Applied Industrial Technologies Reports Fiscal 2023 Third Quarter Results

Rhea-AI Summary

Applied Industrial Technologies (NYSE: AIT) reported strong fiscal 2023 third-quarter results, with net sales rising 15.4% year-over-year to $1.1 billion. Organic growth was 15.0%, driven by a 16.1% increase in the Service Center segment and 13.1% growth in Engineered Solutions. Net income was $97.2 million, or $2.47 per share, and adjusted net income reached $93.5 million, or $2.38 per share. EBITDA increased by 29.2% to $140.3 million. The company updated its fiscal 2023 guidance to reflect an expected adjusted EPS of $8.47 to $8.60 and sales growth of 14% to 15%. Additionally, a quarterly cash dividend of $0.35 per common share was announced. Despite ongoing economic uncertainty, the company is positioned for sustained growth.

Positive

• Net sales increased 15.4% YoY to $1.1 billion.
• Organic sales growth of 15.0%, with Service Center segment up 16.1%.
• Net income of $97.2 million, or $2.47 per share.
• Adjusted net income of $93.5 million, or $2.38 per share.
• EBITDA rose 29.2% to $140.3 million.
• Updated EPS guidance raised to $8.47 to $8.60.
• Quarterly cash dividend of $0.35 declared.

Negative

• Sales growth impacted by a negative 0.3% foreign currency translation.
• Market demand and orders expected to moderate in the near term.

• 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--(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 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.

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,
		2023			2022			2023		2022
Net Sales	$	1,132,035		$	980,662		$	3,254,720	$	2,749,217
Cost of sales		798,917			693,338			2,306,314		1,948,928
Gross Profit		333,118			287,324			948,406		800,289
Selling, distribution and administrative expense,
including depreciation		206,207			191,481			602,070		551,655
Operating Income		126,911			95,843			346,336		248,634
Interest expense, net		4,773			5,852			17,438		20,249
Other (income) expense, net		(142	)		469			1,624		(712	)
Income Before Income Taxes		122,280			89,522			327,274		229,097
Income tax expense		25,093			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, 2023			June 30, 2022
Assets
Cash and cash equivalents		$	182,127		$	184,474
Accounts receivable, net			705,638			656,429
Inventories			526,978			449,821
Other current assets			92,002			68,805
Total current assets			1,506,745			1,359,529
Property, net			115,383			111,896
Operating lease assets, net			101,960			108,052
Intangibles, net			243,133			250,590
Goodwill			577,235			563,205
Other assets			64,182			59,316
Total Assets		$	2,608,638		$	2,452,588
Liabilities
Accounts payable		$	276,024		$	259,463
Current portion of long-term debt			25,196			40,174
Other accrued liabilities			179,372			199,990
Total current liabilities			480,592			499,627
Long-term debt			597,006			649,150
Other liabilities			150,380			154,456
Total Liabilities			1,227,978			1,303,233
Shareholders' Equity			1,380,660			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,
			2023				2022
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 property			16,598				16,215
Amortization of intangibles			23,189				24,096
Provision for losses on accounts receivable			4,676				2,905
Amortization of stock appreciation rights and options			2,322				2,897
Other share-based compensation expense			7,419				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 Activities			164,027				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 sales			226				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 options			127				224
Net Cash used in Financing Activities			(111,526	)			(173,366	)
Effect of Exchange Rate Changes on Cash			1,402				(288	)
Decrease in cash and cash equivalents			(2,347	)			(69,661	)
Cash and Cash Equivalents at Beginning of Period			184,474				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-tax		Tax Effect			Net of Tax			Per 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-tax		Tax Effect			Net of Tax			Per Share Diluted Impact			Tax 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,
		2023		2022			2023		2022
Net Income	$	97,187	$	68,306		$	254,524	$	178,301
Interest expense, net		4,773		5,852			17,438		20,249
Income tax expense		25,093		21,216			72,750		50,796
Depreciation and amortization of property		5,565		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,
		2023			2022				2023			2022
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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230427005108/en/

Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 / rcieslak@applied.com

Source: Applied Industrial Technologies, Inc.

FAQ

What are the fiscal Q3 2023 results for AIT?

AIT reported net sales of $1.1 billion, a 15.4% increase YoY, with net income of $97.2 million.

What is the updated guidance for AIT for fiscal 2023?

AIT projects adjusted EPS between $8.47 and $8.60, with sales growth of 14% to 15%.

When is the next AIT conference call?

The next conference call will be held on April 27, 2023, at 10 a.m. ET.

What dividend was declared by AIT?

AIT declared a quarterly cash dividend of $0.35 per common share, payable on May 31, 2023.