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Applied Industrial Technologies Reports Fiscal 2025 Second Quarter Results

1. Net sales of $1.1 billion, a 0.4% year-over-year decrease. 2. EBITDA increased 3%, and EPS rose 7% year-over-year. 3. Hydradyne acquisition boosts growth prospects and operational momentum. 4. Quarterly dividend increased by 24%, showing financial confidence. 5. Revised guidance indicates growth despite economic uncertainty.

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Why Bullish?

Raising guidance and dividend signal strong performance potential and investor confidence.

How important is it?

The article discusses significant earnings, growth prospects, and confidence-boosting dividend increases.

Why Long Term?

Improved guidance and acquisitions suggest ongoing positive trends for AIT's future.

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AITHYDN
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 2025 second quarter ended December 31, 2024. Net sales for the quarter of $1.1 billion decreased 0.4% over the prior year. The change includes a 1.9% increase from acquisitions and a 1.6% benefit from one extra selling day, partially offset by a negative 0.5% impact from foreign currency translation. Excluding these factors, sales decreased 3.4% on an organic daily basis reflecting a 1.9% decrease in the Service Center segment and a 6.3% decrease in the Engineered Solutions segment. The Company reported net income of $­­­93.3 million, or $2.39 per share, and EBITDA of $135.1 million. On a pre-tax basis, results include $0.7 million ($0.01 after tax per share) of LIFO expense compared to $3.4 million ($0.07 after tax per share) of LIFO expense in the prior-year period. Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented, “Fiscal second quarter EBITDA and EPS exceeded our expectations, increasing a respective 3% and 7% year over year on relatively unchanged sales. Demand remained mixed during the quarter with seasonal factors and holiday timing limiting customer activity in December. That said, our team continued to execute well with organic sales trends inline with our guidance, while strong gross margin performance and cost controls drove solid EBITDA margin expansion during the quarter. Additionally, the closing of our Hydradyne acquisition at the end of December represents another notable milestone in our story and provides solid growth and operational momentum moving forward. Overall, we had a productive second quarter that highlights our business resilience, self-help opportunities, and favorable industry position.” Mr. Schrimsher added, “We are raising fiscal 2025 guidance to reflect second quarter performance and initial estimated contribution from our recent Hydradyne acquisition. Our updated outlook assumes industrial activity remains muted near term given current economic policy uncertainty and a more gradual pace to interest rate cuts. This is reflected in January sales trending down by a mid single-digit percent on an organic basis over prior-year levels. That said, we believe a growth inflection in end-market demand is near considering improving industrial macro indicators in recent months, pent-up technical MRO activity, and easing comparisons. In addition, order momentum and business funnels are building across our technology vertical, while a more favorable regulatory backdrop, stabilizing machinery markets, and reenergized secular demand post the election should provide additional support. Combined with ongoing self-help margin opportunities and balance sheet capacity, we remain constructive on our set-up and ability to accelerate sales and earnings growth in coming quarters. Lastly, I am pleased to announce our Board has approved a 24% increase in our quarterly dividend, which highlights the conviction we have in our outlook and financial position moving forward, as well as our ongoing capital allocation opportunities.” Updated Fiscal 2025 Guidance For fiscal 2025, the Company now projects EPS of $9.65 to $10.05 (prior $9.25 to $10.00) on sales growth of up 1% to 3% (prior down 2.5% to up 2.5%) including down 3% to 1% on an organic daily basis (prior down 4% to up 1%), and EBITDA margins of 12.2% to 12.4% (prior 12.1% to 12.3%). Updated guidance assumes initial estimated contribution from the Company’s recent Hydradyne acquisition, which closed on December 31, 2024. In addition, updated guidance incorporates ongoing economic uncertainty and potential margin pressures on muted sales trends near term, ongoing inflationary headwinds, and growth investments. Guidance does not assume contribution from future acquisitions or share buybacks. Dividend Today the Company also announced that its Board of Directors approved a 24% increase in the quarterly cash dividend to $0.46 per common share, payable on February 28, 2025, to shareholders of record on February 14, 2025. This represents the 16th dividend increase since 2010. Conference Call Information The Company will host a conference call at 10 a.m. ET today to discuss the quarter’s results and outlook. A live audio webcast and supplemental presentation can be accessed on our Investor Relations site at https://ir.applied.com. To join by telephone, dial 800-715-9871 (toll free) or 646-307-1963 using conference ID 2139950. Replays of the call will be available via webcast, as well as by telephone for one week by dialing 800-770-2030 (toll free) using conference ID 2139950. 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 (maintenance, repair, and operations) and OEM (original equipment manufacturing), and new system install applications 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,” “guidance,” “assume,” “outlook,” “believe,” and derivative or similar expressions. All forward-looking statements are based on current expectations regarding important risk factors including trends and events in the industrial sector of the economy (such as the inflationary environment and supply chain strains), 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. 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 EndedDecember 31, Six Months EndedDecember 31, 2024 2023 2024 2023 Net Sales $ 1,073,001 $ 1,077,153 $ 2,171,945 $ 2,172,341 Cost of sales 744,951 760,063 1,518,813 1,530,169 Gross Profit 328,050 317,090 653,132 642,172 Selling, distribution and administrative expense, including depreciation 207,180 202,496 419,090 406,898 Operating Income 120,870 114,594 234,042 235,274 Interest (income) expense, net (936 ) 1,917 (1,563 ) 3,237 Other (income) expense, net (755 ) (2,924 ) (3,036 ) (2,493 ) Income Before Income Taxes 122,561 115,601 238,641 234,530 Income tax expense 29,271 24,373 53,288 49,476 Net Income $ 93,290 $ 91,228 $ 185,353 $ 185,054 Net Income Per Share - Basic $ 2.43 $ 2.35 $ 4.83 $ 4.78 Net Income Per Share - Diluted $ 2.39 $ 2.32 $ 4.76 $ 4.71 Average Shares Outstanding - Basic 38,427 38,744 38,413 38,722 Average Shares Outstanding - Diluted 38,963 39,302 38,956 39,307   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. APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)   December 31, 2024 June 30, 2024     Assets Cash and cash equivalents $ 303,441 $ 460,617 Accounts receivable, net 696,239 724,878 Inventories 518,044 488,258 Other current assets 96,972 96,148 Total current assets 1,614,696 1,769,901 Property, net 125,336 118,527 Operating lease assets, net 195,318 133,289 Intangibles, net 360,748 245,870 Goodwill 686,148 619,395 Other assets 62,395 64,928 Total Assets $ 3,044,641 $ 2,951,910   Liabilities Accounts payable $ 240,889 $ 266,949 Current portion of long-term debt - 25,055 Other accrued liabilities 188,551 209,096 Total current liabilities 429,440 501,100 Long-term debt 572,300 572,279 Other liabilities 249,389 189,750 Total Liabilities 1,251,129 1,263,129 Shareholders' Equity 1,793,512 1,688,781 Total Liabilities and Shareholders' Equity $ 3,044,641 $ 2,951,910 APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (In thousands)   Six Months EndedDecember 31, 2024 2023   Cash Flows from Operating Activities Net income $ 185,353 $ 185,054 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property 11,850 11,765 Amortization of intangibles 15,167 14,650 Provision for losses on accounts receivable 3,605 1,026 Amortization of stock appreciation rights and options 2,453 1,710 Other share-based compensation expense 3,101 4,237 Changes in assets and liabilities, net of acquisitions 1,451 (47,855 ) Other, net (96 ) (2,620 ) Net Cash provided by Operating Activities 222,884 167,967 Cash Flows from Investing Activities Acquisition of businesses, net of cash acquired (273,142 ) (21,440 ) Capital expenditures (10,746 ) (9,863 ) Proceeds from property sales 922 471 Net Cash used in Investing Activities (282,966 ) (30,832 ) Cash Flows from Financing Activities Long-term debt repayments (25,106 ) (25,125 ) Interest rate swap settlement receipts 6,797 7,194 Purchases of treasury shares (30,084 ) (10,677 ) Dividends paid (28,469 ) (27,155 ) Acquisition holdback payments (1,210 ) (681 ) Taxes paid for shares withheld for equity awards (13,037 ) (12,914 ) Exercise of stock appreciation rights and options - 127 Net Cash used in Financing Activities (91,109 ) (69,231 ) Effect of Exchange Rate Changes on Cash (5,985 ) 915 (Decrease) Increase in cash and cash equivalents (157,176 ) 68,819 Cash and Cash Equivalents at Beginning of Period 460,617 344,036 Cash and Cash Equivalents at End of Period $ 303,441 $ 412,855 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 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 December 31, 2023 Pre-tax Tax Effect Net of Tax Per ShareDiluted Impact Tax Rate Net income and net income per share $ 115,601 $ 24,373 $ 91,228 $ 2.32 21.1 % Tax valuation allowance adjustment - 3,046 (3,046 ) (0.08 ) 2.6 % Adjusted net income and net income per share $ 115,601 $ 27,419 $ 88,182 $ 2.24 23.7 %   Six Months Ended December 31, 2023 Pre-tax Tax Effect Net of Tax Per ShareDiluted Impact Tax Rate Net income and net income per share $ 234,530 $ 49,476 $ 185,054 $ 4.71 21.1 % Tax valuation allowance adjustment - 3,046 (3,046 ) (0.08 ) 1.3 % Adjusted net income and net income per share $ 234,530 $ 52,522 $ 182,008 $ 4.63 22.4 %   Reconciliation of Net Income, a GAAP financial measure, to EBITDA, a non-GAAP financial measure:   Three Months EndedDecember 31, Six Months EndedDecember 31, 2024 2023 2024 2023 Net Income $ 93,290 $ 91,228 $ 185,353 $ 185,054 Interest (income) expense, net (936 ) 1,917 (1,563 ) 3,237 Income tax expense 29,271 24,373 53,288 49,476 Depreciation and amortization of property 5,926 6,048 11,850 11,765 Amortization of intangibles 7,567 7,257 15,167 14,650 EBITDA $ 135,118 $ 130,823 $ 264,095 $ 264,182   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, 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 EndedDecember 31, Six Months EndedDecember 31, 2024 2023 2024 2023 Net Cash provided by Operating Activities $ 95,137 $ 101,758 $ 222,884 $ 167,967 Capital expenditures (5,197 ) (5,523 ) (10,746 ) (9,863 ) Free Cash Flow $ 89,940 $ 96,235 $ 212,138 $ 158,104   Free cash flow is defined as net cash provided by operating activities less capital expenditures, a non-GAAP financial measure.

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