Business Wire | Jan 27, 2022 06:30AM EST

Applied Industrial Technologies Reports Fiscal 2022 Second Quarter Results

Jan. 27, 2022

CLEVELAND--(BUSINESS WIRE)--Jan. 27, 2022--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 second quarter ended December 31, 2021.

Net sales for the quarter increased 16.7% to $876.9 million from $751.3 million in the prior year. The change includes a 1.6% increase from acquisitions and a 0.3% increase from foreign currency translation, partially offset by a negative 1.6% impact from one less selling day. Excluding these factors, sales increased 16.4% on an organic daily basis reflecting a 15.1% increase in the Service Center segment and a 19.3% increase in the Fluid Power & Flow Control segment. The Company reported net income of $--57.0 million, or $1.46 per share, and EBITDA of $92.6 million. On a pre-tax basis, results include $4.7 million ($0.09 after tax per share) of LIFO expense compared to $0.9 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 had a strong second quarter with sales, EBITDA, and EPS increasing approximately 17%, 36%, and 49% over prior-year adjusted levels, respectively. Sales growth accelerated as the quarter progressed reflecting positive industrial activity and solid execution across our expanding addressable market. At the same time, our team is responding well to broader inflation and supply chain dynamics with gross margins and EBITDA margins improving during the quarter. Overall, the performance demonstrates our operational focus and earnings potential as we leverage our leading technical industry position and local domain expertise across an expanding industrial backdrop."

Mr. Schrimsher added, "Based on year-to-date results and our favorable outlook, we are raising fiscal 2022 guidance for sales, EBITDA margins, and EPS. Organic sales month to date in January are up by a high single-digit percent year over year despite more difficult comparisons, while order and backlog trends remain strong. Although supply chain, inflationary, and COVID-19 related challenges remain, we are well positioned in the current environment as our internal capabilities and company-specific growth potential have never been stronger."

Fiscal 2022 GuidanceThe Company is raising guidance for fiscal 2022 and now projects EPS of $5.70 to $5.90 (prior $5.00 to $5.40), sales growth of 11.5% to 12.5% including 10.5% to 11.5% on an organic basis (prior 8% to 10% including 7% to 9% organic), and EBITDA margins of 10.1% to 10.3% (prior 9.7% to 9.9%). Guidance does not assume contribution from potential future acquisitions.

Share RepurchasesDuring the quarter, the Company purchased 35,000 shares of its common stock in open market transactions for $3.5 million. At December 31, 2021, the Company had remaining authorization to purchase approximately 353,000 additional shares.

DividendToday the Company also announced that its Board of Directors approved an increase in the quarterly cash dividend to $0.34 per common share, payable on February 28, 2022, to shareholders of record on February 15, 2022. This represents the 13th dividend increase since 2010.

Conference Call InformationApplied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 27, 2022. 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 9034797. 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 9034797.

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 "will," "guidance," "assume", "projects", 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 (such as the inflationary environment and supply chain strains), 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 SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED INCOME

(Unaudited)

(In thousands, except per share data)

Three Months Ended Six Months Ended December 31, December 31,

2021 2020 2021 2020

Net Sales $ 876,874 $ 751,287 $ 1,768,555 $ 1,499,094

Cost of sales 619,249 541,753 1,255,590 1,073,779

Gross Profit 257,625 209,534 512,965 425,315

Selling, distributionand administrative 179,448 162,428 360,174 325,901 expense, includingdepreciationImpairment expense - 49,528 - 49,528

Operating Income (Loss) 78,177 (2,422 ) 152,791 49,886

Interest expense, net 7,007 7,658 14,397 15,311

Other (income) expense, (869 ) 88 (1,181 ) (89 )netIncome (Loss) Before 72,039 (10,168 ) 139,575 34,664 Income TaxesIncome Tax Expense 15,013 (4,834 ) 29,580 5,214 (Benefit)Net Income (Loss) $ 57,026 $ (5,334 ) $ 109,995 $ 29,450

Net Income (Loss) Per $ 1.48 $ (0.14 ) $ 2.86 $ 0.76 Share - BasicNet Income (Loss) Per $ 1.46 $ (0.14 ) $ 2.81 $ 0.75 Share - DilutedAverage Shares 38,456 38,781 38,479 38,751 Outstanding - BasicAverage Shares 39,122 39,233 39,104 39,165 Outstanding - Diluted 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 that time. 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.

2) In the quarter ended December 31, 2020, the Company recognized a non-cash impairment charge of $49.5 million and $7.8 million of other non-routinecosts as a result of reduced economic conditions and business alignmentinitiatives related to a portion of the Service Center Based Distributionsegment exposed to oil and gas end markets. The non-routine costs reducedgross profit by $7.4 million and increased selling, distribution and administrative expense by $0.4 million. Combined, the non-cash impairmentcharge and non-routine costs unfavorably impacted operating (loss) income by$57.3 million and net (loss) income by $43.7 million.

3) Due to the net loss incurred by the Company during the quarter ended December 31, 2020, the calculation of Net Loss Per Share - Diluted utilizedthe Average Shares Outstanding - Basic, as using the Average SharesOutstanding - Diluted would have been anti-dilutive.



APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

December 31, 2021

June 30, 2021

AssetsCash and cash equivalents$

154,843

$

257,745

Accounts receivable, net520,134

516,322

Inventories399,763

362,547

Other current assets68,878

59,961

Total current assets1,143,618

1,196,575

Property, net112,113

115,589

Operating lease assets, net90,996

87,111

Intangibles, net266,314

279,628

Goodwill562,811

560,077

Other assets49,857

32,827

Total Assets$

2,225,709

$

2,271,807

LiabilitiesAccounts payable$

203,563

$

208,162

Current portion of long-term debt40,182

43,525

Other accrued liabilities156,110

176,013

Total current liabilities399,855

427,700

Long-term debt681,266

784,855

Other liabilities122,899

126,706

Total Liabilities1,204,020

1,339,261

Shareholders' Equity1,021,689

932,546

Total Liabilities and Shareholders' Equity$

2,225,709

$

2,271,807

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

December 31, June 30, 2021 2021

AssetsCash and cash equivalents $ 154,843 $ 257,745

Accounts receivable, net 520,134 516,322

Inventories 399,763 362,547

Other current assets 68,878 59,961

Total current assets 1,143,618 1,196,575

Property, net 112,113 115,589

Operating lease assets, net 90,996 87,111

Intangibles, net 266,314 279,628

Goodwill 562,811 560,077

Other assets 49,857 32,827

Total Assets $ 2,225,709 $ 2,271,807

LiabilitiesAccounts payable $ 203,563 $ 208,162

Current portion of long-term debt 40,182 43,525

Other accrued liabilities 156,110 176,013

Total current liabilities 399,855 427,700

Long-term debt 681,266 784,855

Other liabilities 122,899 126,706

Total Liabilities 1,204,020 1,339,261

Shareholders' Equity 1,021,689 932,546

Total Liabilities and Shareholders' Equity $ 2,225,709 $ 2,271,807

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended December 31,

2021

2020

Cash Flows from Operating ActivitiesNet income$

109,995

$

29,450

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of property10,863

10,561

Amortization of intangibles16,205

18,002

Impairment expense-

49,528

Amortization of stock appreciation rights and options2,516

1,328

Other share-based compensation expense3,268

2,167

Changes in assets and liabilities, net of acquisitions(61,066

)

52,005

Other, net(517

)

(3,685

)

Net Cash provided by Operating Activities81,264

159,356

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired(6,974

)

(31,078

)

Capital expenditures(7,510

)

(8,449

)

Proceeds from property sales442

292

Other(14,835

)

-

Net Cash used in Investing Activities(28,877

)

(39,235

)

Cash Flows from Financing ActivitiesNet borrowings under revolving credit facility442,592

-

Long-term debt repayments(550,371

)

(72,260

)

Interest rate swap settlement payments(3,294

)

(549

)

Payment of debt issuance costs(1,794

)

-

Purchases of treasury shares(10,064

)

-

Dividends paid(25,465

)

(24,899

)

Acquisition holdback payments(1,070

)

(1,138

)

Taxes paid for shares withheld for equity awards(4,093

)

(5,571

)

Exercise of stock appreciation rights and options116

163

Net Cash used in Financing Activities(153,443

)

(104,254

)

Effect of Exchange Rate Changes on Cash(1,846

)

4,357

(Decrease) Increase in cash and cash equivalents(102,902

)

20,224

Cash and Cash Equivalents at Beginning of Period257,745

268,551

Cash and Cash Equivalents at End of Period$

154,843

$

288,775

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

(In thousands)

Six Months Ended December 31,

2021 2020

Cash Flows from Operating ActivitiesNet income $ 109,995 $ 29,450

Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization of property 10,863 10,561

Amortization of intangibles 16,205 18,002

Impairment expense - 49,528

Amortization of stock appreciation rights and 2,516 1,328 optionsOther share-based compensation expense 3,268 2,167

Changes in assets and liabilities, net of (61,066 ) 52,005 acquisitionsOther, net (517 ) (3,685 )

Net Cash provided by Operating Activities 81,264 159,356

Cash Flows from Investing ActivitiesAcquisition of businesses, net of cash acquired (6,974 ) (31,078 )

Capital expenditures (7,510 ) (8,449 )

Proceeds from property sales 442 292

Other (14,835 ) -

Net Cash used in Investing Activities (28,877 ) (39,235 )

Cash Flows from Financing ActivitiesNet borrowings under revolving credit facility 442,592 -

Long-term debt repayments (550,371 ) (72,260 )

Interest rate swap settlement payments (3,294 ) (549 )

Payment of debt issuance costs (1,794 ) -

Purchases of treasury shares (10,064 ) -

Dividends paid (25,465 ) (24,899 )

Acquisition holdback payments (1,070 ) (1,138 )

Taxes paid for shares withheld for equity awards (4,093 ) (5,571 )

Exercise of stock appreciation rights and options 116 163

Net Cash used in Financing Activities (153,443 ) (104,254 )

Effect of Exchange Rate Changes on Cash (1,846 ) 4,357

(Decrease) Increase in cash and cash equivalents (102,902 ) 20,224

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

Cash and Cash Equivalents at End of Period $ 154,843 $ 288,775

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.Reconciliation of Net (loss) income and Net (loss) income per share, GAAP financial measures, with Adjusted Net income and Adjusted Net income per share, non-GAAP financial measures:Three Months Ended December 31, 2020Pre-taxTax EffectNet of TaxPer ShareDiluted ImpactTax RateNet loss and net loss per share$

(10,168

)

$

(4,834

)

$

(5,334

)

$

(0.14

)

47.5

%

Impairment expense49,528

11,769

37,759

0.96

23.8

%

Non-routine costs7,772

1,847

5,925

0.15

23.8

%

Adjusted net income and net income per share$

47,132

$

8,782

$

38,350

$

0.98

18.6

%

Reconciliation of Net Income (Loss), a GAAP financial measure, to EBITDA, a non-GAAP financial measure:Three Months EndedDecember 31,Six Months EndedDecember 31,2021

2020

2021

2020

Net Income (Loss)$

57,026

$

(5,334

)

$

109,995

$

29,450

Interest expense, net7,007

7,658

14,397

15,311

Income tax expense (benefit)15,013

(4,834

)

29,580

5,214

Depreciation and amortization of property5,436

5,209

10,863

10,561

Amortization of intangibles8,084

8,276

16,205

18,002

EBITDA$

92,566

$

10,975

$

181,040

$

78,538

Intangible and other impairment-

49,528

-

49,528

Non-routine costs-

7,772

-

7,772

Adjusted EBITDA$

92,566

$

68,275

$

181,040

$

135,838

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 EndedDecember 31,Six Months EndedDecember 31,2021

2020

2021

2020

Net Cash provided by Operating Activities$

32,622

$

77,514

$

81,264

$

159,356

Capital expenditures(3,889

)

(4,852

)

(7,510

)

(8,449

)

Free Cash Flow$

28,733

$

72,662

$

73,754

$

150,907

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/20220126006042/en/

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