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Applied Industrial Technologies Reports Fiscal 2020 First Quarter Results

October 30, 2019

CLEVELAND--(BUSINESS WIRE)--Oct 30, 2019--

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 first quarter of fiscal 2020, ended September 30, 2019.

Net sales decreased 0.9% to $856.4 million from $864.5 million in the prior year quarter. The change in sales includes a 2.8% increase from acquisitions and a positive 1.6% selling day impact, partially offset by a negative 0.1% from foreign currency translation. Excluding these factors, sales decreased 5.2% on an organic daily basis. Net income was $38.8 million, or $1.00 per share, compared to $48.9 million, or $1.24 per share, in the prior year quarter. Results include a non-routine expense of $1.5 million pre-tax, or $0.02 per share, reflecting recent cost initiatives in response to the slower environment. Excluding this non-routine expense, non-GAAP adjusted EPS was $1.02.

Commenting on the results, Applied’s President & Chief Executive Officer Neil A. Schrimsher said, “Our first quarter finished as expected with our team effectively managing through slower industrial demand. Ongoing execution on gross margin helped balance softer sales, and our working capital initiatives drove seasonally strong free cash flow. While the demand environment remains subdued and uncertain, our sales trends are exhibiting some stabilization on a sequential basis and should benefit from easier comparisons going forward. We are also off to a solid start with our late August acquisition of Olympus Controls and encouraged by the growth developing around their premier automation capabilities. Lastly, recent cost actions are expected to have a more meaningful impact into the fiscal second quarter as we continue to leverage our systems investments and expense discipline in the current environment. We expect these and other self-help opportunities to benefit our earnings trajectory near-term, and position the Company to deliver on its longer-term commitments.”

Outlook

Mr. Schrimsher concluded, “With performance running largely in line with our fiscal 2020 outlook but end-market uncertainty persisting, we reaffirm our guidance for non-GAAP adjusted EPS of $4.20 to $4.50 on a change in sales of down 2% to up 2%, including down 5% to down 1% on an organic daily basis. The adjusted EPS range excludes fiscal first quarter non-routine expenses. In addition, we reiterate our free cash flow guidance of $200 million to $220 million, or up 30% at the mid-point.”

“Overall, our team is executing well to start the year. Our operational discipline and internal initiatives are providing a path to navigate against slower demand, sustain gross margin enhancement, and deliver on our cash expectations. In addition, we are intensely focused on generating greater value for our customers and shareholders in coming years by leveraging our unique technical and solutions-based position within an increasingly complex and labor-constrained industrial supply chain. We are confident in Applied’s growth and earnings potential for the balance of fiscal 2020 and beyond.”

Dividend

Today the Company also announced that its Board of Directors declared a quarterly cash dividend of $0.31 per common share, payable on November 29, 2019, to shareholders of record on November 15, 2019.

Conference Call Information

Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on October 30, 2019. 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 5794068. 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 5794068.

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 “expect,” “should,” “outlook,” “guidance,” “will” 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, 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
(In thousands, except per share data)
 

Three Months Ended
September 30,

2019

 

2018

Net Sales

$

856,404

$

864,515

 

Cost of sales

 

604,944

 

612,662

 

Gross Profit

 

251,460

 

251,853

 

Selling, distribution and administrative, including depreciation

 

190,294

 

185,514

 

Operating Income

 

61,166

 

66,339

 

Interest expense, net

 

10,059

 

10,476

 

Other income, net

 

-

 

(239

)

Income Before Income Taxes

 

51,107

 

56,102

 

Income Tax Expense

 

12,308

 

7,164

 

Net Income

$

38,799

$

48,938

 

Net Income Per Share - Basic

$

1.00

$

1.26

 

Net Income Per Share - Diluted

$

1.00

$

1.24

 

Average Shares Outstanding - Basic

 

38,611

 

38,714

 

Average Shares Outstanding - Diluted

 

38,961

 

39,364

 

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)

On August 21, 2019, the Company acquired 100% of the outstanding shares of Olympus Controls, a Portland, Oregon based full-service provider of innovative technologies and complete engineered solutions for original equipment manufacturers, machine builders, integrators, and end users. Olympus Controls is included in the Fluid Power & Flow Control segment. The purchase price for the acquisition was $34.9 million.

 
APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
 

September 30,

 

June 30,

2019

 

2019

 
Assets
Cash and cash equivalents

$

98,204

$

108,219

Accounts receivable, net

 

529,330

 

540,902

Inventories

 

465,165

 

447,555

Other current assets

 

52,224

 

51,462

Total current assets

 

1,144,923

 

1,148,138

Property, net

 

125,094

 

124,303

Operating lease assets

 

86,557

 

-

Goodwill

 

671,476

 

661,991

Intangibles, net

 

374,871

 

368,866

Other assets

 

26,811

 

28,399

Total Assets

$

2,429,732

$

2,331,697

 
Liabilities
Accounts payable

$

229,368

$

237,289

Current portion of long-term debt

 

93,912

 

49,036

Other accrued liabilities

 

155,442

 

137,469

Total current liabilities

 

478,722

 

423,794

Long-term debt

 

859,172

 

908,850

Other liabilities

 

164,613

 

102,019

Total Liabilities

 

1,502,507

 

1,434,663

Shareholders' Equity

 

927,225

 

897,034

Total Liabilities and Shareholders' Equity

$

2,429,732

$

2,331,697

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

Three Months Ended

September 30,

2019

 

2018

 
Cash Flows from Operating Activities
Net income

$

38,799

 

$

48,938

 

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

 

5,223

 

 

4,981

 

Amortization of intangibles

 

10,374

 

 

10,921

 

Amortization of stock appreciation rights and options

 

773

 

 

651

 

Other share-based compensation expense

 

919

 

 

1,043

 

Changes in assets and liabilities, net of acquisitions

 

(8,682

)

 

(53,184

)

Other, net

 

2,612

 

 

(1,553

)

Net Cash provided by Operating Activities

 

50,018

 

 

11,797

 

Cash Flows from Investing Activities
Property purchases

 

(4,946

)

 

(3,173

)

Proceeds from property sales

 

88

 

 

77

 

Acquisition of businesses, net of cash acquired

 

(35,703

)

 

-

 

Net Cash used in Investing Activities

 

(40,561

)

 

(3,096

)

Cash Flows from Financing Activities
Net borrowings (repayments) under revolving credit facility

 

-

 

 

(19,500

)

Long-term debt borrowings

 

-

 

 

175,000

 

Long-term debt repayments

 

(4,934

)

 

(146,934

)

Debt issuance costs

 

-

 

 

(685

)

Dividends paid

 

(11,985

)

 

(11,334

)

Acquisition holdback payments

 

(201

)

 

(219

)

Taxes paid for shares withheld for equity awards

 

(1,754

)

 

(3,203

)

Net Cash used in Financing Activities

 

(18,874

)

 

(6,875

)

Effect of Exchange Rate Changes on Cash

 

(598

)

 

432

 

(Decrease) increase in cash and cash equivalents

 

(10,015

)

 

2,258

 

Cash and cash equivalents at beginning of Period

 

108,219

 

 

54,150

 

Cash and Cash Equivalents at End of Period

$

98,204

 

$

56,408

 

 

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, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:
  
 

Three Months Ended
September 30,

 

2019

 

2018

Net Income 

$

38,799

 

$

48,938

Interest expense, net 

 

10,059

 

 

10,476

Income tax expense 

 

12,308

 

 

7,164

Depreciation and amortization of property 

 

5,223

 

 

4,981

Amortization of intangibles 

 

10,374

 

 

10,921

EBITDA 

$

76,763

 

$

82,480

Non-routine costs 

 

1,455

 

 

-

Adjusted EBITDA 

$

78,218

 

$

82,480

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.

Reconciliation of Net Income and Net Income Per Share - Diluted, GAAP financial measures, with Adjusted Net Income and Adjusted Net Income Per Share (or Adjusted EPS), non-GAAP financial measures:

Net Income Impact

 

Per Share - Diluted Impact

Three Months Ended
September 30,

 

Three Months Ended
September 30,

2019

 

2018

 

2019

 

2018

Net Income and Net Income Per Share

$

38,799

$

48,938

$

1.00

$

1.24

Adjustments:
Non-routine costs

 

1,104

 

-

 

0.02

 

-

Adjusted Net Income and Adjusted EPS

$

39,903

$

48,938

$

1.02

$

1.24

 

Adjusted Net Income and Adjusted EPS excludes items that may not be indicative of core operating results.

Reconciliation of Net Cash provided by Operating activities, a GAAP financial measure, to Free Cash Flow, a non-GAAP financial measure:
  
 

Three Months Ended
September 30,

 

2019

 

2018

Net Cash provided by Operating Activities 

$ 50,018

 

$ 11,797

Capital expenditure 

(4,946)

 

(3,173)

Free Cash Flow 

$ 45,072

 

$ 8,624

Free cash flow is defined as net cash provided by operating activities less capital expenditures.

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191030005272/en/

CONTACT: Ryan D. Cieslak

Director – Investor Relations & Treasury

216-426-4887 /rcieslak@applied.com

KEYWORD: OHIO UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: ENGINEERING CHEMICALS/PLASTICS AUTOMOTIVE GENERAL AUTOMOTIVE MANUFACTURING OTHER MANUFACTURING

SOURCE: Applied Industrial Technologies, Inc.

Copyright Business Wire 2019.

PUB: 10/30/2019 06:30 AM/DISC: 10/30/2019 06:30 AM

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