- Net Sales of $830.8 Million Down 6.2% YoY; Down 9.5% on an
Organic Daily Basis
- Net Loss of $82.8 Million, or $2.14 Per Share
- Adjusted Net Income of $39.6 Million, or $1.02 Per Share
- Operating Cash Flow of $64.7 Million; Free Cash Flow of $60.5
Million
- Fiscal 2020 Guidance Withdrawn Amid Economic Uncertainty
- Declared Dividend of $0.32 Per Share
Applied Industrial Technologies (NYSE: AIT), a leading
value-added distributor and technical solutions provider of
industrial motion, fluid power, flow control, and automation
technologies, today reported results for its third quarter fiscal
2020 ended March 31, 2020.
Net sales decreased 6.2% to $830.8 million from $885.4 million
in the prior year. The change in sales includes a 1.9% increase
from acquisitions and a 1.6% benefit from one extra selling day,
partially offset by a negative 0.2% impact from foreign currency
translation. Excluding these factors, sales decreased 9.5% on an
organic daily basis reflecting a 10.9% decline in the Service
Center segment and a 6.0% decline in the Fluid Power & Flow
Control segment. The Company reported a net loss of $82.8 million,
or $2.14 per share. Results include a non-cash goodwill impairment
charge of $131.0 million pre-tax ($3.07 per share), non-routine
costs of $6.0 million pre-tax ($0.12 per share), and a $1.0 million
non-routine tax benefit ($0.03 per share). Excluding these items,
the Company reported non-GAAP adjusted net income of $39.6 million,
or $1.02 per share.
Neil A. Schrimsher, Applied’s President & Chief Executive
Officer, said “We heightened our focus on cost control and cash
generation during our third quarter given persistent weak
industrial demand that was exacerbated by the initial impact from
the COVID-19 pandemic in March. Our top priority during this
unprecedented time is the well-being and support of our associates,
as well as customers, suppliers, and other business partners. I am
incredibly proud of our team’s response, especially the vital role
they are playing in keeping essential industries moving and
productive across the industrial supply-chain. We are classified as
critical infrastructure, and our facilities remain open and
operational as they adhere to health and safety policies. We have
and will continue to implement proactive measures across our
organization as we adapt to current conditions, while staying
focused on serving customer requirements and our long-term
strategic goals.”
Mr. Schrimsher added, “While the ultimate impact from COVID-19
remains uncertain, we are monitoring the situation closely as it
evolves, including mid-teen year-over-year organic sales declines
on a days adjusted basis during March and high-teen declines
month-to-date in April. Our track record of margin and cost
discipline is reinforced in this environment, as evidenced by third
quarter adjusted gross margins unchanged and adjusted operating
expense down 7.5% organically over the prior year. In addition, we
ended March in a positive liquidity position with over $165 million
of cash on hand following our strongest third quarter of free cash
generation to-date, as well as approximately $250 million of
undrawn revolver capacity. We are focused on driving additional
cash generation into our fourth quarter, and encouraged by ongoing
support across our banking relationships. Combined with our strong
industry position as a provider of break-fix MRO products and
return enhancing solutions for critical industrial infrastructure,
we are poised to manage through the current environment and fully
leverage the significant growth opportunities likely to emerge as a
recovery eventually unfolds.”
Items Impacting the Quarter Reported results include a
$131.0 million pre-tax non-cash goodwill impairment charge
associated with our fiscal 2018 acquisition of FCX Performance,
Inc. The charge is the result of end-market softness within our
Flow Control operations, and changes in growth projections from the
new macroeconomic backdrop. Results also include $6.0 million
pre-tax of non-routine costs within the Company’s Service Center
segment associated with restructuring and cost actions during the
quarter in response to the demand environment, as well as a $1.0
million non-routine tax benefit related to the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act).
Outlook Due to the evolving and highly uncertain impact
of the COVID-19 pandemic, the Company is withdrawing its fiscal
2020 financial guidance provided on January 23, 2020. The Company’s
guidance metrics will be reevaluated in coming months as it fully
assesses the impact from COVID-19, continues to take appropriate
cost measures, and prepares its fiscal 2021 outlook. Cost measures
implemented to-date include reduced discretionary spending, staff
alignments, temporary furloughs and pay reductions, suspension of
401(k) company match, and other expense reduction actions.
Dividend Today the Company also announced that its Board
of Directors declared a quarterly cash dividend of $0.32 per common
share, payable on May 29, 2020, to shareholders of record on May
15, 2020.
Conference Call Information Applied will host its
quarterly conference call for investors and analysts at 10 a.m. ET
on April 30, 2020. Neil A. Schrimsher – President & CEO, and
David K. Wells – CFO will discuss the Company's performance. A
supplemental investor deck detailing latest quarter results 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 6267109. 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 6267109.
About Applied® Founded in 1923, Applied Industrial
Technologies is a leading value-added distributor of bearings,
power transmission products, engineered fluid power components and
systems, specialty flow control solutions, automation technologies,
and other industrial supplies, serving MRO and OEM customers in
virtually every industry. In addition, Applied provides
engineering, design and systems integration for industrial, fluid
power, and flow control applications, as well as customized
mechanical, fabricated rubber, fluid power, and flow control shop
services. Applied also offers storeroom services and inventory
management solutions that provide added value to its customers. 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,” “outlook,” “guidance” 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, 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 (In thousands, except per share data)
Three Months
EndedMarch 31, Nine Months EndedMarch 31,
2020
2019
2020
2019
Net Sales
$
830,797
$
885,443
$
2,520,576
$
2,589,996
Cost of sales
594,045
629,884
1,791,130
1,839,724
Gross Profit
236,752
255,559
729,446
750,272
Selling, distribution and administrative expense,
including depreciation
183,702
189,456
556,485
556,865
Goodwill & intangible impairment
131,000
31,594
131,000
31,594
Operating (Loss) Income
(77,950
)
34,509
41,961
161,813
Interest expense, net
8,805
9,947
28,447
30,001
Other income, net
(1,428
)
(1,256
)
(1,643
)
(549
)
(Loss) Income Before Income Taxes
(85,327
)
25,818
15,157
132,361
Income Tax (Benefit) Expense
(2,550
)
9,283
21,104
28,171
Net (Loss) Income
$
(82,777
)
$
16,535
$
(5,947
)
$
104,190
Net (Loss) Income Per Share - Basic
$
(2.14
)
$
0.43
$
(0.15
)
$
2.69
Net (Loss) Income Per Share - Diluted
$
(2.14
)
$
0.42
$
(0.15
)
$
2.66
Average Shares Outstanding - Basic
38,682
38,643
38,647
38,701
Average Shares Outstanding - Diluted
38,682
39,039
38,647
39,222
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) On July 1, 2019, the Company adopted ASC 842 –
accounting for leases. Adoption of the new standard resulted in the
recognition of right-of-use assets and lease liabilities of $83.5
million and $89.8 million, respectively, on July 1, 2019. In
addition, the adoption resulted in an adjustment to opening
retained earnings of approximately $3.3 million, net of tax, on
July 1, 2019 primarily due to the impairment of certain leases in
Canada.3) In the quarter ending March 31, 2020, the Company
recognized a non-cash goodwill impairment charge of $131.0 million
related to the Company's FCX Performance, Inc. (FCX) operations
within the Fluid Power & Flow Control segment primarily as a
result of the overall decline in the industrial economy,
specifically slower demand in FCX's end markets.4) In the quarter
ending March 31, 2020, the Company incurred certain non-routine
charges primarily related to its U.S. Service Center Based
Distribution segment. Total non-routine charges reduced gross
profit by $3.9 million, increased the operating loss by $6.0
million, and increased the quarter net loss by $3.6 million.
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In
thousands)
March 31, 2019 June 30, 2019
Assets Cash and cash
equivalents
$
165,464
$
108,219
Accounts receivable, net
524,081
540,902
Inventories
421,201
447,555
Other current assets
51,773
51,462
Total current assets
1,162,519
1,148,138
Property, net
123,770
124,303
Operating lease assets
86,617
-
Intangibles, net
352,864
368,866
Goodwill
539,495
661,991
Other assets
24,264
28,399
Total Assets
$
2,289,529
$
2,331,697
Liabilities Accounts
payable
$
214,253
$
237,289
Current portion of long-term debt
78,642
49,036
Other accrued liabilities
154,966
137,469
Total current liabilities
447,861
423,794
Long-term debt
864,758
908,850
Other liabilities
146,350
102,019
Total Liabilities
1,458,969
1,434,663
Shareholders' Equity
830,560
897,034
Total Liabilities and Shareholders' Equity
$
2,289,529
$
2,331,697
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS (In thousands)
Nine Months EndedMarch 31,
2020
2019
Cash Flows from Operating
Activities Net income
$
(5,947
)
$
104,190
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization of property
15,997
15,045
Amortization of intangibles
31,671
31,823
Goodwill & intangible impairment
131,000
31,594
Amortization of stock appreciation rights and options
2,217
1,831
Gain on sale of property
(1,274
)
(258
)
Other share-based compensation expense
2,046
3,716
Changes in assets and liabilities, net of acquisitions
1,406
(106,367
)
Other, net
(7,492
)
(4,408
)
Net Cash provided by Operating Activities
169,624
77,166
Cash Flows from Investing
Activities Acquisition of businesses, net of cash
acquired
(37,237
)
(37,526
)
Property purchases
(16,223
)
(11,711
)
Proceeds from property sales
1,809
649
Other
-
391
Net Cash used in Investing Activities
(51,651
)
(48,197
)
Cash Flows from Financing
Activities Net repayments under revolving credit
facility
-
(500
)
Long-term debt borrowings
25,000
175,000
Long-term debt repayments
(39,803
)
(156,803
)
Payment of debt issuance costs
(22
)
(775
)
Purchases of treasury shares
-
(11,158
)
Dividends paid
(36,420
)
(35,254
)
Acquisition holdback payments
(2,440
)
(2,609
)
Taxes paid for shares withheld for equity awards
(2,604
)
(3,371
)
Exercise of stock appreciation rights and options
330
-
Net Cash used in Financing Activities
(55,959
)
(35,470
)
Effect of Exchange Rate Changes on Cash
(4,769
)
(282
)
Increase (Decrease) in cash and cash equivalents
57,245
(6,783
)
Cash and cash equivalents at beginning of Period
108,219
54,150
Cash and Cash Equivalents at End of Period
$
165,464
$
47,367
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL
INFORMATION
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES (Page 1 of 2)
(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 (loss)income and
Adjusted Net (loss) income per share, non-GAAP financial
measures: Three Months Ended March 31, 2020
Pre-tax Tax Effect Net of Tax Per
ShareDiluted Impact Tax Rate Net loss and net loss
per share
$
(85,327
)
$
(2,550
)
$
(82,777
)
$
(2.14
)
3.0
%
Goodwill impairment
131,000
12,200
118,800
3.07
9.3
%
Non-routine costs
5,997
1,396
4,601
0.12
23.3
%
Non-routine tax benefit
-
1,010
(1,010
)
(0.03
)
N/M
Adjusted net income and net income per share
$
51,670
$
12,056
$
39,614
$
1.02
23.3
%
Three Months Ended March 31, 2019 Pre-tax
Tax Effect Net of Tax Per ShareDiluted Impact
Tax Rate Net income and net income per share
$
25,818
$
9,283
$
16,535
$
0.42
36.0
%
Canadian intangible impairment
31,594
8,467
23,127
0.60
26.8
%
Canadian tax valuation allowance
-
(3,785
)
3,785
0.10
N/M
Non-routine costs
2,300
598
1,702
0.04
26.0
%
Adjusted net income and net income per share
$
59,712
$
14,563
$
45,149
$
1.16
24.4
%
Nine Months Ended March 31, 2020 Pre-tax
Tax Effect Net of Tax Per ShareDiluted Impact
Tax Rate Net income (loss) and net income (loss) per
share
$
15,157
$
21,104
$
(5,947
)
$
(0.15
)
139.2
%
Goodwill impairment
131,000
12,200
118,800
3.07
9.3
%
Non-routine costs
7,452
1,747
5,705
0.15
23.4
%
Non-routine tax benefit
-
1,010
(1,010
)
(0.03
)
N/M
Adjusted net income and net income per share
$
153,609
$
36,061
$
117,548
$
3.04
23.5
%
Nine Months Ended March 31, 2019 Pre-tax
Tax Effect Net of Tax Per ShareDiluted Impact
Tax Rate Net income and net income per share
$
132,361
$
28,171
$
104,190
$
2.66
21.3
%
Canadian intangible impairment
31,594
8,467
23,127
0.59
26.8
%
Canadian tax valuation allowance
-
(3,785
)
3,785
0.10
N/M
Non-routine costs
2,300
598
1,702
0.04
26.0
%
Adjusted net income and net income per share
$
166,255
$
33,451
$
132,804
$
3.39
20.1
%
APPLIED INDUSTRIAL
TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Page 2 of
2)
(In thousands)
Continued from previous page
Reconciliation of Net (loss) income, a GAAP financial measure,
to EBITDA, a non-GAAP financial measure: Three Months
EndedMarch 31, Nine Months EndedMarch 31,
2020
2019
2020
2019
Net (loss) income
$
(82,777
)
$
16,535
$
(5,947
)
$
104,190
Interest expense, net
8,805
9,947
28,447
30,001
Income tax expense
(2,550
)
9,283
21,104
28,171
Depreciation and amortization of property
5,380
5,026
15,997
15,045
Amortization of intangibles
10,048
9,911
30,617
31,823
EBITDA
$
(61,094
)
$
50,702
$
90,218
$
209,230
Goodwill & intangible impairment
131,000
31,594
131,000
31,594
Non-routine costs
5,997
2,300
7,452
2,300
Adjusted EBITDA
$
75,903
$
84,596
$
228,670
$
243,124
The Company defines EBITDA as Earnings from operations before
Interest, Taxes, Depreciation, and Amortization, a non-GAAP
financial measure. Adjusted EBITDA adds back other non-routine
costs. EBITDA and Adjusted EBITDA exclude items that may not be
indicative of core operating results.
Reconciliation of Gross Profit, a GAAP financial measure, with
Adjusted Gross Profit and AdjustedGross Margin, non-GAAP financial
measures: Three Months EndedMarch 31, Nine Months
EndedMarch 31,
2020
2019
2020
2019
Net Sales
$
830,797
$
885,443
$
2,520,576
$
2,589,996
Gross Profit
$
236,752
$
255,559
$
729,446
$
750,272
Non-routine costs
3,900
700
3,900
700
Adjusted Gross Profit
$
240,652
$
256,259
$
733,346
$
750,972
Adjusted Gross Margin
29.0
%
28.9
%
29.1
%
29.0
%
Reconciliation of Selling, distribution, and administrative
expense (SD&A), a GAAP financial measure,with Adjusted SD&A
(or Adjusted Operating expense) a non-GAAP financial measure:
Three Months EndedMarch 31, Nine Months EndedMarch
31,
2020
2019
2020
2019
SD&A
$
183,702
$
189,456
$
556,485
$
556,865
Non-routine costs
(2,097
)
(1,600
)
(3,552
)
(1,600
)
Adjusted SD&A (Adjusted Operating expense)
$
181,605
$
187,856
$
552,933
$
555,265
Adjusted gross profit, adjusted gross margin, and adjusted
operating expense exclude non-routine expenses that may not be
indicative of core operating results.
Reconciliation of Net Cash provided by Operating activities, a
GAAP financial measure, to Free CashFlow, a non-GAAP financial
measure: Three Months EndedMarch 31, Nine Months
EndedMarch 31,
2020
2019
2020
2019
Net Cash provided by Operating Activities
$
64,725
$
11,586
$
169,624
$
77,166
Property purchases
(4,258
)
(4,615
)
(16,223
)
(11,711
)
Free Cash Flow
$
60,467
$
6,971
$
153,401
$
65,455
Free cash flow is defined as net cash provided by operating
activities less property purchases.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200430005210/en/
Ryan D. Cieslak Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com
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