EX-99.1 2 a8k8122020releaseexhib.htm EXHIBIT 99.1 Exhibit
EXHIBIT 99.1
Applied Industrial Technologies Reports
Fiscal 2020 Fourth Quarter and Year-End Results

Fiscal Fourth Quarter 2020 Highlights
•
Net Sales of $725.1 Million Down 17.9% YoY; Down 18.4% on an Organic Basis
•
EPS of $0.77; Non-GAAP Adjusted EPS of $0.80
•
Operating Cash Flow of $127.1 Million; Free Cash Flow of $123.2 Million

Fiscal Full-Year 2020 Highlights
•
Net Sales of $3.2 Billion Down 6.5% YoY; Down 9.4% on an Organic Daily Basis
•
EPS of $0.62; Non-GAAP Adjusted EPS of $3.81
•
Operating Cash Flow of $296.7 Million; Free Cash Flow of $276.6 Million

CLEVELAND, OHIO (August 12, 2020) - 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 2020 fourth quarter and full year ended June 30, 2020.

Net sales for the quarter decreased 17.9% to $725.1 million from $882.7 million in the prior year. The change in sales includes a 1.5% increase from acquisitions, partially offset by an approximate 1% negative impact from foreign currency translation. Excluding these factors, sales decreased 18.4% on an organic basis reflecting a 21.1% decline in the Service Center segment and an 11.8% decline in the Fluid Power & Flow Control segment. The Company reported net income of $30.0 million, or $0.77 per share. Results include non-routine costs of $1.5 million pre-tax ($0.03 per share) associated with restructuring and cost actions in response to the demand environment. Excluding these costs, the Company reported non-GAAP adjusted net income of $31.1 million, or $0.80 per share.

For the twelve months ended June 30, 2020, sales were $3.2 billion, a decrease of 6.5% compared with $3.5 billion last year, or down 9.4% on an organic daily basis. Net income was $24.0 million or $0.62 per share on a reported basis. Non-GAAP adjusted net income was $148.7 million, or $3.81 per share.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented “I want to thank our associates for their strong effort and support throughout fiscal 2020 including the exceptional response in recent months to the ongoing COVID-19 pandemic. We have adapted well with all of our locations fully operational and playing a vital role in keeping essential industries productive, while understanding our requirements during this slower demand environment. This resiliency was apparent during the quarter with decremental margins on adjusted operating income in the mid-teens despite a high-teen sales decline, as well as strong cash generation further enhancing our balance sheet and flexibility as we enter fiscal 2021.”

Mr. Schrimsher added, “As expected, demand was challenging throughout the quarter as customers in many of our core manufacturing end markets idled or reduced production capacity and facility utilization in response to the pandemic. Underlying trends remain subdued but are firming slightly into our fiscal 2021 first quarter with organic sales down mid-teens year-over-year through early August. While we believe the worst is behind us, visibility is limited and we expect a slow pace near term as customers gradually bring facilities back online and conservatively manage operations against a still fluid pandemic and macro outlook.”

“Going forward, we will remain prudent and have reinforced recent cost actions, though with an offensive approach in mind as we position for the recovery and execute strategic initiatives aimed at optimizing our growth in coming years. We remain committed to our long-term financial targets of $4.5 billion in sales and 11% EBITDA margins. While the timing of these goals is dependent on the industrial cycle trajectory, I


believe Applied’s long-term growth and margin potential have never been stronger as our leading technical MRO position, service capabilities, and strategic direction further entrench our value across critical motion, power, and control infrastructure, as well as next generation industrial solutions.”

Fiscal 2021 Outlook
Due to ongoing uncertainty from the COVID-19 pandemic, the Company is refraining from providing formal financial guidance for the full-year fiscal 2021 until it further assesses the direction of industrial activity. Near term, assuming underlying demand remains stable with July and early August levels, first quarter sales are expected to decline 17% to 18% year-over-year on an organic basis. In addition, the Company has extended previously announced cost measures into early fiscal 2021. The majority of these actions remain temporary and will be reevaluated as the year progresses alongside growth requirements.

Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on August 12, 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 6441297. 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 6441297.

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," “believe,” “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.
# # #
CONTACT INFORMATION

Ryan D. Cieslak
Director - Investor Relations & Treasury
216-426-4887 / rcieslak@applied.com



 
 
 
 
 
 
  APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share data)
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Year Ended
June 30,
 
2020
2019
 
2020
2019
Net Sales
$
725,076

$
882,743

 
$
3,245,652

$
3,472,739

Cost of sales
516,786

625,392

 
2,307,916

2,465,116

Gross Profit
208,290

257,351

 
937,736

1,007,623

Selling, distribution and administrative
 
 
 
 
 
  expense, including depreciation
161,262

185,376

 
717,747

742,241

Goodwill & intangible impairment
—

—

 
131,000

31,594

Operating Income
47,028

71,975

 
88,989

233,788

Interest expense, net
8,088

10,187

 
36,535

40,188

Other income, net
(1,139
)
(332
)
 
(2,782
)
(881
)
Income Before Income Taxes
40,079

62,120

 
55,236

194,481

Income Tax Expense
10,090

22,317

 
31,194

50,488

Net Income
$
29,989

$
39,803

 
$
24,042

$
143,993

Net Income Per Share - Basic
$
0.78

$
1.03

 
$
0.62

$
3.72

Net Income Per Share - Diluted
$
0.77

$
1.02

 
$
0.62

$
3.68

Average Shares Outstanding - Basic
38,691

38,579

 
38,658

38,670

Average Shares Outstanding - Diluted
38,988

38,993

 
38,999

39,160

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.

3) In the quarter ending March 31, 2020, the Company recognized a non-cash goodwill impairment charge of $131.0 million related to the operations of FCX Performance, Inc. (FCX) within the Company's Fluid Power & Flow Control segment.

4) In the year ending June 30, 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, decreased operating income by $9.0 million, and decreased net income by $5.8 million.




APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
June 30,
 
 
 
 
 2020
 
2019
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
  Cash and cash equivalents
 
$
268,551

 
$
108,219

  Accounts receivable, net
 
449,998

 
540,902

  Inventories
 
 
389,150

 
447,555

  Other current assets
 
 
52,070

 
51,462

       Total current assets
 
1,159,769

 
1,148,138

  Property, net
 
 
121,901

 
124,303

  Operating lease assets, net
 
90,636

 
—

  Intangibles, net
 
 
343,215

 
368,866

  Goodwill
 
 
 
540,594

 
661,991

  Other assets
 
 
27,436

 
28,399

Total Assets
 
 
$
2,283,551

 
$
2,331,697

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
  Accounts payable
 
 
$
186,270

 
$
237,289

  Current portion of long-term debt
 
78,646

 
49,036

  Other accrued liabilities
 
161,167

 
137,469

       Total current liabilities
 
426,083

 
423,794

  Long-term debt
 
 
855,143

 
908,850

  Other liabilities
 
 
158,783

 
102,019

Total Liabilities
 
 
1,440,009

 
1,434,663

Shareholders' Equity
 
843,542

 
897,034

Total Liabilities and Shareholders' Equity
$
2,283,551

 
$
2,331,697

 
 
 
 
 
 
 
 
 
 
 
 
 
 




APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
 (In thousands)
 
 
Year Ended
June 30,
 
 
 
 
2020
 
2019
 
 
 
 
 
Cash Flows from Operating Activities
 
 
 
 
Net income
 
$
24,042

 
$
143,993

Adjustments to reconcile net income to net cash provided
 
 
 
 
   by operating activities:
 
 
 
 
   Depreciation and amortization of property
 
21,196

 
20,236

   Amortization of intangibles
 
41,553

 
41,883

   Goodwill & intangible impairment
 
131,000

 
31,594

   Amortization of stock appreciation rights and options
 
2,954

 
2,437

   Gain on sale of property
 
(1,157
)
 
(459
)
   Other share-based compensation expense
 
4,000

 
4,474

   Changes in assets and liabilities, net of acquisitions
 
73,720

 
(70,221
)
   Other, net
 
(594
)
 
6,664

Net Cash provided by Operating Activities
 
296,714

 
180,601

Cash Flows from Investing Activities
 
 
 
 
   Acquisition of businesses, net of cash acquired
 
(37,237
)
 
(37,526
)
   Property purchases
 
(20,115
)
 
(18,970
)
   Proceeds from property sales
 
1,948

 
1,003

   Other
 
—

 
391

Net Cash used in Investing Activities
 
(55,404
)
 
(55,102
)
Cash Flows from Financing Activities
 
 
 
 
   Net repayments under revolving credit facility
 
—

 
(19,500
)
   Long-term debt borrowings
 
25,000

 
175,000

   Long-term debt repayments
 
(49,553
)
 
(161,738
)
   Payment of debt issuance costs
 
(95
)
 
(775
)
   Purchases of treasury shares
 
—

 
(11,158
)
   Dividends paid
 
(48,873
)
 
(47,266
)
   Acquisition holdback payments
 
(2,440
)
 
(2,610
)
   Taxes paid for shares withheld for equity awards
 
(2,607
)
 
(3,492
)
   Exercise of stock appreciation rights and options
 
330

 
—

Net Cash used in Financing Activities
 
(78,238
)
 
(71,539
)
Effect of Exchange Rate Changes on Cash
 
(2,740
)
 
109

Increase in cash and cash equivalents
 
160,332

 
54,069

Cash and cash equivalents at beginning of Period
 
108,219

 
54,150

Cash and Cash Equivalents at End of Period
 
$
268,551

 
$
108,219






  APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(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 June 30, 2020
 
Pre-tax
Tax Effect
Net of Tax
Per Share
Diluted Impact
Tax Rate
Net income and net income per share
40,079

10,090

29,989

0.77

25.2
%
Non-routine costs
1,540

388

1,152

0.03

25.2
%
Adjusted net income and net income per share
41,619

10,478

31,141

0.80

25.2
%
 
 
 
 
 
 
 
Year Ended June 30, 2020
 
Pre-tax
Tax Effect
Net of Tax
Per Share
Diluted Impact
Tax Rate
Net income and net income per share
$
55,236

$
31,194

$
24,042

$
0.62

56.5
%
Goodwill impairment
131,000

12,200

118,800

3.04

9.3
%
Non-routine costs
8,992

2,135

6,857

0.18

23.7
%
Non-routine tax benefit
—

1,010

(1,010
)
(0.03
)
N/M

Adjusted net income and net income per share
$
195,228

$
46,539

$
148,689

$
3.81

23.8
%
 
 
 
 
 
 
 
 Year Ended June 30, 2019
 
Pre-tax
Tax Effect
Net of Tax
Per Share
Diluted Impact
Tax Rate
Net income and net income per share
$
194,481

$
50,488

$
143,993

$
3.68

26.0
%
Canadian intangible impairment
31,594

8,485

23,109

0.59

26.9
%
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
$
228,375

$
55,786

$
172,589

$
4.41

24.4
%
 
 
 
 
 
 





Continued from previous page
 
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,
 
 
2020
2019
 
2020
2019
 
Net Cash provided by Operating Activities
$
127,090

$
103,435

 
$
296,714

$
180,601

 
Property purchases
(3,892
)
(7,259
)
 
(20,115
)
(18,970
)
 
Free Cash Flow
$
123,198

$
96,176

 
$
276,599

$
161,631

 
 
 
 
 
 
 
 
Free cash flow is defined as net cash provided by operating activities less property purchases.