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

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Applied Industrial Technologies (NYSE: AIT) reports strong fiscal 2023 results with 9.1% increase in net sales in Q4, reaching $1.2 billion. Full-year net sales were up 15.8% YoY at $4.4 billion. The company establishes fiscal 2024 guidance with EPS in the range of $8.80 to $9.55 and targets sales of over $5.5 billion and EBITDA margins of over 13% within the next five years.
Positive
  • Strong 9.1% increase in net sales in Q4
  • Full-year net sales up 15.8% YoY
  • Fiscal 2024 EPS guidance in the range of $8.80 to $9.55
  • Targets sales of over $5.5 billion and EBITDA margins of over 13% within the next five years
Negative
  • None.
  • 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

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 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
 
 
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.

 

Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 / rcieslak@applied.com

Source: Applied Industrial Technologies, Inc.

FAQ

What are the fiscal 2023 net sales for Applied Industrial Technologies (NYSE: AIT)?

The net sales for fiscal 2023 were $4.4 billion, representing a 15.8% increase YoY.

What is the fiscal 2024 EPS guidance for Applied Industrial Technologies (NYSE: AIT)?

The fiscal 2024 EPS guidance is in the range of $8.80 to $9.55.

What are the targets set by Applied Industrial Technologies (NYSE: AIT) for the next five years?

The company targets sales of over $5.5 billion and EBITDA margins of over 13% within the next five years.

Applied Industrial Technologies, Inc.

NYSE:AIT

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