BusinessWire

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--(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 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.

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, 2020 June 30, 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

%

 
 
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.

 


Contacts

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