You are given a text that consists of multiple sentences. Your task is to perform abstractive summarization on this text. Use your understanding of the content to express the main ideas and crucial details in a shorter, coherent, and natural sounding text. 
Text: Both of these documents are available in the Investor Relations' section of applied.com.
In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents.
We appreciate you joining us and hope your new year is starting well.
I'll begin today with some perspective on our second quarter results, current industry conditions and our position going forward.
Dave will follow with a summary of our financials and some specifics on our second quarter and outlook, and then I'll close with some final thoughts.
We're pleased to report a solid and productive quarter for Applied, along with positive momentum building as we enter the second half of our fiscal year.
Our team executed extremely well during the second quarter and we saw a sustained sequential improvement in customer demand following the initial recovery highlighted last quarter.
We are leveraging our industry position and generating incremental traction from our strategic growth initiatives.
These include addressing customer's early cycle, technical MRO needs, as well as playing a vital role in supporting efficiency and performance initiatives across their critical industrial infrastructure.
We believe these customer initiatives will be increasingly relevant giving a greater focus on operational risk management and supply chain considerations.
We are capturing these initial tailwinds while remaining disciplined with controlling cost as sales continue to recover.
Cost accountability and execution have always been key to our culture and remain integral to our operational focus going forward.
This is supplemented by operating efficiencies gained from optimizing processes, systems and talent across the organization in recent years.
While additional expense restoration will occur in the second half of our fiscal year, we expect these counter elements to provide further balance to our cost trajectory near-term and support our long-term EBITDA margin expansion potential as the demand recovery continues to unfold and we leverage our operational network.
I'm also encouraged by the strong cash generation we continue to see across the business.
Year-to-date, free cash is up over 60% from prior-year levels and over 200% of adjusted net income.
While influenced by the counter-cyclical nature of our model, cash flow is ahead of our expectations and up meaningfully from prior-year levels.
This highlights the progress we continue to make with regard to expanding our market position while optimizing our margin profile and working capital management.
Our first-half cash generation and balance sheet flexibility leave us well-positioned entering the second half of our fiscal year.
As it relates to the broader demand environment, underlying trends remain below prior-year levels during our fiscal second quarter, but continue to improve sequentially despite the recent rise in COVID rates.
We saw greater break-fix and maintenance-related demand across our service center network on rising production activity, greater spending authorizations and enhanced sales momentum across strategic accounts.
Customers are remaining productive in the current environment as established safety protocols are proving effective and providing support.
Demand across our Fluid Power and Flow Control segment was also encouraging, with order activity and backlog momentum building.
This partially reflects firm demand from our leading service and engineered solutions capabilities as secular growth tailwinds continue across various industries.
Combined, the year-over-year organic sales decline of 10.5% in the quarter, improved from 13.5% decline last quarter.
Year-over-year trends improved each month, while sequential trends in daily sales rates were seasonally strong.
Areas such as food and beverage, aggregates, technology, lumber and wood, chemicals, and pulp and paper continue to show positive momentum.
And while year-over-year weakness remains greatest across heavy industries such as machinery, metals and oil and gas, demand within these verticals continues to gradually improve and related indicators suggest further recovery could emerge in the coming quarters.
The positive sales momentum has continued into the early part of fiscal third quarter with organic sales through the first 17 days of January down a mid-single digit percent over the prior year.
It's important to note that visibility remains limited and uncertainty persists as customers continue to manage through a challenging macro and pandemic outlook near-term.
Like many, we are hopeful the business environment continues to recover as vaccines are deployed further in coming months, but we remain cognizant of the potential impact from research and COVID cases, timing of mass vaccine distribution and possible fiscal policy changes from the new administration.
As we have shown in recent quarters, we know how to manage and execute in this uncertain business environment.
In addition, I firmly believe our value proposition and company specific growth potential is the greatest in Applied's history.
There is evidence of this emerging across the organization.
For example, we're playing a key part in the recent vaccine rollout and related COVID-19 response.
Our flow control offering and support team are providing critical products and solutions for vaccine production.
This includes hygienic diaphragm valves, water for injection pumps, and cleaning place flows systems used to clean and regulate material flow and temperature as the vaccine is manufactured.
We're proud and grateful to be participating in this historic moment which highlights our expanding position and capabilities across essential industries.
We're also seeing positive momentum across our fluid power operations as more customers integrate new technologies into their equipment and critical assets in order to optimize productivity, safety and energy costs, while reducing broader business and supply chain risk.
In addition, demand tailwinds tied to 5G infrastructure, cloud computing and other growing technologies are driving demand for pneumatic and electronic automation systems.
Our leading fluid power service and engineered solutions capabilities provide us a strong position to capture these growth opportunities, as reflected in our growing backlog in recent months.
Our technical position and long-term opportunity is further supplemented by the progress we are making in expanding our next-generation automation solutions following three acquisitions in the past 16 months.
This includes our recent acquisition of Gibson Engineering in late December.
Our growing automation footprint and offering focused on robotics, machine vision, motion control and digital technologies is being recognized across our industries and presents a significant growth opportunity longer-term, as we address customers' operational technology, needs in an improving industrial sector.
Overall, from critical break-fix MRO applications to emerging technologies and specialized engineering services, our value proposition is evident, and we continue to see greater demand as industrial production ramps.
These are positive developments and we are benefiting as customers themselves benefit from the value we bring to these opportunities.
Unusual items in the quarter include a $49.5 million pre-tax non-cash impairment charge on certain fixed, leased and intangible assets, as well as non-routine costs of $7.8 million pre-tax related to an inventory reserve charge, facility consolidations and severance.
These charges are the result of weaker economic conditions and resulting business alignment initiatives across a portion of our Service Center segment locations exposed to oil and gas end markets.
We remain focused on appropriately aligning cost and resources with current demand levels across our organization, following a pandemic-driven downturn over the past year.
These business alignment actions are consistent with our internal initiatives and strategic focus going forward and will drive additional cost savings in the back half of our fiscal year.
Now turning to our results, absent these in our non-routine charges during our second quarter, consolidated sales decrease 9.9% over the prior year quarter.
Acquisitions contributed a half point of growth and foreign currency was favorable by 0.1%.
Netting these factors, sales decreased 10.5% on an organic basis with a light number of selling days year-over-year.
While still down as compared to the prior year quarter, sales exceeded our expectations with average daily sales rates at nearly 3% sequentially on an organic basis and above the normal seasonal trends for the second straight quarter.
Following a slow start to the quarter in early October, sales activities strengthened sequentially and remained firm late in the quarter, despite typical seasonal slowness and rising COVID cases across the U.S. Comparative sales performance was relatively consistent across both segments as highlighted on slide 6 and 7.
Sales in our Service Center segment declined 10.4% year-over-year or 10.5% on an organic basis when excluding the modest impact from foreign currency.
The year-over-year organic decline of 10.5% improved notably relative to the mid-teens to low 20% declines we saw of the prior two quarters, while the segment's average daily sales rates increased nearly 4% sequentially from our September quarter and over 8% from the June quarter.
The sequential improvement primarily reflects greater customer maintenance activity and break-fix demand across our core U.S. service center network.
Positive momentum has been relatively drive-based, though end markets such as food and beverage, aggregates, pulp and paper, lumber and forestry, and rubber our leading to recovery.
Heavier industries are also starting to show positive signs while ongoing growth across our Australian operations has provided additional support.
Within our Fluid Power and Flow Control segment, sales decreased 8.5% over the prior year quarter, with our recent acquisition of ACS contributing 1.6 points of growth.
On an organic basis, segment sales declined 10.1%, reflecting lower demand across various industrial, off-highway mobile and process-related end markets.
This was partially offset by firm demand within technology, life sciences, transportation and chemical end markets.
In addition, as Niel mentioned, we are seeing encouraging demand for fluid power solutions tied to electronic control integration, equipment optimization and pneumatic automation.
This is supporting backlog, which was up both sequentially and year-over-year at the end of the quarter.
Moving to gross margin performance, as highlighted on Page 8 of the deck, adjusted gross margin of 28.9% declined 8 basis points year-over-year, or 19 basis points when excluding non-cash LIFO expense, $0.9 million in the quarter and $1.9 million in the prior year quarter.
On a sequential basis, adjusted gross margins were largely unchanged.
Overall, adjusted gross margin trends were in line with our expectations and continue to reflect some volume-driven headwinds year-over-year, as highlighted last quarter, which were partially offset by the ongoing benefit from our internal initiatives.
Turning to our operating costs.
On an adjusted basis, selling, distribution and administrative expenses declined 11.2% year-over-year or approximately 12% when excluding incremental operating cost associated with our ACS acquisition.
The year-over-year decline reflects the ongoing benefit of cost actions taken in recent quarters to align expenses with volume.
As discussed in prior calls, this includes a mix of both structural and temporary actions.
While we have restored a portion of the temporary cost actions, our team continues to demonstrate great discipline in controlling cost.
These results highlight the resiliency of the Applied team and our operating model as well as efficiency gains from operational excellence initiatives, leverage of our shared services model and technology investments made in recent years.
Year-over-year comparisons also benefited from this amortization expense, following the asset impairment charge we took during the quarter.
For your reference, our second quarter depreciation and the amortization expense of $13.5 million is a good quarterly run rate to assume going forward.
Overall, our strong cost control combined with improving sales trends during the quarter resulted in mid-single digit decremental margins on adjusted operating income or high-single digit decrementals when excluding depreciation and amortization expense.
Going forward, we will remain prudent and disciplined in managing our cost structure as we continue to roll off temporary cost actions to align with our recent performance and a more constructive outlook.
Since the start of our fiscal year, we have gradually eliminated the temporary cost actions as the business environment has slowly recovered and expect to discontinue the vast majority of the remaining temporary cost actions during this current fiscal third quarter.
Adjusted EBITDA in the quarter was $68.3 million, down 8.4% compared to the prior year quarter, while adjusted EBITDA margin was 9.1%, up 14 basis points over the prior year or virtually flat when excluding non-cash LIFO expense in both periods.
On a GAAP basis, we reported an operating loss of $0.14 per share, which includes the previously referenced non-cash impairment and non-routine charges.
On a non-GAAP adjusted basis, excluding these items, we reported earnings per share of $0.98, which compared to $0.97 in the prior year quarter.
Our adjusted tax-rate during the quarter of 18.6% was below prior year levels of 23%, as well as our guidance of 23% to 25%.
The adjusted tax rate during the quarter includes several discrete benefits related to income tax credits and stock option exercises.
We believe the tax rate of 23% to 25% for the second half of fiscal 2021 is appropriate assumption near-term.
Moving to our cash flow performance and liquidity.
Cash generated from operating activities during the second quarter was $77.5 million, while free cash flow totaled $72.7 million or approximately 190% of adjusted net income.
This was up from $55 million and $48 million respectively, as compared to the prior year quarter and represents record second quarter cash generation.
Year-to-date, free cash generation of $151 million is up over 60% for prior year levels and represents a 206% factor of adjusted net income.
The strong cash performance year-to-date reflects solid operational execution, significant ongoing contribution from our working capital initiatives and that counter-cyclical cash flow profile of our business model.
Given the strong free cash flow performance in the quarter, we ended December with approximately $289 million of cash on hand.
Of note, this is after utilizing cash during the quarter with two acquisitions.
Net leverage stood at 2.1 times adjusted EBITDA at quarter-end, consistent with the prior quarter and below the prior year level of 2.5 times.
In addition, our revolver remains undrawn with approximately $250 million of capacity and an additional $250 million accordion option.
Combined with incremental capacity under our uncommitted private shelf facility, our liquidity remains strong.
This provides flexibility to fund incremental working capital requirements in coming quarters as customer demand continues to improve as well as to pursue strategic M&A and fund other growth initiatives.
Our M&A focus near-term remains on smaller bolt-on targets that align with our growth priorities, including additional automation and fluid power opportunities.
This represents the 12th dividend increase since 2010 and under-stores our strong cash generation and commitment to delivering shareholder value.
Transitioning now to our outlook.
Based on month-to-date trends in January and assuming normal sequential patterns, we would expect fiscal third quarter 2021 organic sales to decline by 3% to 4% on a year-over-year basis.
This includes an assumption of low-single digit organic declines in our Service Center segment and mid-single digit organic declines in our Fluid Power and Flow Control segment.
Again, this direction is meant to provide a starting framework on how third quarter sales could shape up if trends follow normal seasonality going forward.
In addition, we expect our recent acquisitions at ACS and Gibson Engineering to contribute approximately $10 million to $11 million in sales during our fiscal third quarter.
We expect gross margins to remain relatively unchanged sequentially into the second half of fiscal 2021.
We continue to see some incremental price announcements from suppliers, so the magnitude of the increases are not materially different from what we've seen over the past year.
Our history highlight strong management of supplier inflation and price cost dynamics reflecting our industry position, internal initiatives and positive mix opportunities.
As it relates to operating costs, based on the 3% to 4% organic sales decline assumption, we would expect selling, distribution and administrative expense of between $170 million and $175 million during our 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 SD&A range in our fiscal fourth quarter.
This represents an increase from second quarter levels and partially reflects the ongoing roll off of temporary cost actions.
As indicated, we will continue to take a mindful and balanced approach to managing our operating costs going forward.
We were encouraged by our cost and margin execution year-to-date, which is providing a strong position to further discontinue temporary cost actions as we take an offensive approach to an emerging recovery and our strategic growth targets.
Lastly, from a cash flow perspective, we expect free cash to moderate in the second half relative to first half levels.
Working capital will likely become a use of cash as their level start to cyclically build, and we begin to replenish inventory in support of our growth opportunities, and the recovery as the year moves forward.
We remain confident on our cash generation potential and reiterate our normalized annual free cash target of at least 100% of net income over a cycle.
Approximately three quarters ago, during the initial weeks of the pandemic, I stated my belief that Applied has never been in a better position to manage through the current environment and exit the pandemic-driven downturn in an even stronger position.
Our performance since then provide strong confirmation of disposition, the tremendous team we have at Applied, and the earnings potential that lies ahead.
This includes record cash generation and a 30% reduction in our net debt, our strong cost execution supporting relatively stable EBITDA margins despite the meaningful end market slowdown.
During this time, we also completed two acquisitions, supplementing our long-term growth profile, while advancing other key growth initiatives, including optimizing our cross-selling opportunity and strategic end-market positioning.
We are delivering on our requirements and commitments while moving the organization toward our longer-term next milestone financial objectives of $4.5 billion of revenue and 11% EBITDA margins.
We remain cognizant of ongoing end-market uncertainty, but we're eager to demonstrate what we're fully capable of in the years ahead as we continue to leverage our differentiated industry position as the leading technical distributor and solutions provider across critical industrial infrastructure.

user
q2 adjusted non-gaap earnings per share $0.98 excluding items.
q2 loss per share $0.14.
would project fiscal 2021 q3 sales to decline 3% to 4% year over year on an organic basis.

assistant