Business Wire | Oct 27, 2021 06:30AM EDT

Applied Industrial Technologies Reports Fiscal 2022 First Quarter Results

Oct. 27, 2021

CLEVELAND--(BUSINESS WIRE)--Oct. 27, 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 2022 first quarter ended September 30, 2021.

Net sales for the quarter increased 19.2% to $891.7 million from $747.8 million in the prior year. The change includes a 2.1% increase from acquisitions and a 0.8% increase from foreign currency translation. Excluding these factors, sales increased 16.3% on an organic basis reflecting a 15.9% increase in the Service Center segment and a 17.4% increase in the Fluid Power & Flow Control segment. The Company reported net income of $53.0 million, or $1.36 per share, and EBITDA of $88.5 million. On a pre-tax basis, results include $3.6 million ($0.07 after tax per share) of LIFO expense compared to $1.1 million ($0.02 after tax per share) of LIFO expense in the prior year period.

Neil A. Schrimsher, Applied's President & Chief Executive Officer, commented, "We started fiscal 2022 on a positive note with sales, EBITDA, and EPS all achieving record first quarter levels. We are effectively managing through industrial supply chain and inflationary headwinds year to date. This is highlighted by solid organic growth and EBITDA margin expansion during the quarter, as well as a build in inventory levels supporting near-term growth opportunities. At the same time, our cash generation remains strong and we continue to execute on our strategic growth plan, including expansion of our automation platform with the August 2021 acquisition of R.R. Floody Company."

Mr. Schrimsher added, "Looking ahead, supply chain and inflationary pressures across the industrial sector present ongoing uncertainty to our near-term outlook. That said, underlying demand remains resilient entering our fiscal second quarter with organic sales up by a mid-teens percent year over year so far in October, while order and backlog trends are encouraging. We believe our leading technical industry position, local service capabilities, and evolution into new industrial technologies and solutions is a competitive advantage being reinforced by current macro and supply chain dynamics. Combined with balance sheet capacity, we have considerable self-help growth and earnings potential that we are intensely focused on capturing in fiscal 2022 and beyond."

Fiscal 2022 GuidanceThe Company is maintaining guidance for fiscal 2022 including EPS of $5.00 to $5.40, sales growth of 8% to 10% (7% to 9% on an organic basis), and EBITDA margins of 9.7% to 9.9%. Guidance does not assume contribution from potential future acquisitions.

Share RepurchasesDuring the quarter, the Company purchased 76,658 shares of its common stock in open market transactions for $6.5 million. At September 30, 2021, the Company had remaining authorization to purchase approximately 388,000 additional shares.

DividendToday the Company also announced that its Board of Directors declared a quarterly cash dividend of $0.33 per common share, payable on November 30, 2021, to shareholders of record on November 15, 2021.

Conference Call InformationApplied will host its quarterly conference call for investors and analysts at 10 a.m. ET on October 27, 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 2896840. 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 2896840.

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," "will," "guidance," "assume", "looking ahead", 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 September 30,

2021 2020

Net Sales $ 891,681 $ 747,807

Cost of sales 636,341 532,026

Gross Profit 255,340 215,781

Selling, distribution and administrative expense, 180,726 163,473 including depreciationOperating Income 74,614 52,308

Interest expense, net 7,390 7,653

Other income, net (312 ) (177 )

Income Before Income Taxes 67,536 44,832

Income tax expense 14,567 10,048

Net Income $ 52,969 $ 34,784

Net Income Per Share - Basic $ 1.38 $ 0.90

Net Income Per Share - Diluted $ 1.36 $ 0.89

Average Shares Outstanding - Basic 38,502 38,722

Average Shares Outstanding - Diluted 39,084 39,088

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 be made at theend of each year based on the inventory levels and costs at that time.Accordingly, interim LIFO calculations are based on management's estimates ofexpected year-end inventory levels and costs and are subject to the finalyear-end LIFO inventory determination.

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

247,313

$

257,745

Accounts receivable, net530,824

516,322

Inventories377,978

362,547

Other current assets54,452

59,961

Total current assets1,210,567

1,196,575

Property, net113,813

115,589

Operating lease assets, net94,476

87,111

Intangibles, net274,410

279,628

Goodwill562,791

560,077

Other assets47,123

32,827

Total Assets$

2,303,180

$

2,271,807

LiabilitiesAccounts payable$

210,987

$

208,162

Current portion of long-term debt88,401

43,525

Other accrued liabilities167,439

176,013

Total current liabilities466,827

427,700

Long-term debt730,307

784,855

Other liabilities129,476

126,706

Total Liabilities1,326,610

1,339,261

Shareholders' Equity976,570

932,546

Total Liabilities and Shareholders' Equity$

2,303,180

$

2,271,807

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

AssetsCash and cash equivalents $ 247,313 $ 257,745

Accounts receivable, net 530,824 516,322

Inventories 377,978 362,547

Other current assets 54,452 59,961

Total current assets 1,210,567 1,196,575

Property, net 113,813 115,589

Operating lease assets, net 94,476 87,111

Intangibles, net 274,410 279,628

Goodwill 562,791 560,077

Other assets 47,123 32,827

Total Assets $ 2,303,180 $ 2,271,807

LiabilitiesAccounts payable $ 210,987 $ 208,162

Current portion of long-term debt 88,401 43,525

Other accrued liabilities 167,439 176,013

Total current liabilities 466,827 427,700

Long-term debt 730,307 784,855

Other liabilities 129,476 126,706

Total Liabilities 1,326,610 1,339,261

Shareholders' Equity 976,570 932,546

Total Liabilities and Shareholders' Equity $ 2,303,180 $ 2,271,807

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIESCONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS(Unaudited)(In thousands)Three Months EndedSeptember 30,2021

2020

Cash Flows from Operating ActivitiesNet income$

52,969

$

34,784

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property5,427

5,352

Amortization of intangibles8,121

9,726

Amortization of stock appreciation rights and options1,907

693

Other share-based compensation expense1,563

677

Changes in assets and liabilities, net of acquisitions(20,404

)

24,559

Other, net(941

)

6,051

Net Cash provided by Operating Activities48,642

81,842

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired(7,094

)

-

Capital expenditures(3,621

)

(3,597

)

Proceeds from property sales48

193

Cash payments for loans on company-owned life insurance(14,835

)

-

Net Cash used in Investing Activities(25,502

)

(3,404

)

Cash Flows from Financing ActivitiesLong-term debt repayments(9,811

)

(62,450

)

Interest rate swap settlement payments(1,644

)

-

Purchases of treasury shares(6,537

)

-

Dividends paid(12,712

)

(12,415

)

Acquisition holdback payments(135

)

(521

)

Taxes paid for shares withheld for equity awards(1,141

)

(1,797

)

Net Cash used in Financing Activities(31,980

)

(77,183

)

Effect of Exchange Rate Changes on Cash(1,592

)

1,254

(Decrease) Increase in cash and cash equivalents(10,432

)

2,509

Cash and Cash Equivalents at Beginning of Period257,745

268,551

Cash and Cash Equivalents at End of Period$

247,313

$

271,060

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

2021 2020

Cash Flows from Operating ActivitiesNet income $ 52,969 $ 34,784

Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization of property 5,427 5,352

Amortization of intangibles 8,121 9,726

Amortization of stock appreciation rights and options 1,907 693

Other share-based compensation expense 1,563 677

Changes in assets and liabilities, net of acquisitions (20,404 ) 24,559

Other, net (941 ) 6,051

Net Cash provided by Operating Activities 48,642 81,842

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired (7,094 ) -

Capital expenditures (3,621 ) (3,597 )

Proceeds from property sales 48 193

Cash payments for loans on company-owned life (14,835 ) - insuranceNet Cash used in Investing Activities (25,502 ) (3,404 )

Cash Flows from Financing ActivitiesLong-term debt repayments (9,811 ) (62,450 )

Interest rate swap settlement payments (1,644 ) -

Purchases of treasury shares (6,537 ) -

Dividends paid (12,712 ) (12,415 )

Acquisition holdback payments (135 ) (521 )

Taxes paid for shares withheld for equity awards (1,141 ) (1,797 )

Net Cash used in Financing Activities (31,980 ) (77,183 )

Effect of Exchange Rate Changes on Cash (1,592 ) 1,254

(Decrease) Increase in cash and cash equivalents (10,432 ) 2,509

Cash and Cash Equivalents at Beginning of Period 257,745 268,551

Cash and Cash Equivalents at End of Period $ 247,313 $ 271,060

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, 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 anadditional way of viewing aspects of operations that, when viewed with GAAPresults, provide a more complete understanding of the business. The Companystrongly encourages investors and shareholders to review company financialstatements and publicly filed reports in their entirety and not to rely onany single financial measure.

Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:Three Months EndedSeptember 30,2021

2020

Net Income$

52,969

$

34,784

Interest expense, net7,390

7,653

Income tax expense14,567

10,048

Depreciation and amortization of property5,427

5,352

Amortization of intangibles8,121

9,726

EBITDA$

88,474

$

67,563

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 Net Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:Three Months EndedSeptember 30,2021

2020

Net Cash provided by Operating Activities$

48,642

$

81,842

Capital expenditures(3,621

)

(3,597

)

Free Cash Flow$

45,021

$

78,245

Free cash flow is defined as net cash provided by operating activities less capital expenditures, a non-GAAP financial measure. View source version on businesswire.com: https://www.businesswire.com/news/home/20211027005239/en/

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