to think about price and products and customers and variation, so we continue to use those on the front.

So, and then the other use of analytics is around market opportunities. And where we're at with customers and geographies and how we can just bring forward more of our expanded solutions to them, to address their needs, whether it would around their aging technical workforce, their need to deal with regulations or increase productivity requirements.

We're able to help on those fronts. And we're going to continue to use data and analytics to contribute to that and our teams engage with those customers on a local basis..

36:50 Got it.

I mean, would you say that some of these tools have really helped apply get paid for the value-added services that you've been providing for years and know it's always been kind of a tough thing to quantify, have that actually got easier to kind of sell the value these days?.

37:08 I think we've done a good job looking back, and we continue to know the value of the solutions, the problems that we're solving. And the --how to appropriately price accordingly in that.

I think the analytics are helping us with opportunities in identification and then how we can accelerate those with our customers and in solving those problems..

37:35 Got it. Yeah. That makes sense. And then last one from me, I guess, generally speaking, you guys haven't had any trouble attracting and retaining talent.

But I guess, just given the current market, any comments on kind of the state of play for labor and cost to keep and bring people onboard here?.

37:53 I believe across the business we continue to do a very good job. We've made the investments in our HRIS, (ph) our information systems, things we do and a learning management systems for growth and development. And so I believe we're very good at appropriately the right track recruit stages.

And also what we're doing for associates on ongoing development and career opportunities in that. And so across the Board, teams are doing a very nice job, we're active at universities and internships and in the space. So in physical distribution, logistics, I mean, we're not immune to it.

But I contend we're performing very well in this environment and I think that shows in our overall results..

38:43 Got it. Glad to hear it and better luck in the back half year guys..

38:47 Thank you..

38:49 Your final question is from Steve Barger of KeyBanc..

38:56 Hey. Good morning, guys. This is Ken Newman on for Steve..

38:59 Good morning, Ken..

39:02 Good morning. I just wanted to first ask about the SG&A leverage, that it seems to be slightly weaker into the third quarter versus second quarter. Obviously, gross margins came in better at the second quarter.

I'm curious if you can help us understand how much of the margins for third quarter is just cost catching up the price versus maybe incrementally worse mix or a roll-off in efficiency gains?.

39:28 You guys have factors to play there, Ken. I mean, certainly you have the focus there is to take effect on January 1. There are factor, the deposit sequential step-up as we move from Q2 to Q3.

Also, when you think about the comp issues, we were still lapping some of the prior year cost actions in Q2, that normalizes for the most part in Q3 as they start to roll-off. So a little more pressure on the year-over-year compared if there.

And then they certainly see a volume impact that you see your volume setting-up pretty significantly as we move from Q2 to Q3, just given the statistical seasonality that we'd see, plus the continued stronger demand within that.

So those are really the three factors that come into play along with some additional headcount investment in T&E to capitalize on some of the opportunities and drive that growth. So all of that kind of gets us to that high 180 number in terms of SG&A expectations for Q3..

40:30 Right. And when I think about the price increases that you announced for this quarter, I mean, can you rank the vendor price increases by type.

I'm just, I'm curious where you're seeing the biggest increases across the portfolio?.

40:44 I don't know that I have it signed any specific product category, I'd say it's pretty universal, the increases that have been coming through in the side. So I don't think there is one area that's standing out above the other..

41:04 Okay. I think someone earlier in the call, asked a question about or had mentioned the Intel plant here in Ohio.

And I just wanted to know, I know it's a year or two out, but is there any way for you to kind of frame the opportunity set for a project of that magnitude? How do you envision approaching something of that size from an organizational standpoint?.

41:27 Yeah. It may be a little earlier to size it, but it's going to be -- it's large size. But it's similar to other industrial investments in projects that would go on. From our standpoint, some of that will be original OE equipment and provider, so our participation would be with them, as that volume increases.

And then naturally as the site is up and running over periods of time, it creates its own ongoing maintenance and break fix requirements in doing it. So it's in front of us. I think it's exciting.

One, the overall investments in the semiconductor space, I think that's going to continue, whether it lands in the West and in Arizona or other markets, it's going to pull greater cloud computing requirements, 5G requirements.

And in the case of living here in Cleveland, it's good to see investment that will come to Ohio and leverage the technology base and employee expertise that resides within the state..

42:36 Right. And then just last one from me, obviously, we're seeing supply chain constraints kind of persist here. We've heard customers talk and complain about the availability for bearings and machine parts. And obviously there is still complaints about electronics and semiconductors.

Can you give any color as to where you're seeing the tightest availability for parts as it relates to your business? And just how you think about, if there was any revenue that's kind of being pushed out a quarter due to these -- due to the tighter conditions?.

43:13 There would be areas in the backlog that I would say, we go across the product categories. We are closely linked with those suppliers on not just providing demand signals, but the right order signals to go through and work with them. And that's really been a driver in our increase in inventory from a U.S. standpoint, a 11% year-to-date.

I would expect that number to continue. Now some of those orders or products that are coming in turn quickly to the marketplace, as it would go through, so we are engaged with our suppliers, but also close to our customers and understanding their needs. And not just letting demand pyramid in the side, we're meeting their needs as it goes across..

44:04 Very helpful. Thanks..

44:06 Thank you..

44:08 I'm showing we have no further questions. I will now turn the call over to Mr. Schrimsher for any closing remarks..

44:15 I just want to thank everyone for taking time, joining us today and we look forward to talking with many of you throughout the quarter. Thanks for being with us..

44:24 Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..