Business Wire | Apr 29, 2021 06:30AM EDT

Applied Industrial Technologies Reports Fiscal 2021 Third Quarter Results

Apr. 29, 2021

CLEVELAND--(BUSINESS WIRE)--Apr. 29, 2021--Applied Industrial Technologies (NYSE: AIT), a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies, today reported results for its fiscal 2021 third quarter ended March 31, 2021.

Net sales for the quarter increased 1.2% to $840.9 million from $830.8 million in the prior year. The change includes a 1.8% increase from acquisitions and a 0.6% increase from foreign currency translation, partially offset by a negative 1.6% impact from one less selling day. Excluding these factors, sales increased 0.4% on an organic daily basis reflecting a 0.4% increase in the Service Center segment and a 0.2% increase in the Fluid Power & Flow Control segment. The Company reported net income of $--56.1 million, or $1.42 per share. Results include non-routine income of $2.6 million pre-tax. Excluding this income, the Company reported non-GAAP adjusted net income of $54.1 million, or $1.37 per share, and adjusted EBITDA of $86.8 million.

Neil A. Schrimsher, Applied's President & Chief Executive Officer, commented "This was a solid quarter for Applied across many fronts. Sales exceeded our expectations and grew slightly over the prior year reflecting improving end-market demand and our industry position. At the same time, we expanded gross margins and leveraged a leaner cost structure that has been refined over the past year. These dynamics more than offset the elimination of various temporary cost actions and drove favorable earnings growth, while our working capital initiatives continue to support cash flow. Results highlight Applied's strong execution and potential as the next phase of the industrial economy unfolds."

Mr. Schrimsher added, "Looking ahead, I believe we are entering a favorable period for Applied and all stakeholders. Indications of cyclical and secular demand tailwinds are building within legacy and emerging market verticals. We are seeing greater break-fix and maintenance activity across our service center network, as well as stronger orders within our fluid power, specialty flow control, and automation offerings. This is accelerating sales growth as we lap prior year pandemic-related weakness, with month-to-date organic sales in April up approximately 10% year over year. While supply chain constraints and inflation are increasing industry-wide, we are in a strong spot to manage through these early cycle dynamics and continue to drive accretive growth opportunities going forward, reflecting our leading technical position and strategy. Combined with our cross-selling potential, self-help margin initiatives, and strong balance sheet, we have a clear path to drive meaningful value creation into fiscal 2022 and beyond."

OutlookBased on month-to-date sales in April and assuming normal seasonal patterns, the Company would project fiscal 2021 fourth quarter sales to increase 12% to 13% year over year on an organic basis.

DividendToday the Company announced that its Board of Directors declared a quarterly cash dividend of $0.33 per common share, payable on May 28, 2021, to shareholders of record on May 14, 2021.

Conference Call InformationApplied will host its quarterly conference call for investors and analysts at 10 a.m. ET on April 29, 2021. Neil A. Schrimsher - President & CEO, and David K. Wells - CFO will discuss the Company's performance. A supplemental investor deck detailing latest quarter results is available for reference on the investor relations portion of the Company's website at www.applied.com. To join the call, dial 877-311-4351 (toll free) or 614-999-9139 (for International callers) using conference ID 1278031. A live audio webcast can be accessed online through the investor relations portion of the Company's website at www.applied.com. A replay of the call will be available for two weeks by dialing 855-859-2056 or 800-585-8367 (both toll free), or 404-537-3406 (International) using conference ID 1278031.

About Applied(r)Applied Industrial Technologies is a leading value-added distributor and technical solutions provider of industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies. Our leading brands, specialized services, and comprehensive knowledge serve MRO and OEM end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. For more information, visit www.applied.com.

This press release contains statements that are forward-looking, as that term is defined by the Securities and Exchange Commission in its rules, regulations and releases. Applied intends that such forward-looking statements be subject to the safe harbors created thereby. Forward-looking statements are often identified by qualifiers such as "believe," "expect," "will," "outlook," "project", and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends in the industrial sector of the economy, the effects of the health crisis associated with the COVID-19 pandemic on our business operations, results of operations, and financial condition, and other risk factors identified in Applied's most recent periodic report and other filings made with the Securities and Exchange Commission, many of which risks are amplified by circumstances arising out of the COVID-19 pandemic. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as a representation by Applied or any other person that the results expressed therein will be achieved. Applied assumes no obligation to update publicly or revise any forward-looking statements, whether due to new information, or events, or otherwise.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED INCOME(Unaudited)(In thousands, except per share data) Three Months Ended Nine Months Ended March 31, March 31, 2021 2020 2021 2020

Net Sales $ 840,937 $ 830,797 $ 2,340,031 $ 2,520,576

Cost of sales 593,712 594,045 1,667,491 1,791,130

Gross Profit 247,225 236,752 672,540 729,446

Selling, distribution andadministrative expense,including depreciation 172,758 183,702 498,659 556,485

Intangible and other - 131,000 49,528 131,000impairmentOperating (Loss) Income 74,467 (77,950) 124,353 41,961

Interest expense, net 7,608 8,805 22,919 28,447

Other income, net (1,657) (1,428) (1,746) (1,643)

Income (Loss) Before Income 68,516 (85,327) 103,180 15,157TaxesIncome Tax Expense (Benefit) 12,453 (2,550) 17,667 21,104

Net Income (Loss) $ 56,063 $ (82,777) $ 85,513 $ (5,947)

Net Income (Loss) Per Share - $ 1.44 $ (2.14) $ 2.21 $ (0.15)BasicNet Income (Loss) Per Share - $ 1.42 $ (2.14) $ 2.18 $ (0.15)DilutedAverage Shares Outstanding - 38,835 38,682 38,779 38,647BasicAverage Shares Outstanding - 39,412 38,682 39,261 38,647Diluted NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1) Applied uses the last-in, first-out (LIFO) method of valuing U.S.inventory. An actual valuation of inventory under the LIFO method can only bemade at the end of each year based on the inventory levels and costs at thattime. Accordingly, interim LIFO calculations are based onmanagement's estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory determination.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands)March 31,2021June 30,2020AssetsCash and cash equivalents$

304,016

$

268,551

Accounts receivable, net510,080

449,998

Inventories358,237

389,150

Other current assets54,023

52,070

Total current assets1,226,356

1,159,769

Property, net116,951

121,901

Operating lease assets, net84,062

90,636

Intangibles, net287,686

343,215

Goodwill559,196

540,594

Other assets31,137

27,436

Total Assets$

2,305,388

$

2,283,551

LiabilitiesAccounts payable$

217,252

$

186,270

Current portion of long-term debt78,644

78,646

Other accrued liabilities169,850

161,167

Total current liabilities465,746

426,083

Long-term debt773,404

855,143

Other liabilities131,331

158,783

Total Liabilities1,370,481

1,440,009

Shareholders' Equity934,907

843,542

Total Liabilities and Shareholders' Equity$

2,305,388

$

2,283,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands) March 31, June 30, 2021 2020

AssetsCash and cash equivalents $ 304,016 $ 268,551

Accounts receivable, net 510,080 449,998

Inventories 358,237 389,150

Other current assets 54,023 52,070

Total current assets 1,226,356 1,159,769

Property, net 116,951 121,901

Operating lease assets, net 84,062 90,636

Intangibles, net 287,686 343,215

Goodwill 559,196 540,594

Other assets 31,137 27,436

Total Assets $ 2,305,388 $ 2,283,551

LiabilitiesAccounts payable $ 217,252 $ 186,270

Current portion of long-term debt 78,644 78,646

Other accrued liabilities 169,850 161,167

Total current liabilities 465,746 426,083

Long-term debt 773,404 855,143

Other liabilities 131,331 158,783

Total Liabilities 1,370,481 1,440,009

Shareholders' Equity 934,907 843,542

Total Liabilities and Shareholders' Equity $ 2,305,388 $ 2,283,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS(Unaudited)(In thousands)Nine Months EndedMarch 31,2021

2020

Cash Flows from Operating ActivitiesNet income (loss)$

85,513

$

(5,947)

Adjustments to reconcile net income to net cash providedby operating activities:Depreciation and amortization of property15,641

15,997

Amortization of intangibles26,238

31,671

Intangible and other impairment49,528

131,000

Amortization of stock appreciation rights and options1,930

2,217

Other share-based compensation expense4,660

2,046

Changes in assets and liabilities, net of acquisitions33,574

1,406

Other, net(13,675)

(8,766)

Net Cash provided by Operating Activities203,409

169,624

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired(30,023)

(37,237)

Capital expenditures(12,177)

(16,223)

Proceeds from property sales691

1,809

Net Cash used in Investing Activities(41,509)

(51,651)

Cash Flows from Financing ActivitiesLong-term debt borrowings-

25,000

Long-term debt repayments(82,070)

(39,803)

Interest rate swap settlement payments(2,122)

-

Payment of debt issuance costs(399)

(22)

Dividends paid(37,772)

(36,420)

Acquisition holdback payments(2,344)

(2,440)

Taxes paid for shares withheld for equity awards(5,990)

(2,604)

Exercise of stock appreciation rights and options163

330

Net Cash used in Financing Activities(130,534)

(55,959)

Effect of Exchange Rate Changes on Cash4,099

(4,769)

Increase in cash and cash equivalents35,465

57,245

Cash and Cash Equivalents at Beginning of Period268,551

108,219

Cash and Cash Equivalents at End of Period$

304,016

$

165,464

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS(Unaudited)(In thousands) Nine Months Ended March 31,

2021 2020

Cash Flows from Operating ActivitiesNet income (loss) $ 85,513 $ (5,947)

Adjustments to reconcile net income to net cashprovidedby operating activities:Depreciation and amortization of property 15,641 15,997

Amortization of intangibles 26,238 31,671

Intangible and other impairment 49,528 131,000

Amortization of stock appreciation rights and options 1,930 2,217

Other share-based compensation expense 4,660 2,046

Changes in assets and liabilities, net of 33,574 1,406acquisitionsOther, net (13,675) (8,766)

Net Cash provided by Operating Activities 203,409 169,624

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired (30,023) (37,237)

Capital expenditures (12,177) (16,223)

Proceeds from property sales 691 1,809

Net Cash used in Investing Activities (41,509) (51,651)

Cash Flows from Financing ActivitiesLong-term debt borrowings - 25,000

Long-term debt repayments (82,070) (39,803)

Interest rate swap settlement payments (2,122) -

Payment of debt issuance costs (399) (22)

Dividends paid (37,772) (36,420)

Acquisition holdback payments (2,344) (2,440)

Taxes paid for shares withheld for equity awards (5,990) (2,604)

Exercise of stock appreciation rights and options 163 330

Net Cash used in Financing Activities (130,534) (55,959)

Effect of Exchange Rate Changes on Cash 4,099 (4,769)

Increase in cash and cash equivalents 35,465 57,245

Cash and Cash Equivalents at Beginning of Period 268,551 108,219

Cash and Cash Equivalents at End of Period $ 304,016 $ 165,464

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands)

The Company supplemented the reporting of financial information determined under U.S. generally accepted accounting principles (GAAP) with reporting of non-GAAP financial measures. The Company believes that these non-GAAP measures provide meaningful information to assist shareholders in understanding financial results, assessing prospects for future performance, and provide a better baseline for analyzing trends in our underlying businesses. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation or as a substitute for reported results. These non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review company financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

(In thousands)



The Company supplemented the reporting of financial information determinedunder U.S. generally accepted accounting principles (GAAP) with reporting ofnon-GAAP financial measures. The Company believes that these non-GAAPmeasures provide meaningful information to assist shareholders inunderstanding financial results, assessing prospects for future performance,and provide a better baseline for analyzing trends in our underlyingbusinesses. Because non-GAAP financial measures are not standardized, itmay not be possible to compare these financial measures with othercompanies' non-GAAP financial measures having the same or similar names. These non-GAAP financial measures should not be considered in isolation oras a substitute for reported results. These non-GAAP financial measuresreflect an additional way of viewing aspects of operations that, when viewedwith GAAP results, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review companyfinancial statements and publicly filed reports in their entirety and not torely on any single financial measure.

Reconciliation of Net income (loss) and Net income (loss) per share, GAAP financial measures, with Adjusted Net income and Adjusted Net income per share, non-GAAP financial measures:

Three Months Ended March 31, 2021Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet income and net income per share$

68,516

$

12,453

$

56,063

$

1.42

18.2%

Non-routine income(2,609)

(613)

(1,996)

(0.05)

23.5%

Adjusted net income and net income per share$

65,907

$

11,840

$

54,067

$

1.37

18.0%

Three Months Ended March 31, 2020Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet loss and net loss per share$

(85,327)

$

(2,550)

$

(82,777)

$

(2.14)

3.0%

Intangible and other impairment131,000

12,200

118,800

3.07

9.3%

Non-routine costs5,997

1,396

4,601

0.12

23.3%

Non-routine tax benefit-

1,010

(1,010)

(0.03)

N/M

Adjusted net income and net income per share$

51,670

$

12,056

$

39,614

$

1.02

23.3%

Nine Months Ended March 31, 2021Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet income and net income per share$

103,180

$

17,667

$

85,513

$

2.18

17.1%

Intangible and other impairment49,528

11,769

37,759

0.96

23.8%

Non-routine costs7,772

1,847

5,925

0.15

23.8%

Non-routine income(2,609)

(613)

(1,996)

(0.05)

23.5%

Adjusted net income and net income per share$

157,871

$

30,670

$

127,201

$

3.24

19.4%

Nine Months Ended March 31, 2020Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet loss and net loss per share$

15,157

$

21,104

$

(5,947)

$

(0.15)

139.2%

Intangible and other impairment131,000

12,200

118,800

3.07

9.3%

Non-routine costs7,452

1,747

5,705

0.15

23.4%

Non-routine tax benefit-

1,010

(1,010)

(0.03)

N/M

Adjusted net income and net income per share$

153,609

$

36,061

$

117,548

$

3.04

23.5%

Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:Three Months EndedMarch 31,Nine Months EndedMarch 31,2021

2020

2021

2020

Net Income (Loss)$

56,063

$

(82,777)

$

85,513

$

(5,947)

Interest expense, net7,608

8,805

22,919

28,447

Income tax expense (benefit)12,453

(2,550)

17,667

21,104

Depreciation and amortization of property5,080

5,380

15,641

15,997

Amortization of intangibles8,236

10,048

26,238

30,617

EBITDA$

89,440

$

(61,094)

$

167,978

$

90,218

Intangible and other impairment-

131,000

49,528

131,000

Non-routine costs-

5,997

7,772

7,452

Non-routine income(2,609)

-

(2,609)

-

Adjusted EBITDA$

86,831

$

75,903

$

222,669

$

228,670

The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP finanicalmeasure. Adjusted EBITDA excludes items that may not be indicative of core operating results, a non-GAAP financial measure.Reconciliation of Net Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:Three Months EndedMarch 31,Nine Months EndedMarch 31,2021

2020

2021

2020

Net Cash provided by Operating Activities$

44,053

$

64,725

$

203,409

$

169,624

Capital expenditures(3,728)

(4,258)

(12,177)

(16,223)

Free Cash Flow$

40,325

$

60,467

$

191,232

$

153,401

Free cash flow is defined as net cash provided by operating activities less property purchases, a non-GAAP financial measure. View source version on businesswire.com: https://www.businesswire.com/news/home/20210429005262/en/

CONTACT: Ryan D. Cieslak Director - Investor Relations & Treasury 216-426-4887 / rcieslak@applied.com