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 2021 second quarter ended December 31, 2020.

Net sales for the quarter decreased 9.9% to $751.3 million from $833.4 million in the prior year. The change includes a 0.5% increase from acquisitions and a 0.1% increase from foreign currency translation. Excluding these factors, sales decreased 10.5% on an organic basis reflecting a 10.5% decline in the Service Center segment and a 10.1% decline in the Fluid Power & Flow Control segment. The Company reported a net loss of $­­­5.3 million, or $0.14 per share. Results include a non-cash impairment charge of $49.5 million pre-tax and non-routine costs of $7.8 million pre-tax. Excluding these items, the Company reported non-GAAP adjusted net income of $38.4 million, or $0.98 per share, and adjusted EBITDA of $68.3 million.

Neil A. Schrimsher, Applied’s President & Chief Executive Officer, commented “Our fiscal 2021 second quarter reflects solid execution across Applied. We are progressing on our growth initiatives as end-market demand gradually recovers. This drove encouraging order momentum and seasonally strong sequential improvement in daily sales rates during the quarter. Combined with solid cost control and working capital management, decremental margins were better than our expectations and we generated record second quarter cash flow. Overall, the results are a testament to our industry position and operational discipline, as well as the expanding value we are providing as the industrial sector advances through the pandemic and customers address greater technical and growth requirements.”

Mr. Schrimsher added, “Looking forward, I am increasingly constructive on our outlook and potential. While general economic uncertainty remains, underlying sales improvement has continued into January with organic sales month to date down by a mid-single digit percent year over year. We have multiple catalysts to expand our market potential and accelerate growth opportunities throughout calendar 2021 and beyond. This activity includes addressing customers’ break-fix MRO requirements, supporting greater demand for specialized engineered solutions, and leveraging our multi-channel cross-selling initiatives. In addition, we are making solid progress expanding our next generation automation capabilities following three acquisitions in the past 16 months, putting us in a strong position to address our customers’ emerging industrial technology and operational requirements. Our balance sheet provides the means to support these growth opportunities and drive additional stakeholder returns as the economic recovery broadens.”

Items Impacting the Quarter
Fiscal 2021 second quarter results include a $49.5 million pre-tax non-cash charge related to the impairment of certain intangible, lease, and fixed assets, as well as non-routine costs of $7.8 million pre-tax. The items are the result of reduced economic conditions and related business alignment initiatives across a portion of the Service Center segment operations exposed to oil & gas end markets. Total non-routine costs of $7.8 million pre-tax include a $7.4 million inventory reserve charge recorded within cost of sales, and $0.4 million related to severance and facility consolidation recorded in selling, distribution and administrative expense.

Outlook
Based on month to date sales in January and assuming normal seasonal patterns, the Company would project fiscal 2021 third quarter sales to decline 3% to 4% year over year on an organic basis. In addition, assuming this sales level, the Company would project selling, administrative and distribution expenses to range between $170 million to $175 million during the fiscal 2021 third quarter, which includes additional expense restoration from temporary cost actions initiated in fiscal 2020 in response to the COVID-19 pandemic.

Dividend
Today the Company also announced that its Board of Directors approved an increase in the quarterly cash dividend to $0.33 per common share, payable on February 26, 2021, to shareholders of record on February 16, 2021. This represents the 12th dividend increase since 2010.

Conference Call Information
Applied will host its quarterly conference call for investors and analysts at 10 a.m. ET on January 28, 2021. 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 2659264. 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 2659264.

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,” “will,” “outlook,” “project,” 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.

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