Business Wire | Aug 17, 2021 06:30AM EDT

Applied Industrial Technologies Reports Fiscal 2021 Fourth Quarter and Full-Year Results

Aug. 17, 2021

CLEVELAND--(BUSINESS WIRE)--Aug. 17, 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 fourth quarter and full year ended June 30, 2021.

Net sales for the quarter increased 23.6% to $895.9 million from $725.1 million in the prior year. The change includes a 2.1% increase from acquisitions and a 1.7% increase from foreign currency translation. Excluding these factors, sales increased 19.8% on an organic basis with similar increases reported across both the Service Center segment and Fluid Power & Flow Control segment. The Company reported net income of $59.2 million, or $1.51 per share, and EBITDA of $94.8 million. Results include a LIFO layer liquidation benefit, which favorably impacted EPS by $0.07 and gross profit by $3.7 million on a net basis during the quarter.

For the twelve months ended June 30, 2021, sales were $3.2 billion, a decrease of 0.3% compared with the prior year, or down 1.8% on an organic daily basis. Net income was $144.8 million or $3.68 per share on a reported basis. Non-GAAP adjusted net income was $186.4 million, or $4.74 per share. Full-year operating cash flow was $241.7 million, while free cash flow was $225.8 million or 121.1% of adjusted net income.

Neil A. Schrimsher, Applied's President & Chief Executive Officer, commented, "We ended fiscal 2021 on a strong note with fourth quarter performance exceeding our expectations and achieving record quarterly earnings. Underlying demand continued to strengthen across both segments during the quarter reflecting sustained recovery in our core end markets and momentum generated from our internal growth initiatives. We are managing inflation well and controlling costs, while benefiting from productivity enhancements. Overall, I am extremely proud of what we accomplished during a challenging year. Our ability to deliver strong operational and financial performance while remaining fully invested in our long-term strategy during an unprecedented period is a testament to the strength of our Applied team, business model, and industry position."

Mr. Schrimsher added, "Entering early fiscal 2022, we are off to a positive start with organic sales through mid-August up by a high-teens percent over the prior year, and customer indications signaling sustained demand momentum. Our balance sheet is in a solid position, and we see favorable earnings potential beyond cycle fundamentals as we leverage our technical industry position and expanding addressable market. This includes supporting more of our customers' industrial technology and operational requirements through our cross-selling efforts, as well as the expansion of faster growing and higher margin industrial solutions. While industry-wide supply chain constraints and macro uncertainty remain, we have multiple internal opportunities to drive solid earnings growth and stronger returns on capital in fiscal 2022 and beyond."

Fiscal 2022 GuidanceThe Company is reinstating its practice of providing formal full-year guidance. For the fiscal year ending June 30, 2022, the Company is introducing EPS guidance in the range of $5.00 to $5.40 based on sales growth of 8% to 10% including 7% to 9% on an organic basis, as well as EBITDA margins of 9.7% to 9.9%. Guidance assumptions include a steady industrial demand environment relative to current trends, ongoing inflationary headwinds including greater LIFO expense, and lingering uncertainty related to the COVID-19 pandemic. Guidance does not assume contribution from potential future acquisitions.

Share RepurchasesDuring the quarter, the Company purchased 400,000 shares of its common stock in open market transactions for $40.1 million. At June 30, 2021, the Company had remaining authorization to purchase approximately 465,000 additional shares.

Conference Call InformationApplied will host its quarterly conference call for investors and analysts at 10 a.m. ET on August 17, 2021. Neil A. Schrimsher - President & CEO, and David K. Wells - CFO will discuss the Company's performance. A supplemental investor presentation detailing latest quarter results and the Company's outlook 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 8056208. 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 8056208.

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 "see," "expect," "will," "guidance," "assume", 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 Year Ended June 30, June 30,

2021 2020 2021 2020

Net Sales $ 895,888 $ 725,076 $ 3,235,919 $ 3,245,652

Cost of sales 632,904 516,786 2,300,395 2,307,916

Gross Profit 262,984 208,290 935,524 937,736

Selling, distributionand administrative 181,883 161,262 680,542 717,747 expense, includingdepreciationImpairment expense - - 49,528 131,000

Operating Income 81,101 47,028 205,454 88,989

Interest expense, net 7,673 8,088 30,592 36,535

Other income, net (454 ) (1,139 ) (2,200 ) (2,782 )

Income Before Income 73,882 40,079 177,062 55,236 TaxesIncome Tax Expense 14,638 10,090 32,305 31,194

Net Income $ 59,244 $ 29,989 $ 144,757 $ 24,042

Net Income Per Share - $ 1.53 $ 0.78 $ 3.73 $ 0.62 BasicNet Income Per Share - $ 1.51 $ 0.77 $ 3.68 $ 0.62 DilutedAverage Shares 38,692 38,691 38,758 38,658 Outstanding - BasicAverage Shares 39,347 38,988 39,296 38,999 Outstanding - Diluted NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS1) 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 on management'sestimates of expected year-end inventory levels and costs and are subject tothe final year-end LIFO inventory determination.

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

257,745

$

268,551

Accounts receivable, net516,322

449,998

Inventories362,547

389,150

Other current assets59,961

52,070

Total current assets1,196,575

1,159,769

Property, net115,589

121,901

Operating lease assets, net87,111

90,636

Intangibles, net279,628

343,215

Goodwill560,077

540,594

Other assets32,827

27,436

Total Assets$

2,271,807

$

2,283,551

LiabilitiesAccounts payable$

208,162

$

186,270

Current portion of long-term debt43,525

78,646

Other accrued liabilities176,013

161,167

Total current liabilities427,700

426,083

Long-term debt784,855

855,143

Other liabilities126,706

158,783

Total Liabilities1,339,261

1,440,009

Shareholders' Equity932,546

843,542

Total Liabilities and Shareholders' Equity$

2,271,807

$

2,283,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands) June 30, 2021 June 30, 2020 AssetsCash and cash equivalents $ 257,745 $ 268,551

Accounts receivable, net 516,322 449,998

Inventories 362,547 389,150

Other current assets 59,961 52,070

Total current assets 1,196,575 1,159,769

Property, net 115,589 121,901

Operating lease assets, net 87,111 90,636

Intangibles, net 279,628 343,215

Goodwill 560,077 540,594

Other assets 32,827 27,436

Total Assets $ 2,271,807 $ 2,283,551

LiabilitiesAccounts payable $ 208,162 $ 186,270

Current portion of long-term debt 43,525 78,646

Other accrued liabilities 176,013 161,167

Total current liabilities 427,700 426,083

Long-term debt 784,855 855,143

Other liabilities 126,706 158,783

Total Liabilities 1,339,261 1,440,009

Shareholders' Equity 932,546 843,542

Total Liabilities and Shareholders' Equity $ 2,271,807 $ 2,283,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS(Unaudited)(In thousands)Year Ended June 30,

2021

2020

Cash Flows from Operating ActivitiesNet income$

144,757

$

24,042

Adjustments to reconcile net income to net cash providedby operating activities:Depreciation and amortization of property20,780

21,196

Amortization of intangibles34,365

41,553

Impairment expense49,528

131,000

Amortization of stock appreciation rights and options2,526

2,954

Other share-based compensation expense6,454

4,000

Changes in assets and liabilities, net of acquisitions6,381

73,720

Other, net(23,094

)

(1,751

)

Net Cash provided by Operating Activities241,697

296,714

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired(30,230

)

(37,237

)

Capital expenditures(15,852

)

(20,115

)

Proceeds from property sales1,152

1,948

Net Cash used in Investing Activities(44,930

)

(55,404

)

Cash Flows from Financing ActivitiesLong-term debt borrowings26,000

25,000

Long-term debt repayments(131,883

)

(49,553

)

Interest rate swap settlement payments(3,737

)

-

Payment of debt issuance costs(399

)

(95

)

Purchases of treasury shares(40,089

)

-

Dividends paid(50,664

)

(48,873

)

Acquisition holdback payments(2,345

)

(2,440

)

Taxes paid for shares withheld for equity awards(10,083

)

(2,607

)

Exercise of stock appreciation rights and options163

330

Net Cash used in Financing Activities(213,037

)

(78,238

)

Effect of Exchange Rate Changes on Cash5,464

(2,740

)

Increase in cash and cash equivalents(10,806

)

160,332

Cash and Cash Equivalents at Beginning of Period268,551

108,219

Cash and Cash Equivalents at End of Period$

257,745

$

268,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS(Unaudited)(In thousands) Year Ended June 30,

2021 2020

Cash Flows from Operating ActivitiesNet income $ 144,757 $ 24,042

Adjustments to reconcile net income to net cashprovidedby operating activities:Depreciation and amortization of property 20,780 21,196

Amortization of intangibles 34,365 41,553

Impairment expense 49,528 131,000

Amortization of stock appreciation rights and 2,526 2,954 optionsOther share-based compensation expense 6,454 4,000

Changes in assets and liabilities, net of 6,381 73,720 acquisitionsOther, net (23,094 ) (1,751 )

Net Cash provided by Operating Activities 241,697 296,714

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired (30,230 ) (37,237 )

Capital expenditures (15,852 ) (20,115 )

Proceeds from property sales 1,152 1,948

Net Cash used in Investing Activities (44,930 ) (55,404 )

Cash Flows from Financing ActivitiesLong-term debt borrowings 26,000 25,000

Long-term debt repayments (131,883 ) (49,553 )

Interest rate swap settlement payments (3,737 ) -

Payment of debt issuance costs (399 ) (95 )

Purchases of treasury shares (40,089 ) -

Dividends paid (50,664 ) (48,873 )

Acquisition holdback payments (2,345 ) (2,440 )

Taxes paid for shares withheld for equity awards (10,083 ) (2,607 )

Exercise of stock appreciation rights and options 163 330

Net Cash used in Financing Activities (213,037 ) (78,238 )

Effect of Exchange Rate Changes on Cash 5,464 (2,740 )

Increase in cash and cash equivalents (10,806 ) 160,332

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

Cash and Cash Equivalents at End of Period $ 257,745 $ 268,551

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESSUPPLEMENTAL INFORMATIONRECONCILIATION 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 SUBSIDIARIESSUPPLEMENTAL INFORMATIONRECONCILIATION 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, it maynot be possible to compare these financial measures with other companies'non-GAAP financial measures having the same or similar names. These non-GAAPfinancial measures should not be considered in isolation or as a substitutefor reported results. These non-GAAP financial measures reflect an additionalway of viewing aspects of operations that, when viewed with GAAP results,provide a more complete understanding of the business. The Company stronglyencourages investors and shareholders to review company financial statementsand publicly filed reports in their entirety and not to rely on any singlefinancial measure.

Reconciliation of Net income and Net income per share, GAAP financial measures, with Adjusted Net income andAdjusted Net income per share, non-GAAP financial measures:Three Months Ended June 30, 2020Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet income and net income per share$

40,079

$

10,090

$

29,989

$

0.77

25.2

%

Non-routine costs1,540

388

1,152

0.03

25.2

%

Adjusted net income and net income per share$

41,619

$

10,478

$

31,141

$

0.80

25.2

%

Year Ended June 30, 2021Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet income and net income per share$

177,062

$

32,305

$

144,757

$

3.68

18.2

%

Impairment expense49,528

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$

231,753

$

45,308

$

186,445

$

4.74

19.6

%

Year Ended June 30, 2020Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet income and net income per share$

55,236

$

31,194

$

24,042

$

0.62

56.5

%

Impairment expense131,000

12,200

118,800

3.04

9.3

%

Non-routine costs8,992

2,135

6,857

0.18

23.7

%

Non-routine tax benefit-

1,010

(1,010

)

(0.03

)

N/M

Adjusted net income and net income per share$

195,228

$

46,539

$

148,689

$

3.81

23.8

%

Reconciliation of Net income and Net income per share, GAAP financial measures,with Adjusted Net income andAdjusted Net income per share, non-GAAP financial measures: Three Months Ended June 30, 2020 Per Share Tax Pre-tax Tax Effect Net of Tax Diluted Rate ImpactNet income and net income $ 40,079 $ 10,090 $ 29,989 $ 0.77 25.2 %per shareNon-routine costs 1,540 388 1,152 0.03 25.2 %

Adjusted net income and $ 41,619 $ 10,478 $ 31,141 $ 0.80 25.2 %net income per share Year Ended June 30, 2021 Per Share Tax Pre-tax Tax Effect Net of Tax Diluted Rate ImpactNet income and net income $ 177,062 $ 32,305 $ 144,757 $ 3.68 18.2 %per shareImpairment expense 49,528 11,769 37,759 0.96 23.8 %

Non-routine costs 7,772 1,847 5,925 0.15 23.8 %

Non-routine income (2,609 ) (613 ) (1,996 ) (0.05 ) 23.5 %

Adjusted net income and $ 231,753 $ 45,308 $ 186,445 $ 4.74 19.6 %net income per share Year Ended June 30, 2020 Per Share Tax Pre-tax Tax Effect Net of Tax Diluted Rate ImpactNet income and net income $ 55,236 $ 31,194 $ 24,042 $ 0.62 56.5 %per shareImpairment expense 131,000 12,200 118,800 3.04 9.3 %

Non-routine costs 8,992 2,135 6,857 0.18 23.7 %

Non-routine tax benefit - 1,010 (1,010 ) (0.03 ) N/M

Adjusted net income and $ 195,228 $ 46,539 $ 148,689 $ 3.81 23.8 %net income per shareReconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:Three Months Ended June 30,

Year Ended June 30,

2021

2020

2021

2020

Net Income$

59,244

$

29,989

$

144,757

$

24,042

Interest expense, net7,673

8,088

30,592

36,535

Income tax expense14,638

10,090

32,305

31,194

Depreciation and amortization of property5,139

5,199

20,780

21,196

Amortization of intangibles8,127

9,882

34,365

40,499

EBITDA$

94,821

$

63,248

$

262,799

$

153,466

Impairment expense-

-

49,528

131,000

Non-routine costs-

1,540

7,772

8,992

Non-routine income-

-

(2,609

)

-

Adjusted EBITDA$

94,821

$

64,788

$

317,490

$

293,458

The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP financial measure. Adjusted EBITDA excludes items that may not be indicative of core operating results, a non-GAAP financial measure.Reconciliation of Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:Three Months EndedJune 30,Year EndedJune 30,2021

2020

2021

2020

Cash provided by Operating Activities$

38,288

$

127,090

$

241,697

$

296,714

Capital expenditures(3,675

)

(3,892

)

(15,852

)

(20,115

)

Free Cash Flow$

34,613

$

123,198

$

225,845

$

276,599

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/20210817005295/en/

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