Applied Industrial Technologies Reports Fiscal 2023 Fourth Quarter and Full-Year Results

By: Applied Industrial Technologies, Inc. via Business Wire

August 10, 2023 at 06:30 AM EDT

Fourth Quarter Net Sales of $1.2 Billion Up 9.1% YoY; Up 8.6% on an Organic Basis
Fourth Quarter Net Income of $92.2 Million, or $2.35 Per Share Up 16.1% YoY
Fourth Quarter EBITDA of $140.0 Million Up 16.7% YoY
Full-Year Net Sales of $4.4 Billion Up 15.8% YoY; Up 15.7% on an Organic Basis
Full-Year Net Income of $346.7 Million, or $8.84 Per Share
Full-Year Adjusted Net Income of $343.1 Million, or $8.75 Per Share Up 32.9% YoY
Full-Year EBITDA of $524.5 Million Up 28.1% YoY
Establishes Fiscal 2024 Guidance and Updates Intermediate Financial Objectives

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 fourth quarter and full year ended June 30, 2023.

Net sales for the quarter increased 9.1% to $1.2 billion from $1.1 billion in the prior year. The change includes a 0.7% increase from acquisitions, offset by a negative 0.2% impact from foreign currency translation. Excluding these factors, sales increased 8.6% on an organic basis reflecting a 9.1% increase in the Service Center segment and a 7.5% increase in the Engineered Solutions segment. The Company reported net income of $92.2 million, or $2.35 per share, and EBITDA of $140.0 million. On a pre-tax basis, results include $8.1 million ($0.15 after tax per share) of LIFO expense compared to $10.8 million ($0.22 after tax per share) of LIFO expense in the prior-year period.

For the twelve months ended June 30, 2023, sales of $4.4 billion increased 15.8% compared with the prior year, or 15.7% on an organic basis. Net income was $346.7 million, or $8.84 per share, and EBITDA was $524.5 million. Non-GAAP adjusted net income was $343.1 million, or $8.75 per share. On a pre-tax basis, full-year results include $34.2 million ($0.66 after tax per share) of LIFO expense compared to $26.5 million ($0.53 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 finish to fiscal 2023 with fourth quarter sales, EBITDA, and EPS exceeding our expectations. Sales grew a solid 9% organically over the prior year against challenging comparisons. While broader end-market activity was more mixed, underlying demand for our differentiated portfolio of technical solutions and service capabilities remained firm as secular tailwinds and our sales initiatives continue to gain momentum. At the same time, we expanded gross margins by 35 basis points over the prior year, produced double-digit EBITDA growth for the tenth straight quarter, and generated record free cash flow. Overall, fiscal 2023 was a pivotal year for our business with sales exceeding $4 billion and EBITDA margins reaching record highs on the back of top-tier organic growth, steadfast execution, and ongoing expansion of our next-generation Automation platform. This underlying performance further validates the power of the Applied team and our position in today’s industrial economy.”

Mr. Schrimsher added, “Moving into fiscal 2024, we remain focused on meeting the needs of our customers and continuing to progress towards our long-term strategic objectives as we navigate an uncertain macroeconomic backdrop. Through early August, organic sales are up by a low single-digit percent compared to prior-year levels. We expect broader market activity to moderate further near term as customers normalize production levels and manage through a higher interest rate environment. That said, we continue to believe any near-term slowdown will be transitional and short in nature given positive tailwinds underpinning the industrial sector, and a greater focus on supply chain reliability and capacity investments. In addition, we remain constructive on our growth potential beyond cycle conditions considering our exposure to secular tailwinds, sustained share gain opportunities, and continued momentum around our cross-selling initiative. We also expect another meaningful year of cash generation, which combined with our strong balance sheet provides significant M&A fire power and capital deployment capacity to enhance returns for all stakeholders.”

Fiscal 2024 Guidance and Updated Intermediate Financial Objectives

Today the Company is introducing fiscal 2024 EPS guidance in the range of $8.80 to $9.55 based on sales growth of 0% to 4% and EBITDA margins of 11.9% to 12.1%. 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 potential future acquisitions.

In addition, the Company is increasing its intermediate financial objectives, and now targets sales of over $5.5 billion and EBITDA margins of over 13%. The Company expects to achieve these targets within the next five years or sooner depending on various factors including the trajectory of broader macro dynamics in coming years.

Mr. Schrimsher concluded, “Following our strong performance in fiscal 2023, we will achieve our prior EBITDA margin goal of 12% sooner than expected. In addition, our enhanced organic growth profile and acquisition pipeline provide a clear path to further scale our business in coming years as we build upon our leading technical position across an expanding addressable market. Overall, we remain extremely confident in our multi-faceted strategy focused on enhancing and leveraging our core service center operations, while expanding across higher-engineered solutions tied to advanced automation, industrial power, and process technologies. This strategy and our updated objectives highlight a compelling outlook for significant value creation long term.”

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on August 10, 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 800-951-6728 (toll free) or 212-231-2901 (for International callers) using conference ID 22027594. 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 800-633-8284 or 402-977-9140 (International) using conference ID 22027594.

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”, 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 June 30,				Year Ended June 30,
	2023		2022		2023		2022
Net Sales	$	1,158,074	$	1,061,459	$	4,412,794	$	3,810,676
Cost of sales		819,515		754,832		3,125,829		2,703,760
Gross Profit		338,559		306,627		1,286,965		1,106,916
Selling, distribution and administrative expense, including depreciation		211,744		197,403		813,814		749,058
Operating Income		126,815		109,224		473,151		357,858
Interest expense, net		4,201		6,014		21,639		26,263
Other expense, net		77		2,517		1,701		1,805
Income Before Income Taxes		122,537		100,693		449,811		329,790
Income tax expense		30,322		21,580		103,072		72,376
Net Income	$	92,215	$	79,113	$	346,739	$	257,414
Net Income Per Share - Basic	$	2.39	$	2.06	$	8.98	$	6.69
Net Income Per Share - Diluted	$	2.35	$	2.02	$	8.84	$	6.58
Average Shares Outstanding - Basic		38,646		38,471		38,592		38,471
Average Shares Outstanding - Diluted		39,270		39,101		39,220		39,105

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)

	June 30, 2023		June 30, 2022
	June 30, 2023		June 30, 2022

Assets
Cash and cash equivalents	$	344,036	$	184,474
Accounts receivable, net		708,395		656,429
Inventories		501,184		449,821
Other current assets		93,192		68,805
Total current assets		1,646,807		1,359,529
Property, net		115,041		111,896
Operating lease assets, net		100,677		108,052
Intangibles, net		235,549		250,590
Goodwill		578,418		563,205
Other assets		66,840		59,316
Total Assets	$	2,743,332	$	2,452,588

Liabilities
Accounts payable	$	301,685	$	259,463
Current portion of long-term debt		25,170		40,174
Other accrued liabilities		213,489		199,990
Total current liabilities		540,344		499,627
Long-term debt		596,926		649,150
Other liabilities		147,625		154,456
Total Liabilities		1,284,895		1,303,233
Shareholders' Equity		1,458,437		1,149,355
Total Liabilities and Shareholders' Equity	$	2,743,332	$	2,452,588

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

	Year Ended June 30,
	2023			2022

Cash Flows from Operating Activities
Net income	$	346,739		$	257,414
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property		22,266			21,676
Amortization of intangibles		30,805			31,879
Provision for losses on accounts receivable		5,619			3,193
Amortization of stock appreciation rights and options		2,785			3,284
Other share-based compensation expense		9,576			8,558
Changes in assets and liabilities, net of acquisitions		(69,253	)		(151,858	)
Other, net		(4,571	)		13,424
Net Cash provided by Operating Activities		343,966			187,570
Cash Flows from Investing Activities
Acquisition of businesses, net of cash acquired		(35,785	)		(6,964	)
Capital expenditures		(26,476	)		(18,124	)
Proceeds from property sales		1,428			1,107
Other		-			(11,677	)
Net Cash used in Investing Activities		(60,833	)		(35,658	)
Cash Flows from Financing Activities
Net repayments under revolving credit facility		(27,000	)		-
Net borrowings under revolving credit facility		-			410,592
Long-term debt repayments		(40,247	)		(550,493	)
Interest rate swap settlement receipts (payments)		8,800			(5,703	)
Payment of debt issuance costs		-			(1,956	)
Purchases of treasury shares		(716	)		(13,784	)
Dividends paid		(53,446	)		(51,805	)
Acquisition holdback payments		(1,510	)		(2,361	)
Taxes paid for shares withheld for equity awards		(12,896	)		(8,074	)
Exercise of stock appreciation rights and options		127			555
Net Cash used in Financing Activities		(126,888	)		(223,029	)
Effect of Exchange Rate Changes on Cash		3,317			(2,154	)
Increase (decrease) in cash and cash equivalents		159,562			(73,271	)
Cash and Cash Equivalents at Beginning of Period		184,474			257,745
Cash and Cash Equivalents at End of Period	$	344,036		$	184,474

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:

	Year Ended June 30, 2023
	Pre-tax		Tax Effect		Net of Tax			Per Share Diluted Impact			Tax Rate
Net income and net income per share	$	449,811	$	103,072	$	346,739		$	8.84		22.9	%
Tax valuation allowance adjustment, net		-		3,657		(3,657	)		(0.09	)	0.8	%
Adjusted net income and net income per share	$	449,811	$	106,729	$	343,082		$	8.75		23.7	%

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

	Three Months Ended June 30,				Year Ended June 30,
	2023		2022		2023			2022
Net Income	$	92,215	$	79,113	$	346,739		$	257,414
Interest expense, net		4,201		6,014		21,639			26,263
Income tax expense		30,322		21,580		103,072			72,376
Depreciation and amortization of property		5,668		5,461		22,266			21,676
Amortization of intangibles		7,616		7,783		30,805			31,879
EBITDA	$	140,022	$	119,951	$	524,521		$	409,608

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 June 30,						Year Ended June 30,
		2023			2022			2023			2022
Net Cash provided by Operating Activities	$	179,939		$	53,747		$	343,966		$	187,570
Capital expenditures		(5,667	)		(6,450	)		(26,476	)		(18,124	)
Free Cash Flow	$	174,272		$	47,297		$	317,490		$	169,446

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

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Contacts

Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 / [email protected]