EX-99.1 2 a8k4272023releaseexhibit991.htm EX-99.1 Document

EXHIBIT 99.1
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Applied Industrial Technologies Reports Fiscal 2023 Third Quarter Results

•Net Sales of $1.1 Billion Up 15.4% YoY; Up 15.0% on an Organic Basis
•Net Income of $97.2 Million, or $2.47 Per Share
•Adjusted Net Income of $93.5 Million, or $2.38 Per Share Up 36.3% YoY
•EBITDA of $140.3 Million Up 29.2% YoY
•Updating Fiscal 2023 Guidance to Reflect Fiscal Third Quarter Performance

CLEVELAND, OHIO (April 27, 2023) – 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 2023 third quarter ended March 31, 2023.

Net sales for the quarter increased 15.4% to $1.1 billion from $980.7 million in the prior year. The change includes a 0.7% increase from acquisitions, offset by a negative 0.3% impact from foreign currency translation. Excluding these factors, sales increased 15.0% on an organic basis reflecting a 16.1% increase in the Service Center segment and a 13.1% increase in the Engineered Solutions segment. The Company reported net income of $97.2 million, or $2.47 per share, and EBITDA of $140.3 million. Results include a net tax benefit of $3.7 million, or $0.09 per share, from a deferred tax valuation allowance adjustment. Excluding this item, the Company reported non-GAAP adjusted net income of $93.5 million, or $2.38 per share. On a pre-tax basis, results include $8.2 million ($0.16 after tax per share) of LIFO expense compared to $7.4 million ($0.14 after tax per share) of LIFO expense in the prior-year period.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “We reported another solid quarter as sales grew over 15% with ongoing support from our industry position. We continued to expand gross margins while remaining focused on managing costs given the current backdrop. These dynamics drove strong EBITDA margin expansion and earnings growth. At the same time, we remain focused on our investments in talent, technology, and our service solutions as we further enhance our capabilities and operational strength for the future. Overall, we continue to demonstrate the benefits of our strategy and ability to consistently execute.”

Mr. Schrimsher added, “Looking ahead, we remain constructive on underlying industrial sector fundamentals within North America. Customer feedback remains generally positive, while our internal initiatives and technical capabilities are supporting new growth opportunities. That said, consistent with our prior outlook and recent macroeconomic industrial reports, we expect underlying market demand and orders to continue to moderate near term as broader industry activity normalizes and customers rebalance spending levels against current macro uncertainty. Month to date in April, sales are trending up by a high single-digit percent on an organic basis compared to the prior year. Our diverse mix of growth tailwinds and business evolution puts us in a favorable position to sustain above-market growth, and our track record highlights our ability to execute across all parts of the cycle. Lastly, our balance sheet and liquidity are in a solid position, and we expect stronger cash generation going forward.”

Updated Fiscal 2023 Guidance
For fiscal 2023, the Company now projects EPS of $8.47 to $8.60 on an adjusted basis (prior $8.10 to $8.50), sales growth of 14% to 15% (prior 13% to 15%), and EBITDA margins of 11.7% to 11.8% (prior 11.5% to 11.7%). Updated adjusted EPS guidance excludes the $3.7 million net tax benefit in the fiscal


2023 third quarter related to a deferred tax valuation allowance adjustment. Guidance incorporates ongoing economic uncertainty and inflationary pressures. Guidance does not assume contribution from potential future acquisitions.

Dividend
Today the Company announced that its Board of Directors declared a quarterly cash dividend of $0.35 per common share, payable on May 31, 2023, to shareholders of record on May 15, 2023.

Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on April 27, 2023. 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 800-945-5981 (toll free) or 212-231-2929 (for International callers) using conference ID 22026611. 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 800-633-8625 or 402-977-9141 (International) using conference ID 22026611.

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,” “projects,” “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 (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.
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CONTACT INFORMATION

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


 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended March 31,Nine Months Ended March 31,
2023202220232022
Net Sales$1,132,035 $980,662 $3,254,720 $2,749,217 
Cost of sales798,917 693,338 2,306,314 1,948,928 
Gross Profit333,118 287,324 948,406 800,289 
Selling, distribution and administrative expense, including depreciation206,207 191,481 602,070 551,655 
Operating Income126,911 95,843 346,336 248,634 
Interest expense, net4,773 5,852 17,438 20,249 
Other (income) expense, net(142)469 1,624 (712)
Income Before Income Taxes122,280 89,522 327,274 229,097 
Income tax expense25,093 21,216 72,750 50,796 
Net Income$97,187 $68,306 $254,524 $178,301 
Net Income Per Share - Basic$2.52 $1.78 $6.60 $4.63 
Net Income Per Share - Diluted$2.47 $1.75 $6.49 $4.56 
Average Shares Outstanding - Basic 38,617 38,453 38,574 38,470
Average Shares Outstanding - Diluted 39,268 39,098 39,203 39,102
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,
 20232022
Assets
  Cash and cash equivalents$182,127 $184,474 
  Accounts receivable, net705,638 656,429 
  Inventories526,978 449,821 
  Other current assets92,002 68,805 
       Total current assets1,506,745 1,359,529 
  Property, net115,383 111,896 
  Operating lease assets, net101,960 108,052 
  Intangibles, net243,133 250,590 
  Goodwill577,235 563,205 
  Other assets64,182 59,316 
Total Assets$2,608,638 $2,452,588 
Liabilities
  Accounts payable$276,024 $259,463 
  Current portion of long-term debt25,196 40,174 
  Other accrued liabilities179,372 199,990 
       Total current liabilities480,592 499,627 
  Long-term debt597,006 649,150 
  Other liabilities150,380 154,456 
Total Liabilities1,227,978 1,303,233 
Shareholders' Equity1,380,660 1,149,355 
Total Liabilities and Shareholders' Equity$2,608,638 $2,452,588 




APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
 (In thousands)
Nine Months Ended
March 31,
20232022
Cash Flows from Operating Activities
Net income$254,524 $178,301 
Adjustments to reconcile net income to net cash provided
by operating activities:
   Depreciation and amortization of property16,598 16,215 
   Amortization of intangibles23,189 24,096 
   Provision for losses on accounts receivable4,676 2,905 
   Amortization of stock appreciation rights and options2,322 2,897 
   Other share-based compensation expense7,419 6,064 
   Changes in assets and liabilities, net of acquisitions(142,092)(106,136)
   Other, net(2,609)9,481 
Net Cash provided by Operating Activities164,027 133,823 
Cash Flows from Investing Activities
   Acquisition of businesses, net of cash acquired(35,667)(6,974)
   Capital expenditures(20,809)(11,674)
   Proceeds from property sales226 494 
   Life insurance proceeds— 3,159 
   Cash payments for loans on company-owned life insurance— (14,835)
Net Cash used in Investing Activities(56,250)(29,830)
Cash Flows from Financing Activities
   Net (repayments) borrowings under revolving credit facility(27,000)442,592 
   Long-term debt repayments(40,185)(550,432)
   Interest rate swap settlement receipts (payments)5,501 (4,812)
   Payment of debt issuance costs— (1,956)
   Purchases of treasury shares(716)(13,604)
   Dividends paid(39,829)(38,612)
   Acquisition holdback payments(1,510)(2,361)
   Taxes paid for shares withheld for equity awards (7,914)(4,405)
   Exercise of stock appreciation rights and options127 224 
Net Cash used in Financing Activities(111,526)(173,366)
Effect of Exchange Rate Changes on Cash1,402 (288)
Decrease in cash and cash equivalents(2,347)(69,661)
Cash and Cash Equivalents at Beginning of Period184,474 257,745 
Cash and Cash Equivalents at End of Period$182,127 $188,084 




  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, 2023
Pre-taxTax EffectNet of TaxPer Share
Diluted Impact		Tax Rate
Net income and net income per share $122,280 $25,093 $97,187 $2.47 20.5 %
  Tax valuation allowance adjustment, net— 3,657 (3,657)(0.09)3.0 %
Adjusted net income and net income per share$122,280 $28,750 $93,530 $2.38 23.5 %
Nine Months Ended March 31, 2023
Pre-taxTax EffectNet of TaxPer Share Diluted ImpactTax Rate
Net income and net income per share$327,274 $72,750 $254,524 $6.49 22.2 %
   Tax valuation allowance adjustment, net— 3,657 (3,657)(0.09)1.1 %
Adjusted net income and net income per share$327,274 $76,407 $250,867 $6.40 23.3 %


Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:
Three Months Ended
March 31,		Nine Months Ended
March 31,
2023202220232022
Net Income$97,187 $68,306 $254,524 $178,301 
Interest expense, net4,773 5,852 17,438 20,249 
Income tax expense25,093 21,216 72,750 50,796 
Depreciation and amortization of property5,565 5,352 16,598 16,215 
Amortization of intangibles 7,670 7,891 23,189 24,096 
EBITDA$140,288 $108,617 $384,499 $289,657 
The Company defines EBITDA as Earnings from operations before Interest, Taxes, Depreciation, and Amortization, a non-GAAP financial measure. 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
March 31,		 Nine Months Ended
March 31,
2023202220232022
Net Cash provided by Operating Activities$75,204 $52,559 $164,027 $133,823 
Capital expenditures(7,992)(4,164)(20,809)(11,674)
Free Cash Flow$67,212 $48,395 $143,218 $122,149 
Free cash flow is defined as net cash provided by operating activities less capital expenditures, a non-GAAP financial measure.