Applied Industrial Technologies Inc 10-Q for FY2023 Q1

Applied Industrial Technologies Inc (AIT)

10-Q 2022-10-28 For: 2022-09-30

Added on April 10, 2026

About this 10-Q

Applied Industrial Technologies Inc filed this 10-Q on October 28, 2022, covering the quarter ended September 30, 2022 (FY2023 Q1).

Headline figures

Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.06B; up 19.1% from $891.68M a year earlier
Net income: $76.88M; up 45.1% from net income of $52.97M a year earlier
Diluted EPS: $1.97; up 44.9% from $1.36 a year earlier

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Ohio			34-0117420
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

One Applied Plaza	Cleveland	Ohio	44115
(Address of principal executive offices)			(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without par value	AIT	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


	Three Months Ended
	September 30,
	2022		2021
Net sales	$	1,062,405	$	891,681
Cost of sales	755,622		636,341
Gross profit	306,783		255,340
Selling, distribution and administrative expense, including depreciation	200,251		180,726

Operating income	106,532		74,614
Interest expense, net	6,480		7,390
Other expense (income), net	1,008		(312)
Income before income taxes	99,044		67,536
Income tax expense	22,164		14,567
Net income	$	76,880	$	52,969
Net income per share - basic	$	2.00	$	1.38
Net income per share - diluted	$	1.97	$	1.36
Weighted average common shares outstanding for basic computation	38,526		38,502
Dilutive effect of potential common shares	585		582
Weighted average common shares outstanding for diluted computation	39,111		39,084


	Three Months Ended
	September 30,
	2022		2021
Net income per the condensed statements of consolidated income	$	76,880	$	52,969

Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	(11,437)		(7,182)
Post-employment benefits:
Reclassification of net actuarial losses and prior service cost into other expense (income), net and included in net periodic pension costs	8		75


Unrealized gain on cash flow hedge	12,310		596
Reclassification of interest from cash flow hedge into interest expense	796		2,585
Total other comprehensive income (loss), before tax	1,677		(3,926)
Income tax expense related to items of other comprehensive income (loss)	3,312		805
Other comprehensive loss, net of tax	(1,635)		(4,731)
Comprehensive income, net of tax	$	75,245	$	48,238


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	September 30, 2022		June 30, 2022
ASSETS
Current assets
Cash and cash equivalents	$	147,575	$	184,474
Accounts receivable, net	674,136		656,429
Inventories	490,099		449,821
Other current assets	78,686		68,805
Total current assets	1,390,496		1,359,529
Property, less accumulated depreciation of $218,280 and $215,015	110,539		111,896
Operating lease assets, net	103,037		108,052
Identifiable intangibles, net	242,741		250,590
Goodwill	561,477		563,205
Other assets	65,884		59,316
TOTAL ASSETS	$	2,474,174	$	2,452,588

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	277,224	$	259,463
Current portion of long-term debt	181		40,174
Compensation and related benefits	61,230		91,166
Other current liabilities	112,628		108,824
Total current liabilities	451,263		499,627
Long-term debt	649,103		649,150
Other liabilities	152,368		154,456
TOTAL LIABILITIES	1,252,734		1,303,233
Shareholders’ equity
Preferred stock—no par value; 2,500 shares authorized; none issued or outstanding	—		—
Common stock—no par value; 80,000 shares authorized; 54,213 shares issued	10,000		10,000
Additional paid-in capital	183,348		183,822
Retained earnings	1,576,551		1,499,676
Treasury shares—at cost (15,642 and 15,714 shares, respectively)	(474,529)		(471,848)
Accumulated other comprehensive loss	(73,930)		(72,295)
TOTAL SHAREHOLDERS’ EQUITY	1,221,440		1,149,355
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,474,174	$	2,452,588


For the Period Ended September 30, 2022	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Shares- at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance at June 30, 2022	38,499	$	10,000	$	183,822	$	1,499,676	$	(471,848)	$	(72,295)	$	1,149,355
Net income						76,880						76,880
Other comprehensive loss										(1,635)		(1,635)

Cash dividends — $0.34 per share
Purchases of common stock for treasury	(8)							(716)				(716)
Treasury shares issued for:
Exercise of stock appreciation rights and options	21			(860)				(366)				(1,226)
Performance share awards	23			(1,290)				(758)				(2,048)
Restricted stock units	33			(1,668)				(902)				(2,570)
Compensation expense — stock appreciation rights and options				1,424								1,424
Other share-based compensation expense				1,939								1,939
Other	3			(19)		(5)		61				37
Balance at September 30, 2022	38,571	$	10,000	$	183,348	$	1,576,551	$	(474,529)	$	(73,930)	$	1,221,440


For the Period Ended September 30, 2021	Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Shares- at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance at June 30, 2021	38,516	$	10,000	$	177,014	$	1,294,413	$	(455,789)	$	(93,092)	$	932,546
Net income						52,969						52,969
Other comprehensive income										(4,731)		(4,731)
Cash dividends — $0.33 per share
Purchases of common stock for treasury	(77)							(6,537)				(6,537)
Treasury shares issued for:
Exercise of stock appreciation rights and options	3			(116)				8				(108)
Performance share awards	5			(222)				(73)				(295)
Restricted stock units	12			(572)				(120)				(692)
Compensation expense — stock appreciation rights and options				1,907								1,907
Other share-based compensation expense				1,563								1,563
Other	(2)					(7)		(45)				(52)
Balance at September 30, 2021	38,457	$	10,000	$	179,574	$	1,347,375	$	(462,556)	$	(97,823)	$	976,570


	Three Months Ended September 30,
	2022						2021
	Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
Geographic Areas:
United States	$	584,880	$	336,609	$	921,489	$	479,164	$	285,044	$	764,208
Canada	79,770		—		79,770		74,566		—		74,566
Other countries	53,338		7,808		61,146		47,141		5,766		52,907
Total	$	717,988	$	344,417	$	1,062,405	$	600,871	$	290,810	$	891,681


	September 30, 2022		June 30, 2022		$ Change		% Change
Contract assets	$	17,890	$	18,050	$	(160)	(0.9)	%


September 30, 2022	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	352,635	$	171,251	$	181,384
Trade names	105,627		46,388		59,239
Vendor relationships	11,222		10,613		609
Other	2,321		812		1,509
Total Identifiable Intangibles	$	471,805	$	229,064	$	242,741


	September 30, 2022		June 30, 2022
Revolving credit facility	$	410,592	$	410,592
Trade receivable securitization facility	188,300		188,300
Series C notes	—		40,000
Series D notes	25,000		25,000
Series E notes	25,000		25,000
Other	542		603
Total debt	$	649,434	$	689,495
Less: unamortized debt issuance costs	150		171
	$	649,284	$	689,324


	Three Months Ended September 30, 2022
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2022	$	(90,738)	$	(1,303)	$	19,746	$	(72,295)
Other comprehensive (loss) income	(11,521)		—		9,280		(2,241)
Amounts reclassified from accumulated other comprehensive (loss) income	—		6		600		606

Net current-period other comprehensive (loss) income	(11,521)		6		9,880		(1,635)
Balance at September 30, 2022	$	(102,259)	$	(1,297)	$	29,626	$	(73,930)


	Three Months Ended
	September 30,
	2022		2021
Cash Flows from Operating Activities
Net income	$	76,880	$	52,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property	5,481		5,427
Amortization of intangibles	7,705		8,121
Provision for losses on accounts receivable	3,994		798
Amortization of stock appreciation rights and options	1,424		1,907

Other share-based compensation expense	1,939		1,563
Changes in operating assets and liabilities, net of acquisitions	(72,071)		(20,404)
Other, net	591		(1,739)
Net Cash provided by Operating Activities	25,943		48,642
Cash Flows from Investing Activities
Net cash paid for acquisitions, net of cash acquired	—		(7,094)
Cash payments for loans on company-owned life insurance	—		(14,835)
Capital expenditures	(5,554)		(3,621)
Proceeds from property sales	56		48

Net Cash used in Investing Activities	(5,498)		(25,502)
Cash Flows from Financing Activities


Long-term debt repayments	(40,061)		(9,811)

Purchases of treasury shares	(716)		(6,537)
Interest rate swap settlement receipts (payments)	294		(1,644)
Dividends paid	(13,100)		(12,712)
Acquisition holdback payments	(660)		(135)
Exercise of stock appreciation rights and options	126		—
Taxes paid for shares withheld for equity awards	(1,401)		(1,141)
Net Cash used in Financing Activities	(55,518)		(31,980)
Effect of Exchange Rate Changes on Cash	(1,826)		(1,592)
Decrease in Cash and Cash Equivalents	(36,899)		(10,432)
Cash and Cash Equivalents at Beginning of Period	184,474		257,745
Cash and Cash Equivalents at End of Period	$	147,575	$	247,313


	Three Months Ended September 30,
	2022						2021
	Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
General Industry	34.4	%	39.9	%	36.1	%	34.6	%	38.9	%	35.9	%
Industrial Machinery	9.9	%	27.1	%	15.5	%	10.3	%	29.0	%	16.4	%
Metals	11.0	%	7.9	%	10.0	%	11.0	%	7.4	%	9.9	%
Food	12.8	%	2.8	%	9.6	%	12.5	%	2.5	%	9.3	%
Forest Products	11.4	%	2.6	%	8.6	%	10.4	%	2.5	%	7.8	%
Chem/Petrochem	3.0	%	13.8	%	6.5	%	3.4	%	13.8	%	6.8	%
Cement & Aggregate	7.8	%	1.5	%	5.7	%	8.5	%	1.1	%	6.1	%
Oil & Gas	5.7	%	1.3	%	4.3	%	5.2	%	1.2	%	3.9	%
Transportation	4.0	%	3.1	%	3.7	%	4.1	%	3.6	%	3.9	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%


	Three Months Ended September 30,
	2022						2021
	Service Center Based Distribution		Engineered Solutions		Total		Service Center Based Distribution		Engineered Solutions		Total
Power Transmission	37.4	%	10.1	%	28.6	%	37.7	%	10.1	%	28.7	%
Fluid Power	12.9	%	35.5	%	20.2	%	12.7	%	37.6	%	20.8	%
General Maintenance, Hose Products & Other	21.6	%	15.3	%	19.5	%	20.6	%	18.8	%	20.0	%
Bearings, Linear & Seals	28.1	%	0.3	%	19.1	%	29.0	%	0.4	%	19.7	%
Specialty Flow Control	—	%	38.8	%	12.6	%	—	%	33.1	%	10.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%


Three Months Ended	Service Center Based Distribution		Engineered Solutions		Total
September 30, 2022
Net sales	$	717,988	$	344,417	$	1,062,405
Operating income for reportable segments	88,809		45,534		134,343
Assets used in business	1,460,896		1,013,278		2,474,174
Depreciation and amortization of property	4,449		1,032		5,481
Capital expenditures	3,565		1,989		5,554

September 30, 2021
Net sales	$	600,871	$	290,810	$	891,681
Operating income for reportable segments	64,653		34,805		99,458
Assets used in business	1,349,654		953,526		2,303,180
Depreciation and amortization of property	4,379		1,048		5,427
Capital expenditures	3,097		524		3,621


	Three Months Ended September 30, 2021
	Foreign currency translation adjustment		Post-employment benefits		Cash flow hedge		Total Accumulated other comprehensive (loss) income
Balance at June 30, 2021	$	(80,838)	$	(3,673)	$	(8,581)	$	(93,092)
Other comprehensive (loss) income	(7,188)		—		450		(6,738)
Amounts reclassified from accumulated other comprehensive (loss) income	—		57		1,950		2,007
Net current-period other comprehensive (loss) income	(7,188)		57		2,400		(4,731)
Balance at September 30, 2021	$	(88,026)	$	(3,616)	$	(6,181)	$	(97,823)


	Index Reading
Month	MCU	PMI	IP
September 2022	80.3	50.9	102.8
August 2022	80.1	52.8	102.3
July 2022	80.3	52.8	102.0
June 2022	79.8	53.0	101.3


	Three Months Ended September 30,				Change in $'s Versus Prior Period - % Decrease
	As a Percent of Net Sales
	2022		2021
Net sales	100.0	%	100.0	%	19.1	%
Gross profit	28.9	%	28.6	%	20.1	%
Selling, distribution & administrative expense	18.8	%	20.3	%	10.8	%
Operating income	10.0	%	8.4	%	42.8	%
Net income	7.2	%	5.9	%	45.1	%


Sales by Reportable Segment	Three Months Ended September 30,				Sales Increase		Amount of change due to
	Three Months Ended September 30,								Foreign Currency		Organic Change
	2022		2021				Acquisitions		Foreign Currency		Organic Change
Service Center Based Distribution	$	718.0	$	600.9	$	117.1	$	—	$	(4.7)	$	121.8
Engineered Solutions	344.4		290.8		53.6		1.7		—		51.9
Total	$	1,062.4	$	891.7	$	170.7	$	1.7	$	(4.7)	$	173.7


	Three Months Ended September 30,				SD&A Increase		Amount of change due to
	Three Months Ended September 30,								Foreign Currency		Organic Change
	2022		2021				Acquisitions		Foreign Currency		Organic Change
SD&A	$	200.3	$	180.7	$	19.5	$	0.8	$	(1.1)	$	19.8


	Three Months Ended September 30,
Net Cash Provided by (Used in):	2022		2021
Operating Activities	$	25,943	$	48,642
Investing Activities	(5,498)		(25,502)
Financing Activities	(55,518)		(31,980)
Exchange Rate Effect	(1,826)		(1,592)
Decrease in Cash and Cash Equivalents	$	(36,899)	$	(10,432)


Accounts receivable	$	(9,242)
Inventory	$	(27,474)
Accounts payable	$	14,582


	September 30,			June 30,
	2022			2022
Accounts receivable, gross	$	695,309		$	673,951
Allowance for doubtful accounts	21,173			17,522
Accounts receivable, net	$	674,136		$	656,429
Allowance for doubtful accounts, % of gross receivables	3.0		%	2.6		%

	Three Months Ended September 30,
	2022			2021
Provision for losses on accounts receivable	$	3,994		$	798
Provision as a % of net sales	0.38		%	0.09		%


Period	(a) Total Number of Shares	(b) Average Price Paid per Share ($)	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
July 1, 2022 to July 31, 2022	8,518	$89.69	8,000	307,960
August 1, 2022 to August 31, 2022	0	$0.00	0	1,500,000
September 1, 2022 to September 30, 2022	0	$0.00	0	1,500,000
Total	8,518	$89.69	8,000	1,500,000


Exhibit No.						Description
3.1						Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit 3(a) to the Company’s Form 10-Q for the quarter ended December 31, 2005, SEC File No. 1-2299, and incorporated here by reference).

3.2						Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company’s Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference).

4.1						Certificate of Merger of Bearings, Inc. (Ohio) (now named Applied Industrial Technologies, Inc.) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company’s Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference).


4.2						Amended and Restated Note Purchase and Private Shelf Agreement dated as of October 30, 2019, between Applied and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates (filed as Exhibit 10.1 to the Company's Form 8-K filed November 5, 2019, SEC File No. 1-2299, and incorporated here by reference).

4.3						Amendment No. 1 to Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 26, 2021 between Applied Industrial Technologies, Inc. and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates (filed as Exhibit 4.3 to Applied's Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.4						Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 9, 2021, between Applied and PGIM, Inc., (filed as Exhibit 10.2 to the Company's Form 8-K filed December 14, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.5						Credit Agreement dated as of December 9, 2021, among Applied Industrial Technologies, Inc., KeyBank National Association as Agent, and various financial institutions, (filed as Exhibit 10.1 to the Company's Form 8-K filed December 14, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.6						Receivables Financing Agreement dated as of August 31, 2018 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.1 to the Company's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference).

4.7						Amendment No. 1 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of March 26, 2021 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.2 to Applied's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.8						Purchase and Sale Agreement dated as of August 31, 2018 among various entities listed on Schedule I thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference).

4.9						Amendment No. 1 to Purchase and Sale Agreement dated as of November 19, 2018 among Applied Industrial Technologies, Inc. and various of its affiliates, as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 4.10 to Applied's Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference).

4.10						Amendment No. 2 to Purchase and Sale Agreement dated as of March 26, 2021, among various entities listed on Schedule 1 thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc, as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference).

10.1						Stock Appreciation Rights Award Terms and Conditions (Officers) (August 2022 revision).

10.2						Restricted Stock Units Terms and Conditions (Officers) (August 2022 revision).

10.3						Performance Shares Terms and Conditions (August 2022 revision).

31						Rule 13a-14(a)/15d-14(a) certifications

32						Section 1350 certifications

95						Mine safety and health disclosures

101						The following financial information from Applied Industrial Technologies Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Statements of Consolidated Income, (ii) the Condensed Statements of Consolidated Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Statements of Consolidated Cash Flows, (v) the Condensed Statements of Shareholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		APPLIED INDUSTRIAL TECHNOLOGIES, INC.
		(Company)

Date:	October 28, 2022	By:
		Neil A. Schrimsher
		President & Chief Executive Officer


Date:	October 28, 2022	By:
		David K. Wells
		Vice President-Chief Financial Officer & Treasurer


Date: October 28, 2022			By: /s/ Neil A. Schrimsher
			Neil A. Schrimsher
			President & Chief Executive Officer


Date: October 28, 2022			By: /s/ David K. Wells
			David K. Wells
			Vice President-Chief Financial Officer & Treasurer



/s/ Neil A. Schrimsher						/s/ David K. Wells
Neil A. Schrimsher						David K. Wells
President & Chief Executive Officer						Vice President-Chief Financial Officer & Treasurer


Date: October 28, 2022


Mine or Operating Name / MSHA Identification Number	(#) Section 104 S&S Citations	(#) Section 104(b) Orders	(#) Section 104(d) Citations and Orders	(#) Section 110(b)(2) Violations	(#) Section 107(a) Orders	($) Total Dollar Value of MSHA Assessments Proposed	(#) Total Number of Mining Related Fatalities	(yes/no) Received Notice of Pattern of Violations Under Section 104(e)	(yes/no) Received Notice of Potential to Have Pattern Under Section 104(e)	(#) Legal Actions Pending as of 6/30/2020	(#) Legal Actions Initiated During Period	(#) Legal Actions Resolved During the Period
(1)	(2)	(3)	(4)	(5)	(6)

TXI Mill Creek Quarry #3401859	1	—	—	—	—	774	—	No	No	—	—	—

Holcim (US) Inc. - Midlothian #4103307	—	—	—	—	—	399	—	No	No	—	—	—

Redding Plant #0400034	—	—	—	—	—	133	—	No	No	—	—	—


(1)			United States mines.

(2)			Total number of citations received from MSHA under section 104 of the Mine Act for health or safety standards that could significantly and substantially contribute to a serious injury if left unabated.

(3)			Total number of orders under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA.

(4)			Total number of citations and orders for unwarrantable failure to comply with mandatory health or safety standards under section 104(d) of the Mine Act.

(5)			Total number of flagrant violations under section 110(b)(2) of the Mine Act.

(6)			Total number of imminent danger orders issued under section 107(a) of the Mine Act.