News Details

Applied Industrial Technologies Reports Fiscal 2022 Second Quarter Results

01/27/2022
  • Net Sales of $876.9 Million Up 16.7% YoY; Up 16.4% on an Organic Daily Basis
  • Net Income of $57.0 Million, or $1.46 Per Share; EBITDA of $92.6 Million
  • Quarterly Dividend Increased to $0.34 Per Share
  • Raising Fiscal 2022 Guidance for Sales, EBITDA Margin, and EPS

 

CLEVELAND--(BUSINESS WIRE)-- 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 Guidance
The 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 Repurchases
During 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.

Dividend
Today 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 Information
Applied 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®
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
December 31,

Six Months Ended
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, distribution and administrative expense, including depreciation

 

179,448

 

 

162,428

 

 

360,174

 

 

325,901

 

Impairment 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, net

 

(869

)

 

88

 

 

(1,181

)

 

(89

)

Income (Loss) Before Income Taxes

 

72,039

 

 

(10,168

)

 

139,575

 

 

34,664

 

Income Tax Expense (Benefit)

 

15,013

 

 

(4,834

)

 

29,580

 

 

5,214

 

Net Income (Loss)

$

57,026

 

$

(5,334

)

$

109,995

 

$

29,450

 

Net Income (Loss) Per Share - Basic

$

1.48

 

$

(0.14

)

$

2.86

 

$

0.76

 

Net Income (Loss) Per Share - Diluted

$

1.46

 

$

(0.14

)

$

2.81

 

$

0.75

 

Average Shares Outstanding - Basic

 

38,456

 

 

38,781

 

 

38,479

 

 

38,751

 

Average Shares Outstanding - Diluted

 

39,122

 

 

39,233

 

 

39,104

 

 

39,165

 

 
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.

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-routine costs as a result of reduced economic conditions and business alignment initiatives related to a portion of the Service Center Based Distribution segment exposed to oil and gas end markets. The non-routine costs reduced gross profit by $7.4 million and increased selling, distribution and administrative expense by $0.4 million. Combined, the non-cash impairment charge 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 utilized the Average Shares Outstanding - Basic, as using the Average Shares Outstanding - 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

 
 
Assets
Cash 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

 
Liabilities
Accounts 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 Activities
Net income

$

109,995

 

$

29,450

 

Adjustments to reconcile net income to net cash provided 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 options

 

2,516

 

 

1,328

 

Other share-based compensation expense

 

3,268

 

 

2,167

 

Changes in assets and liabilities, net of acquisitions

 

(61,066

)

 

52,005

 

Other, net

 

(517

)

 

(3,685

)

Net Cash provided by Operating Activities

 

81,264

 

 

159,356

 

Cash Flows from Investing Activities
Acquisition 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 Activities
Net 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 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 (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, 2020
Pre-tax Tax Effect Net of Tax Per Share
Diluted Impact
Tax Rate
Net loss and net loss per share

$

(10,168

)

$

(4,834

)

$

(5,334

)

$

(0.14

)

47.5

%

Impairment expense

 

49,528

 

 

11,769

 

 

37,759

 

 

0.96

 

23.8

%

Non-routine costs

 

7,772

 

 

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 Ended
December 31,
Six Months Ended
December 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Income (Loss)

$

57,026

 

$

(5,334

)

$

109,995

 

$

29,450

 

Interest expense, net

 

7,007

 

 

7,658

 

 

14,397

 

 

15,311

 

Income tax expense (benefit)

 

15,013

 

 

(4,834

)

 

29,580

 

 

5,214

 

Depreciation and amortization of property

 

5,436

 

 

5,209

 

 

10,863

 

 

10,561

 

Amortization of intangibles

 

8,084

 

 

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 Ended
December 31,
Six Months Ended
December 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.
 

 

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

Source: Applied Industrial Technologies, Inc.

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