- Net Sales of $751.3 Million Down 9.9% YoY; Down 10.5% on an
Organic Basis
- Net Loss of $5.3 Million, or $0.14 Per Share
- Adjusted Net Income of $38.4 Million, or $0.98 Per Share;
Adjusted EBITDA of $68.3 Million
- Operating Cash Flow of $77.5 Million; Free Cash Flow of $72.7
Million
- Quarterly Dividend Increased to $0.33 Per Share
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 2021 second quarter ended December 31,
2020.
Net sales for the quarter decreased 9.9% to $751.3 million from
$833.4 million in the prior year. The change includes a 0.5%
increase from acquisitions and a 0.1% increase from foreign
currency translation. Excluding these factors, sales decreased
10.5% on an organic basis reflecting a 10.5% decline in the Service
Center segment and a 10.1% decline in the Fluid Power & Flow
Control segment. The Company reported a net loss of $5.3
million, or $0.14 per share. Results include a non-cash impairment
charge of $49.5 million pre-tax and non-routine costs of $7.8
million pre-tax. Excluding these items, the Company reported
non-GAAP adjusted net income of $38.4 million, or $0.98 per share,
and adjusted EBITDA of $68.3 million.
Neil A. Schrimsher, Applied’s President & Chief Executive
Officer, commented “Our fiscal 2021 second quarter reflects solid
execution across Applied. We are progressing on our growth
initiatives as end-market demand gradually recovers. This drove
encouraging order momentum and seasonally strong sequential
improvement in daily sales rates during the quarter. Combined with
solid cost control and working capital management, decremental
margins were better than our expectations and we generated record
second quarter cash flow. Overall, the results are a testament to
our industry position and operational discipline, as well as the
expanding value we are providing as the industrial sector advances
through the pandemic and customers address greater technical and
growth requirements.”
Mr. Schrimsher added, “Looking forward, I am increasingly
constructive on our outlook and potential. While general economic
uncertainty remains, underlying sales improvement has continued
into January with organic sales month to date down by a mid-single
digit percent year over year. We have multiple catalysts to expand
our market potential and accelerate growth opportunities throughout
calendar 2021 and beyond. This activity includes addressing
customers’ break-fix MRO requirements, supporting greater demand
for specialized engineered solutions, and leveraging our
multi-channel cross-selling initiatives. In addition, we are making
solid progress expanding our next generation automation
capabilities following three acquisitions in the past 16 months,
putting us in a strong position to address our customers’ emerging
industrial technology and operational requirements. Our balance
sheet provides the means to support these growth opportunities and
drive additional stakeholder returns as the economic recovery
broadens.”
Items Impacting the Quarter Fiscal 2021 second quarter
results include a $49.5 million pre-tax non-cash charge related to
the impairment of certain intangible, lease, and fixed assets, as
well as non-routine costs of $7.8 million pre-tax. The items are
the result of reduced economic conditions and related business
alignment initiatives across a portion of the Service Center
segment operations exposed to oil & gas end markets. Total
non-routine costs of $7.8 million pre-tax include a $7.4 million
inventory reserve charge recorded within cost of sales, and $0.4
million related to severance and facility consolidation recorded in
selling, distribution and administrative expense.
Outlook Based on month to date sales in January and
assuming normal seasonal patterns, the Company would project fiscal
2021 third quarter sales to decline 3% to 4% year over year on an
organic basis. In addition, assuming this sales level, the Company
would project selling, administrative and distribution expenses to
range between $170 million to $175 million during the fiscal 2021
third quarter, which includes additional expense restoration from
temporary cost actions initiated in fiscal 2020 in response to the
COVID-19 pandemic.
Dividend Today the Company also announced that its Board
of Directors approved an increase in the quarterly cash dividend to
$0.33 per common share, payable on February 26, 2021, to
shareholders of record on February 16, 2021. This represents the
12th dividend increase since 2010.
Conference Call Information Applied will host its
quarterly conference call for investors and analysts at 10 a.m. ET
on January 28, 2021. 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 2659264. 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 2659264.
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,” “outlook,” “project,” 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
(Unaudited) (In thousands, except per share data)
Three Months Ended December
31,
Six Months Ended December
31,
2020
2019
2020
2019
Net Sales
$
751,287
$
833,375
$
1,499,094
$
1,689,779
Cost of sales
541,753
592,141
1,073,779
1,197,085
Gross Profit
209,534
241,234
425,315
492,694
Selling, distribution and administrative expense, including
depreciation
162,428
182,489
325,901
372,783
Intangible and other impairment
49,528
-
49,528
-
Operating (Loss) Income
(2,422
)
58,745
49,886
119,911
Interest expense, net
7,658
9,583
15,311
19,642
Other expense (income), net
88
(215
)
(89
)
(215
)
(Loss) Income Before Income Taxes
(10,168
)
49,377
34,664
100,484
Income Tax (Benefit) Expense
(4,834
)
11,346
5,214
23,654
Net (Loss) Income
$
(5,334
)
$
38,031
$
29,450
$
76,830
Net (Loss) Income Per Share - Basic
$
(0.14
)
$
0.98
$
0.76
$
1.99
Net (Loss) Income Per Share - Diluted
$
(0.14
)
$
0.97
$
0.75
$
1.97
Average Shares Outstanding - Basic
38,781
38,649
38,751
38,630
Average Shares Outstanding - Diluted
39,233
39,047
39,165
39,000
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) In the quarter ended
December 31, 2020, the Company recognized a non-cash impairment
charge of $49.5 million and $7.8 million of other non-routine costs
as a result of reduced economic conditions and business alignment
initiatives related to a portion of the Service Center Based
Distribution segment exposed to oil and gas end markets. The
non-routine costs reduced gross profit by $7.4 million and
increased selling, distribution and administrative expense by $0.4
million. Combined, the non-cash impairment charge and non-routine
costs unfavorably impacted operating (loss) income by $57.3 million
and net (loss) income by $43.7 million.3) Due to the net loss
incurred by the Company during the quarter ended December 31, 2020,
the calculation of Net Loss Per Share - Diluted utilized the
Average Shares Outstanding - Basic, as using the Average Shares
Outstanding - Diluted would have been anti-dilutive.
APPLIED
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
December 31,2020 June 30,2020 Assets Cash and cash equivalents
$
288,775
$
268,551
Accounts receivable, net
444,200
449,998
Inventories
363,757
389,150
Other current assets
54,864
52,070
Total current assets
1,151,596
1,159,769
Property, net
120,530
121,901
Operating lease assets, net
86,977
90,636
Intangibles, net
294,581
343,215
Goodwill
557,257
540,594
Other assets
30,076
27,436
Total Assets
$
2,241,017
$
2,283,551
Liabilities Accounts
payable
$
196,468
$
186,270
Current portion of long-term debt
78,638
78,646
Other accrued liabilities
150,761
161,167
Total current liabilities
425,867
426,083
Long-term debt
783,076
855,143
Other liabilities
151,367
158,783
Total Liabilities
1,360,310
1,440,009
Shareholders' Equity
880,707
843,542
Total Liabilities and Shareholders' Equity
$
2,241,017
$
2,283,551
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS (Unaudited) (In thousands)
Six Months Ended
December 31,
2020
2019
Cash Flows from Operating
Activities Net income
$
29,450
$
76,830
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization of property
10,561
10,617
Amortization of intangibles
18,002
20,569
Intangible and other impairment
49,528
-
Amortization of stock appreciation rights and options
1,328
1,494
Other share-based compensation expense
2,167
1,837
Changes in assets and liabilities, net of acquisitions
52,005
(11,660
)
Other, net
(3,685
)
5,212
Net Cash provided by Operating Activities
159,356
104,899
Cash Flows from Investing
Activities Acquisition of businesses, net of cash
acquired
(31,078
)
(36,390
)
Capital expenditures
(8,449
)
(11,965
)
Proceeds from property sales
292
325
Net Cash used in Investing Activities
(39,235
)
(48,030
)
Cash Flows from Financing
Activities Long-term debt borrowings
-
25,000
Long-term debt repayments
(72,260
)
(34,868
)
Interest rate swap settlement payments
(549
)
-
Payment of debt issuance costs
-
(16
)
Dividends paid
(24,899
)
(24,002
)
Acquisition holdback payments
(1,138
)
(777
)
Taxes paid for shares withheld for equity awards
(5,571
)
(1,988
)
Exercise of stock appreciation rights and options
163
330
Net Cash used in Financing Activities
(104,254
)
(36,321
)
Effect of Exchange Rate Changes on Cash
4,357
(618
)
Increase in cash and cash equivalents
20,224
19,930
Cash and Cash Equivalents at Beginning of Period
268,551
108,219
Cash and Cash Equivalents at End of Period
$
288,775
$
128,149
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND
SUBSIDIARIES SUPPLEMENTAL INFORMATIONRECONCILIATION 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 (loss) income and Net (loss) income per
share, GAAP financial measures, with Adjusted Net income
andAdjusted Net income per share, non-GAAP financial measures:
Three Months Ended December 31, 2020 Pre-tax
Tax Effect Net of Tax Per ShareDiluted Impact
Tax Rate Net loss and net loss per share
$
(10,168
)
$
(4,834
)
$
(5,334
)
$
(0.14
)
47.5
%
Intangible and other impairment
49,528
11,769
37,759
0.96
23.8
%
Non-routine costs
7,772
1,847
5,925
0.15
23.8
%
Adjusted net income and net income per share
$
47,132
$
8,782
$
38,350
$
0.98
18.6
%
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,
2020
2019
2020
2019
Net (Loss) Income
$
(5,334
)
$
38,031
$
29,450
$
76,830
Interest expense, net
7,658
9,583
15,311
19,642
Income tax (benefit) expense
(4,834
)
11,346
5,214
23,654
Depreciation and amortization of property
5,209
5,394
10,561
10,617
Amortization of intangibles
8,276
10,195
18,002
20,569
EBITDA
$
10,975
$
74,549
$
78,538
$
151,312
Intangible and other impairment
49,528
-
49,528
-
Non-routine costs
7,772
-
7,772
1,455
Adjusted EBITDA
$
68,275
$
74,549
$
135,838
$
152,767
The Company defines EBITDA as Earnings from operations before
Interest, Taxes, Depreciation, and Amortization, a non-GAAP
financial measure. Adjusted 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,
2020
2019
2020
2019
Net Cash provided by Operating Activities
$
77,514
$
54,881
$
159,356
$
104,899
Capital expenditures
(4,852
)
(7,019
)
(8,449
)
(11,965
)
Free Cash Flow
$
72,662
$
47,862
$
150,907
$
92,934
Free cash flow is defined as net cash provided by operating
activities less property purchases, a non-GAAP financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210128005245/en/
Ryan D. Cieslak Director – Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com
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