AIT Applied Industrial Technologies Inc

• Net Sales of $1.1 Billion Up 1.6% YoY; Down 0.1% on an Organic Basis
• Net Income of $91.2 Million, or $2.32 Per Share
• Adjusted Net Income of $88.2 Million, or $2.24 Per Share Up 9.3% YoY
• EBITDA of $130.8 Million Up 4.2% YoY
• Operating Cash Flow of $101.8 Million; Free Cash Flow of $96.2 Million
• Quarterly Dividend Increased 6% to $0.37 Per Share
• Updating Fiscal 2024 Guidance

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 2024 second quarter ended December 31, 2023.

Net sales for the quarter of $1.1 billion increased 1.6% over the prior year. The change includes a 1.4% increase from acquisitions and a 0.3% increase from foreign currency translation. Excluding these factors, sales declined 0.1% on an organic basis reflecting a 1.4% increase in the Service Center segment and a 3.0% decrease in the Engineered Solutions segment. The Company reported net income of $­­­91.2 million, or $2.32 per share, and EBITDA of $130.8 million. Results include a tax benefit of $3.0 million, or $0.08 per share, from a deferred tax valuation allowance adjustment. Excluding this item, the Company reported non-GAAP adjusted net income of $88.2 million, or $2.24 per share. On a pre-tax basis, results include $3.4 million ($0.07 after tax per share) of LIFO expense compared to $8.9 million ($0.17 after tax per share) of LIFO expense in the prior-year period.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “I’m encouraged by our second quarter results considering normalization of industrywide end-market activity. Organic sales exceeded our expectations and held steady relative to prior-year levels, despite facing our most difficult comparison of the year, and slower technology sector activity as noted last quarter. We also sustained gross margin and EBITDA margin expansion during the quarter, reflecting normalizing LIFO expense, operational execution, and cost control. Additionally, we generated record second quarter cash flow that further expands our capacity to accelerate growth investments and other capital deployment opportunities going forward. Overall, the durability of our results year to date highlights the strong and differentiated position we have across the industrial sector today, and the evolution of Applied that continues to unfold.”

Mr. Schrimsher added, “As we enter the second half of fiscal 2024, we are on course for delivering our financial commitments while making solid progress toward our intermediate objectives of $5.5 billion in sales and 13% EBITDA margins. Near term, we expect underlying industrial activity to remain muted as end markets continue to recalibrate around normalizing supply chains and higher interest rates. This is partially reflected in January sales trending down by an estimated low single-digit percent on an organic basis over prior-year levels, albeit against a difficult low-twenty percent growth comparison last January. That said, we remain constructive moving forward given the potential for reaccelerating sales and earnings growth from easing prior-year comparisons and abating technology sector headwinds, as well as sustained benefits from our internal initiatives. Furthermore, we expect technical MRO and capital spending requirements to remain heightened as customers modernize equipment and expand production facilities to meet a multi-year secular growth cycle across North America that is just beginning. We are well positioned within this backdrop given our multi-faceted strategy focused on enhancing and leveraging our core service center operations, while expanding across higher-engineered solutions. We believe this strategy and our balance sheet capacity support significant value creation long term.”

Updated Fiscal 2024 Guidance For fiscal 2024, the Company now projects EPS of $9.35 to $9.70 on an adjusted basis (prior $9.25 to $9.80), sales growth of 1% to 3% (prior 1% to 4%) including 0% to 2% on an organic daily basis, and EBITDA margins of 12.1% to 12.3% (prior 12.0% to 12.3%). Updated adjusted EPS guidance excludes the $3.0 million tax benefit in the fiscal 2024 second quarter related to a deferred tax valuation allowance adjustment. Guidance incorporates current economic uncertainty and assumptions of easing end-market demand near term, as well as ongoing inflationary and supply chain headwinds. Guidance does not assume contribution from future acquisitions.

Dividend Today the Company also announced that its Board of Directors approved an increase in the quarterly cash dividend to $0.37 per common share, payable on February 29th, 2024, to shareholders of record on February 15th, 2024. This represents the 15th dividend increase since 2010.

Conference Call Information Applied will host a conference call today at 10 a.m. ET to review the Company’s financial performance and outlook. A supplemental investor presentation detailing results is available for reference on the investor relations portion of the Company’s website at www.applied.com. To join the call by telephone, dial 888-660-6573 (toll free) or 929-203-0881 using conference ID 6868675. A live audio webcast can be accessed online through the investor relations portion of the Company's website at www.applied.com. Replays of the call will be available via webcast, as well as by telephone for one week by dialing 800-770-2030 (toll free) or 647-362-9199 using conference ID 6868675.

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” and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends and events in the industrial sector of the economy (such as the inflationary environment and supply chain strains), 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. 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,

 

2023

 

 

2022

 

2023

 

 

2022

Net Sales

$

1,077,153

 

$

1,060,280

$

2,172,341

 

$

2,122,685

Cost of sales

 

760,063

 

 

751,775

 

1,530,169

 

 

1,507,397

Gross Profit

 

317,090

 

 

308,505

 

642,172

 

 

615,288

Selling, distribution and administrative expense, including depreciation

 

202,496

 

 

195,612

 

406,898

 

 

395,863

Operating Income

 

114,594

 

 

112,893

 

235,274

 

 

219,425

Interest expense, net

 

1,917

 

 

6,185

 

3,237

 

 

12,665

Other (income) expense, net

 

(2,924

)

 

758

 

(2,493

)

 

1,766

Income Before Income Taxes

 

115,601

 

 

105,950

 

234,530

 

 

204,994

Income tax expense

 

24,373

 

 

25,493

 

49,476

 

 

47,657

Net Income

$

91,228

 

$

80,457

$

185,054

 

$

157,337

Net Income Per Share - Basic

$

2.35

 

$

2.09

$

4.78

 

$

4.08

Net Income Per Share - Diluted

$

2.32

 

$

2.05

$

4.71

 

$

4.02

Average Shares Outstanding - Basic

 

38,744

 

 

38,579

 

38,722

 

 

38,552

Average Shares Outstanding - Diluted

 

39,302

 

 

39,208

 

39,307

 

 

39,162

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)

   

December 31,

June 30,

2023

2023

  Assets Cash and cash equivalents

$

412,855

$

344,036

Accounts receivable, net

 

659,196

 

708,395

Inventories

 

520,155

 

501,184

Other current assets

 

89,786

 

93,192

Total current assets

 

1,681,992

 

1,646,807

Property, net

 

113,706

 

115,041

Operating lease assets, net

 

104,517

 

100,677

Intangibles, net

 

227,831

 

235,549

Goodwill

 

589,356

 

578,418

Other assets

 

65,363

 

66,840

Total Assets

$

2,782,765

$

2,743,332

  Liabilities Accounts payable

$

253,739

$

301,685

Current portion of long-term debt

 

25,159

 

25,170

Other accrued liabilities

 

170,228

 

213,489

Total current liabilities

 

449,126

 

540,344

Long-term debt

 

571,854

 

596,926

Other liabilities

 

153,757

 

147,625

Total Liabilities

 

1,174,737

 

1,284,895

Shareholders' Equity

 

1,608,028

 

1,458,437

Total Liabilities and Shareholders' Equity

$

2,782,765

$

2,743,332

  APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (In thousands)  

Six Months Ended

December 31,

 

2023

 

 

2022

 

  Cash Flows from Operating Activities Net income

$

185,054

 

$

157,337

 

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

 

11,765

 

 

11,033

 

Amortization of intangibles

 

14,650

 

 

15,519

 

Provision for losses on accounts receivable

 

1,026

 

 

9,573

 

Amortization of stock appreciation rights and options

 

1,710

 

 

1,871

 

Other share-based compensation expense

 

4,237

 

 

4,001

 

Changes in assets and liabilities, net of acquisitions

 

(47,855

)

 

(111,542

)

Other, net

 

(2,620

)

 

1,031

 

Net Cash provided by Operating Activities

 

167,967

 

 

88,823

 

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

 

(21,440

)

 

(25,516

)

Capital expenditures

 

(9,863

)

 

(12,817

)

Proceeds from property sales

 

471

 

 

128

 

Net Cash used in Investing Activities

 

(30,832

)

 

(38,205

)

Cash Flows from Financing Activities Long-term debt repayments

 

(25,125

)

 

(40,123

)

Interest rate swap settlement receipts

 

7,194

 

 

2,684

 

Purchases of treasury shares

 

(10,677

)

 

(716

)

Dividends paid

 

(27,155

)

 

(26,259

)

Acquisition holdback payments

 

(681

)

 

(1,510

)

Taxes paid for shares withheld for equity awards

 

(12,914

)

 

(3,340

)

Exercise of stock appreciation rights and options

 

127

 

 

127

 

Net Cash used in Financing Activities

 

(69,231

)

 

(69,137

)

Effect of Exchange Rate Changes on Cash

 

915

 

 

(417

)

Increase (decrease) in cash and cash equivalents

 

68,819

 

 

(18,936

)

Cash and Cash Equivalents at Beginning of Period

 

344,036

 

 

184,474

 

Cash and Cash Equivalents at End of Period

$

412,855

 

$

165,538

 

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 December 31, 2023

Pre-tax

Tax Effect

Net of Tax

Per Share Diluted Impact

Tax Rate

Net income and net income per share

$

115,601

$

24,373

$

91,228

 

$

2.32

 

21.1

%

Tax valuation allowance adjustment

 

-

 

3,046

 

(3,046

)

 

(0.08

)

2.6

%

Adjusted net income and net income per share

$

115,601

$

27,419

$

88,182

 

$

2.24

 

23.7

%

 

Six Months Ended December 31, 2023

Pre-tax

Tax Effect

Net of Tax

Per Share Diluted Impact

Tax Rate

Net income and net income per share

$

234,530

$

49,476

$

185,054

 

$

4.71

 

21.1

%

Tax valuation allowance adjustment

 

-

 

3,046

 

(3,046

)

 

(0.08

)

1.3

%

Adjusted net income and net income per share

$

234,530

$

52,522

$

182,008

 

$

4.63

 

22.4

%

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

Three Months Ended December 31,

Six Months Ended December 31,

 

2023

 

 

2022

 

 

2023

 

2022

Net Income

$

91,228

$

80,457

$

185,054

$

157,337

Interest expense, net

 

1,917

 

 

6,185

 

 

3,237

 

12,665

Income tax expense

 

24,373

 

 

25,493

 

 

49,476

 

47,657

Depreciation and amortization of property

 

6,048

 

 

5,552

 

 

11,765

 

11,033

Amortization of intangibles

 

7,257

 

 

7,814

 

 

14,650

 

15,519

EBITDA

$

130,823

 

$

125,501

 

$

264,182

$

244,211

  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 December 31,

Six Months Ended December 31,

 

2023

 

2022

 

2023

 

2022

Net Cash provided by Operating Activities

$

101,758

 

$

62,880

 

$

167,967

 

$

88,823

 

Capital expenditures

 

(5,523

)

 

(7,263

)

 

(9,863

)

 

(12,817

)

Free Cash Flow

$

96,235

 

$

55,617

 

$

158,104

 

$

76,006

 

  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/20240125432181/en/

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