• Net Sales of $980.7 Million Up 16.6% YoY; Up 14.7% on an Organic Daily Basis
  • Net Income of $68.3 Million, or $1.75 Per Share; EBITDA of $108.6 Million
  • Raising Fiscal 2022 Guidance for Sales, EBITDA Margin, and EPS

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 third quarter ended March 31, 2022.

Net sales for the quarter increased 16.6% to $980.7 million from $840.9 million in the prior year. The change includes a 0.4% increase from acquisitions and a 1.6% benefit from one extra selling day, partially offset by a negative 0.1% impact from foreign currency translation. Excluding these factors, sales increased 14.7% on an organic daily basis reflecting a 13.6% increase in the Service Center segment and a 17.1% increase in the Fluid Power & Flow Control segment. The Company reported net income of $­­­68.3 million, or $1.75 per share, and EBITDA of $108.6 million. On a pre-tax basis, results include $7.4 million ($0.14 after tax per share) of LIFO expense compared to $0.8 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 another strong quarter with sales and earnings achieving new records. Underlying business momentum strengthened further during the quarter, while our technical industry position is supporting greater growth opportunities and our ability to effectively manage through ongoing inflationary pressures industry wide. Combined with solid cost leverage, EBITDA grew more than 25% over the prior year and nearly 40% on a 2-year stack basis, while EBITDA margin exceeded 11%, representing a key milestone for the Company. In addition, free cash generation increased year over year and sequentially inclusive of ongoing working capital investment. This performance is driving strong improvement in our returns on capital, and demonstrates Applied’s increasingly favorable and differentiated position as requirements and secular investments across the industrial supply chain continue to expand.”

Mr. Schrimsher added, “Based on our third quarter performance and our current outlook, we are raising fiscal 2022 guidance for sales, EBITDA margins, and EPS for the second time this year. Positive demand trends are persisting across our business with organic sales month to date in April up by a low double-digit percent year over year. While we continue to navigate an extremely dynamic supply chain and inflationary environment, we expect ongoing benefits from our operational execution, inventory management, and internal margin initiatives. In addition, our organic growth and incremental margin momentum is providing a path to achieve our interim annual EBITDA margin target of 11% potentially sooner than expected. Combined with our expanding solutions in emerging areas of the industrial economy and balance sheet flexibility, we remain poised to create significant value for our customers, associates, and all stakeholders within any operational environment.”

Fiscal 2022 Guidance The Company is raising guidance for fiscal 2022 and now projects EPS of $6.15 to $6.25 (prior $5.70 to $5.90), sales growth of 14.8% to 15.3% including 13.6% to 14.1% on an organic basis (prior 11.5% to 12.5% including 10.5% to 11.5% organic), and EBITDA margins of 10.5% to 10.6% (prior 10.1% to 10.3%). Guidance does not assume contribution from potential future acquisitions.

Share Repurchases During the quarter, the Company purchased 35,000 shares of its common stock in open market transactions for $3.5 million. At March 31, 2022, the Company had remaining authorization to purchase approximately 318,000 additional shares.

Dividend Today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.34 per common share, payable on May 31, 2022, to shareholders of record on May 16, 2022.

Conference Call Information Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on April 28, 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 2092603. 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 2092603.

About Applied® 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 “expect,” “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 Nine Months Ended

March 31,

March 31,

2022

2021

 

2022

2021

Net Sales

$

980,662

 

$

840,937

 

$

2,749,217

 

$

2,340,031

 

Cost of sales

 

693,338

 

 

593,712

 

 

1,948,928

 

 

1,667,491

 

Gross Profit

 

287,324

 

 

247,225

 

 

800,289

 

 

672,540

 

Selling, distribution and administrative expense, including depreciation

 

191,481

 

 

172,758

 

 

551,655

 

 

498,659

 

Impairment expense

 

-

 

 

-

 

 

-

 

 

49,528

 

Operating Income

 

95,843

 

 

74,467

 

 

248,634

 

 

124,353

 

Interest expense, net

 

5,852

 

 

7,608

 

 

20,249

 

 

22,919

 

Other expense (income), net

 

469

 

 

(1,657

)

 

(712

)

 

(1,746

)

Income Before Income Taxes

 

89,522

 

 

68,516

 

 

229,097

 

 

103,180

 

Income Tax Expense

 

21,216

 

 

12,453

 

 

50,796

 

 

17,667

 

Net Income

$

68,306

 

$

56,063

 

$

178,301

 

$

85,513

 

Net Income Per Share - Basic

$

1.78

 

$

1.44

 

$

4.63

 

$

2.21

 

Net Income Per Share - Diluted

$

1.75

 

$

1.42

 

$

4.56

 

$

2.18

 

Average Shares Outstanding - Basic

 

38,453

 

 

38,835

 

 

38,470

 

 

38,779

 

Average Shares Outstanding - Diluted

 

39,098

 

39,412

 

 

39,102

 

 

39,261

 

    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 the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management'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 SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)     March 31, June 30, 2022 2021     Assets Cash and cash equivalents

$

188,084

 

$

257,745

 

Accounts receivable, net

 

618,079

 

 

516,322

 

Inventories

 

425,373

 

 

362,547

 

Other current assets

 

63,504

 

 

59,961

 

Total current assets

 

1,295,040

 

 

1,196,575

 

Property, net

 

111,166

 

 

115,589

 

Operating lease assets, net

 

95,049

 

 

87,111

 

Intangibles, net

 

258,501

 

 

279,628

 

Goodwill

 

563,751

 

 

560,077

 

Other assets

 

60,064

 

 

32,827

 

Total Assets

$

2,383,571

 

$

2,271,807

 

    Liabilities Accounts payable

$

247,639

 

$

208,162

 

Current portion of long-term debt

 

40,166

 

 

43,525

 

Other accrued liabilities

 

176,551

 

 

176,013

 

Total current liabilities

 

464,356

 

 

427,700

 

Long-term debt

 

681,197

 

 

784,855

 

Other liabilities

 

139,624

 

 

126,706

 

Total Liabilities

 

1,285,177

 

 

1,339,261

 

Shareholders' Equity

 

1,098,394

 

 

932,546

 

Total Liabilities and Shareholders' Equity

$

2,383,571

$

2,271,807

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Unaudited)

(In thousands)

    

Nine Months Ended

March 31,

2022

2021

  Cash Flows from Operating Activities Net income

$

178,301

 

$

85,513

 

Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property

 

16,215

 

 

15,641

 

Amortization of intangibles

 

24,096

 

 

26,238

 

Impairment expense

 

-

 

 

49,528

 

Amortization of stock appreciation rights and options

 

2,897

 

 

1,930

 

Other share-based compensation expense

 

6,064

 

 

4,660

 

Changes in operating assets and liabilities, net of acquisitions

 

(106,136

)

 

33,574

 

Other, net

 

12,386

 

 

(13,675

)

Net Cash provided by Operating Activities

 

133,823

 

 

203,409

 

Cash Flows from Investing Activities Acquisition of businesses, net of cash acquired

 

(6,974

)

 

(30,023

)

Capital expenditures

 

(11,674

)

 

(12,177

)

Proceeds from property sales

 

494

 

 

691

 

Life insurance proceeds

 

3,159

 

 

-

 

Cash payments for loans on company-owned life insurance

 

(14,835

)

 

-

 

Net Cash used in Investing Activities

 

(29,830

)

 

(41,509

)

Cash Flows from Financing Activities Net borrowings under revolving credit facility

 

442,592

 

 

-

 

Long-term debt repayments

 

(550,432

)

 

(82,070

)

Interest rate swap settlement payments

 

(4,812

)

 

(2,122

)

Payment of debt issuance costs

 

(1,956

)

 

(399

)

Purchases of treasury shares

 

(13,604

)

 

-

 

Dividends paid

 

(38,612

)

 

(37,772

)

Acquisition holdback payments

 

(2,361

)

 

(2,344

)

Taxes paid for shares withheld for equity awards

 

(4,405

)

 

(5,990

)

Exercise of stock options and appreciation rights

 

224

 

 

163

 

Net Cash used in Financing Activities

 

(173,366

)

 

(130,534

)

Effect of Exchange Rate Changes on Cash

 

(288

)

 

4,099

 

(Decrease) Increase in cash and cash equivalents

 

(69,661

)

 

35,465

 

Cash and Cash Equivalents at Beginning of Period

 

257,745

 

 

268,551

 

Cash and Cash Equivalents at End of Period

$

188,084

 

$

304,016

 

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.

 

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

  

    Three Months Ended March 31, 2021 Pre-tax Tax Effect Net of Tax Per ShareDilutedImpact Tax Rate Net 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

%

  Nine Months Ended March 31, 2021 Pre-tax Tax Effect Net of Tax Per ShareDilutedImpact Tax Rate Net income and net income per share

$

103,180

 

$

17,667

 

$

85,513

 

$

2.18

 

17.1

%

Intangible and other impairment

 

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 net income per share

$

157,871

 

$

30,670

 

$

127,201

 

$

3.24

 

19.4

%

    Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:    

Three Months Ended

 

Nine Months Ended

March 31,

March 31,

2022

2021

2022

2021

 

Net Income

$

68,306

 

$

56,063

 

$

178,301

 

$

85,513

 

Interest expense, net

 

5,852

 

 

7,608

 

 

20,249

 

 

22,919

 

Income tax expense

 

21,216

 

 

12,453

 

 

50,796

 

 

17,667

 

Depreciation and amortization of property

 

5,352

 

 

5,080

 

 

16,215

 

 

15,641

 

Amortization of intangibles

 

7,891

 

 

8,236

 

 

24,096

 

 

26,238

 

EBITDA

$

108,617

 

$

89,440

 

$

289,657

 

$

167,978

 

Intangible and other impairment

 

-

 

 

-

 

 

-

 

 

49,528

 

Non-routine costs

 

-

 

 

-

 

 

-

 

 

7,772

 

Non-routine income

 

-

 

 

(2,609

)

 

-

 

 

(2,609

)

Adjusted EBITDA

$

108,617

 

$

86,831

 

$

289,657

 

$

222,669

 

    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 Ended Nine Months Ended

March 31,

March 31,

2022

2021

2022

2021

 

Net Cash provided by Operating Activities

$

52,559

 

$

44,053

 

$

133,823

 

$

203,409

 

Capital expenditures

 

(4,164

)

 

(3,728

)

 

(11,674

)

 

(12,177

)

Free Cash Flow

$

48,395

 

$

40,325

 

$

122,149

 

$

191,232

 

    Free cash flow is defined as net cash provided by operating activities less capital expenditures, a non-GAAP financial measure.

 

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

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