Acquisitions and Capital Allocation
Q: What is the outlook for M&A and capital allocation priorities?
A: Management remains disciplined but is very encouraged by the M&A pipeline, including bolt-on and midsized deals in engineered solutions and automation. They expect to continue share buybacks over the next few quarters due to a strong cash position and leverage. They plan to return over $1 billion in capital over four years, with more than $250 million returned last year and expect to exceed that this year. M&A remains a strong priority, but they won't just stack cash and are committed to investing in organic opportunities with strong returns.

Automation and Technology Outlook
Q: How is the growth and stickiness in automation and technology segments?
A: Management is encouraged by increased order rates and activity in automation and technology. They see increased activity around chip manufacturers, with forecasts of wafer fab equipment growth of over 20% in 2025 and potentially double digits in 2026. High interest in robotics, autonomous mobile robots, and vision systems is driven by customers enhancing productivity and dealing with labor challenges. They believe there's stickiness in this growth and have maintained staffing levels to meet increasing demand.

Margins and EBITDA
Q: Why did EBITDA margins come in slightly below guidance?
A: Margins were largely in line, but timing differences affected comparisons. Sales development occurred late, and management maintained investments in growth areas. Gross margins faced tough year-over-year comparisons due to higher LIFO expenses and prior favorable anomalies. They expect margins to improve moving forward and are not changing their outlook or trajectory.

Market Share Gains
Q: Are you gaining market share in a weak demand environment?
A: Management believes they are benefiting from their focus areas, particularly in Engineered Solutions. Customers are consolidating spend, preferring fewer, more capable suppliers. They have a clear strategy to expand offerings within customers, and cross-selling is gaining traction, adding value to customers and driving market share gains.

Inventory Levels and Destocking
Q: How are you managing inventories, and are customers still destocking?
A: They are not reducing inventories but are making appropriate investments, especially in slower-moving, harder-to-make items with longer lead times. This helps customers stay operational and suppliers participate in the aftermarket. Generally, they don't face significant destocking impacts due to their technical products. However, in the off-highway mobile fluid power business, some destocking occurred but is expected to improve through this quarter and into early 2025.

Impact of Inflation
Q: Are there ongoing inflation pressures affecting the business?
A: They see steady, modest inflation, particularly from labor and overhead costs from manufacturers. Price cost was relatively neutral in the quarter, with price at about 100 basis points. They partner with suppliers to pass on price increases orderly, benefiting distribution by adding incremental margin to the bottom line. No significant inflation concerns are noted.

Reshoring Benefits
Q: How is AIT benefiting from reshoring activities?
A: AIT is well-positioned and benefiting from increased industrial construction projects, both directly and indirectly, in sectors like metals, aggregates, and cement. Reshoring helps customers de-risk supply chains. They are involved in helping customers bring projects back, run equipment more, and qualify suppliers, leading to capacity build-outs. Their businesses in the U.S., Mexico, and Canada are all benefiting from this trend.

Election Impact on Demand
Q: Is the upcoming election affecting customer demand?
A: While the election is a topic of conversation, management doesn't see it as a real driver of demand changes. They've observed general belt-tightening and deferrals, which may release post-election, possibly leading to a pickup in demand in December and early 2025.

October Trends and Hurricane Impact
Q: What is the impact of hurricanes on October trends?
A: The hurricane impact is difficult to quantify precisely. Some customers are fully operational, others are ramping up, and a few may be down longer. Economically, they view it as similar to other weather events to work through. October trends are early, with potential for a pickup in final days. Year-over-year comps are similar for November, with an easier comparison in December.

Organic Investment Opportunities
Q: Any updates on organic investment projects like Pacific Northwest capacity?
A: The Pacific Northwest capacity investments are complete, with operational teams in place. The fluid power technology investment in a new facility is also operational. These capacity moves and timing position them well for increasing demand. They continue to tie automation businesses with engineered solutions, expanding footprints organically and investing in back-office efficiencies and technology.

System Integrator Approach and Productized Solutions
Q: How is AIT positioned in system integration and productized solutions?
A: Management sees growing customer appetite for distributors offering system integrator capabilities in automation. They are well-positioned and don't see friction with integrators, remaining agnostic and focusing on helping customers solve problems. They are developing more productized solutions in robotics and vision, which are turnkey and easier to adopt, accelerating adoption and opening more opportunities. This approach is expanding the number of markets they serve and opening doors to more customer applications.