Fiscal Q2 2026 Recap January 27, 2026 - The Premier Provider of Advanced Motion, Power, Control, & Automation Solutions to Critical Industrial Infrastructure - Safe Harbor Statement This presentation 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 qualifie ...

Financial Performance - Net sales for Q2 2026 reached $1.2 billion, an increase of 8.4% year-over-year, with organic sales growth of 2.2%[3] - Net income for the quarter was $95.3 million, or $2.51 per diluted share, reflecting a 4.6% increase compared to the prior year[5] - EBITDA for the quarter was reported at $140.4 million, a 3.9% increase year-over-year[5] - Net income for the six months ended December 31, 2025, was $196,156, compared to $185,353 for the same period in 2024, representing a growth of 4.3%[21] - EBITDA for the six months ended December 31, 2025, was $286,697, an increase from $264,095 in 2024, reflecting a growth of 8.6%[23] Cash Flow and Investments - Operating cash flow for the quarter was $99.7 million, with free cash flow of $93.4 million[5] - Free Cash Flow for the six months ended December 31, 2025, was $205,398, slightly down from $212,138 in 2024, indicating a decrease of 3.9%[24] - Net Cash provided by Operating Activities for the six months ended December 31, 2025, was $218,976, compared to $222,884 in 2024, a decrease of 1.8%[21] - Net Cash used in Investing Activities for the six months ended December 31, 2025, was $(15,361), significantly lower than $(282,966) in 2024, indicating a reduction in cash outflow[21] - Cash and Cash Equivalents at the end of the period increased to $405,986 from $303,441 in the previous year, marking a growth of 33.8%[21] Capital Management - The company announced an 11% increase in its quarterly dividend to $0.51 per share, marking the 17th dividend increase since 2010[9] - The company remains focused on capital deployment, including ongoing share repurchases and strategic acquisitions[4] - Capital expenditures for the six months ended December 31, 2025, totaled $13,578, up from $10,746 in 2024, representing an increase of 26.5%[21] - Long-term debt repayments were not specified for the current period but were $(25,106) in the previous year, indicating a potential reduction in debt obligations[21] Economic Outlook - Updated fiscal 2026 EPS guidance is now set at $10.45 to $10.75, with sales growth projected between 5.5% to 7.0%[5] - The company anticipates LIFO expense in the range of $24 million to $26 million, reflecting ongoing macroeconomic uncertainties[6] - The company is experiencing positive sales trends in January, with organic sales trending up by a mid single-digit percent year-over-year[4] Working Capital Management - The company reported a decrease in changes in operating assets and liabilities, net of acquisitions, from $1,451 in 2024 to $(26,230) in 2025, indicating a significant shift in working capital management[21] - The effect of exchange rate changes on cash resulted in an increase of $1,008, contrasting with a decrease of $(5,985) in the previous year, showing improved currency impact[21] Acquisitions - The acquisition of Thompson Industrial Supply Inc. is expected to generate annual sales of approximately $20 million in the first year[7]

Core Viewpoint - Applied Industrial Technologies (AIT) reported quarterly earnings of $2.51 per share, exceeding the Zacks Consensus Estimate of $2.48 per share, and showing an increase from $2.39 per share a year ago, indicating a positive earnings surprise of +1.41% [1] Financial Performance - The company achieved revenues of $1.16 billion for the quarter ended December 2025, which was below the Zacks Consensus Estimate by 0.78%, but an increase from $1.07 billion year-over-year [2] - Over the last four quarters, AIT has surpassed consensus EPS estimates four times and topped consensus revenue estimates three times [2] Stock Performance - AIT shares have increased approximately 9.7% since the beginning of the year, significantly outperforming the S&P 500's gain of 1.5% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating expectations for it to outperform the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $2.69, with projected revenues of $1.22 billion, and for the current fiscal year, the EPS estimate is $10.59 on revenues of $4.84 billion [7] - The trend of estimate revisions for AIT was favorable prior to the earnings release, suggesting potential positive movements in stock performance [6] Industry Context - The Manufacturing - General Industrial industry, to which AIT belongs, is currently ranked in the top 39% of over 250 Zacks industries, indicating a favorable outlook compared to lower-ranked industries [8]

Core Viewpoint - Applied Industrial Technologies reported a strong second quarter for fiscal 2026, with net sales of $1.2 billion, reflecting an 8.4% increase year-over-year, driven by acquisitions and organic growth in key segments [2][3]. Financial Performance - Net sales for the quarter reached $1.2 billion, an increase of 8.4% compared to the previous year, with a 6.0% contribution from acquisitions and a 0.2% positive impact from foreign currency translation [2]. - Organic sales growth was 2.2%, with a 2.9% increase in the Service Center segment and a 0.5% increase in the Engineered Solutions segment [2]. - The company reported net income of $95.3 million, or $2.51 per share, and EBITDA of $140.4 million [2][3]. Management Commentary - The CEO highlighted effective management through a mixed end-market backdrop and expressed optimism for stronger growth in the second half of the fiscal year, with early signs of sales momentum [3]. - The company is focusing on internal initiatives and channel execution to drive gross and EBITDA margin performance, despite challenges from LIFO expenses and prior-year comparisons [3]. Fiscal 2026 Guidance - The company adjusted its fiscal 2026 EPS guidance to a range of $10.45 to $10.75, reflecting a more optimistic outlook for sales growth of 5.5% to 7.0% [4]. - Updated guidance includes an organic sales growth expectation of 2.5% to 4.0% and an EBITDA margin of 12.2% to 12.4% [4]. Acquisition Activity - Applied Industrial Technologies announced the acquisition of Thompson Industrial Supply Inc., expected to generate annual sales of approximately $20 million in the first year [5][6]. - This acquisition is aimed at enhancing the company's service center capabilities and expanding its footprint in the industrial market [6]. Dividend Announcement - The Board of Directors approved an 11% increase in the quarterly cash dividend to $0.51 per common share, marking the 17th dividend increase since 2010 [7].

Core Viewpoint - Applied Industrial Technologies will release its fiscal 2026 second quarter results on January 27, 2026, before market opens [1] Group 1: Financial Results Announcement - The fiscal 2026 second quarter ended on December 31, 2025 [1] - A conference call will be held at 10 a.m. ET on the same day to discuss the results and outlook [2] - The call will be accessible via a live audio webcast and supplemental presentation on the Investor Relations site [2] Group 2: Company Overview - Applied Industrial Technologies is a leading value-added distributor and technical solutions provider [3] - The company specializes in industrial motion, fluid power, flow control, automation technologies, and related maintenance supplies [3] - It serves MRO, OEM, and new system install applications across various industrial markets [3]

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Core Insights - Applied Industrial Technologies (AIT) reported first-quarter fiscal 2026 earnings of $2.63 per share, exceeding the Zacks Consensus Estimate of $2.47, with a year-over-year increase of 11.4% [1] - Net revenues reached $1.20 billion, surpassing the consensus estimate of $1.18 billion, reflecting a 9.2% year-over-year growth, driven by acquisitions contributing 6.3% and organic sales increasing by 3% [1][8] Segmental Performance - The Service Center-Based Distribution segment generated revenues of $782.5 million, accounting for 65.3% of net revenues, with a year-over-year increase of 4.4%, surpassing the estimate of $767.9 million [2] - The Engineered Solutions segment reported revenues of $417.0 million, contributing 34.7% to net revenues, with a significant year-over-year increase of 19.4%, aided by acquisitions which boosted sales by 19.8, despite a slight organic sales decline of 0.4% [3] Financial Metrics - AIT's cost of sales rose by 8.3% year over year to $838.1 million, while gross profit increased by 11.2% to $361.4 million, resulting in a gross margin improvement to 30.1% from 29.6% [4] - EBITDA for the quarter was $146.3 million, reflecting a 13.4% increase [4] Balance Sheet and Cash Flow - As of the end of the first three months of fiscal 2026, AIT had cash and cash equivalents of $418.7 million, up from $388.4 million at the end of fiscal 2025, with long-term debt remaining stable at $572.3 million [5] - The company generated net cash of $119.3 million from operating activities, a decrease of 6.6% year over year, while capital expenditures increased by 31.6% to $7.3 million [6] Dividend Information - AIT's board approved a quarterly cash dividend of 46 cents per share, payable on November 28, 2025, to shareholders of record as of November 14 [7] Guidance - For fiscal 2026, AIT anticipates adjusted earnings in the range of $10.10-$10.85 per share, an increase from the previous forecast of $10.00-$10.75, with expected sales growth of 4-7% year over year [9]

Core Insights - Applied Industrial Technologies (AIT) reported revenue of $1.2 billion for the quarter ended September 2025, reflecting a year-over-year increase of 9.2% [1] - Earnings per share (EPS) for the quarter was $2.63, up from $2.36 in the same quarter last year, surpassing the consensus estimate of $2.47 by 6.48% [1] - The revenue exceeded the Zacks Consensus Estimate of $1.18 billion, resulting in a surprise of 1.8% [1] Financial Performance Metrics - Net Sales for Engineered Solutions reached $417.05 million, exceeding the average estimate of $414.33 million by analysts, marking a year-over-year increase of 19.4% [4] - Net Sales for Service Center Based Distribution amounted to $782.47 million, surpassing the estimated $763.97 million, with a year-over-year change of 4.4% [4] - Operating income for Engineered Solutions was reported at $45.86 million, below the average estimate of $52.19 million [4] - Operating income for Service Center Based Distribution was $104.05 million, exceeding the estimated $98.27 million [4] Stock Performance - Shares of Applied Industrial Technologies have returned +0.6% over the past month, compared to a +3.6% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Financial Performance - Consolidated sales for the quarter ended September 30, 2025 increased by $100.6 million or 9.2% compared to the prior year quarter, with acquisitions contributing $69.7 million or 6.3%[77] - Net income for the quarter was $100.8 million, reflecting a 9.5% increase compared to the prior year quarter, with diluted net income per share rising to $2.63, an increase of 11.4%[94] - The gross profit margin improved to 30.1% for the quarter ended September 30, 2025, up from 29.6% in the prior year quarter, positively impacted by recent acquisitions[88] - Operating income increased by $15.9 million or 14.0%, reaching $129.0 million, with operating margin rising to 10.8% from 10.3%[90] - Sales in the U.S. operations increased by $99.3 million or 10.4%, with acquisitions adding $69.7 million or 7.3%[87] Cash Flow and Investments - Net cash provided by operating activities decreased to $119.3 million in Q3 2025 from $127.7 million in Q3 2024, primarily due to a reduction in cash flows generated from working capital by $17.2 million[99] - Net cash used in investing activities decreased to $9.5 million in Q3 2025, with $2.3 million allocated for acquisitions compared to $10.5 million in the prior year[100] - Net cash used in financing activities increased to $78.6 million in Q3 2025, primarily due to $53.2 million used to repurchase 204,136 shares of common stock, up from $10.0 million for 52,000 shares in Q3 2024[101] Debt and Financial Ratios - Total debt obligations remained stable at $572.3 million as of September 30, 2025, consistent with the previous quarter[96] - The company had total debt of $572.3 million as of September 30, 2025, with a revolving credit facility of $384.0 million and a trade receivable securitization facility of $188.3 million[104] - The interest rate on the revolving credit facility was 5.06% as of September 30, 2025, down from 5.23% in the previous quarter[105] - The effective income tax rate for the quarter was 21.6%, up from 20.7% in the prior year, with expectations for the full year tax rate for fiscal 2026 to be in the 23.0% to 24.0% range[93] - The current ratio improved to 3.5 to 1 at September 30, 2025, compared to 3.3 to 1 at June 30, 2025[97] Operational Metrics - The number of employees was 6,794 at September 30, 2025, a slight decrease from 6,837 at June 30, 2025[80] - Accounts receivable, net, decreased to $753.4 million as of September 30, 2025, from $769.7 million at June 30, 2025, with an allowance for doubtful accounts at 1.8% of gross receivables[111] - Days Sales Outstanding (DSO) was 56.5 days as of September 30, 2025, slightly down from 56.6 days at June 30, 2025[112] - The annualized inventory turnover ratio based on average costs was 4.3 for the period ended September 30, 2025, compared to 4.4 for the period ended June 30, 2025[113] - The company was in compliance with all financial covenants at September 30, 2025, with net indebtedness less than 0.4 times consolidated income before interest, taxes, depreciation, and amortization[110] Acquisitions and Internal Controls - The company completed the acquisition of Hydradyne, LLC on December 31, 2024, and is extending oversight processes to include Hydradyne's operations[120] - No changes in internal control over financial reporting during the three months ended September 30, 2025, that materially affected the Company's internal control[122] - The Company does not expect any pending legal proceedings to have a material adverse effect on its consolidated financial position, results of operations, or cash flows[123] - The Company's management, including the CEO and CFO, concluded that the disclosure controls and procedures are effective as of the end of the reporting period[121]

Core Insights - The company reported a strong start to fiscal 2026, with organic sales growth of 3%, the highest in two years, driven by a 4.4% increase in the Service Center segment [1][4][22] - Year-over-year trends across the top 30 end markets showed slight improvement, with 16 markets generating positive sales growth, particularly in machinery, food and beverage, and oil and gas [2][4] - The company achieved a 13% increase in EBITDA and an 11% increase in EPS compared to the prior year, exceeding expectations [4][21] Sales Performance - Organic sales growth was led by the Service Center segment, which saw a 4.4% increase, while the Engineered Solutions segment experienced a slight decline of 0.4% [1][23] - The overall sales growth was supported by internal initiatives, firming technical MRO demand, and incremental price contributions [22][23] - The company noted a positive momentum in orders, with a nearly 5% increase in segment orders year-over-year, indicating strong future sales potential [7][21] Financial Metrics - Consolidated sales increased by 9.2% year-over-year, with acquisitions contributing 6.3 points of growth [16][21] - Gross margin improved to 30.1%, up 55 basis points from the previous year, reflecting positive mix contributions and solid execution [18][19] - EBITDA margins expanded to 12.2%, exceeding the high end of the first-quarter guidance [21][30] Market Dynamics - Demand signals across key markets, including semiconductor and life sciences, remain encouraging, indicating potential order growth in 2026 [10][11][34] - The company is well-positioned to capitalize on trends in North American manufacturing infrastructure and onshoring, with a focus on advanced applications and technologies [35][36] - The balance sheet remains strong, with $419 million in cash and a net leverage ratio of 0.3 times EBITDA, supporting future capital deployment initiatives [26][36] Strategic Initiatives - The company is actively pursuing M&A opportunities, with a focus on enhancing technical differentiation and value-added service capabilities [14][15][57] - Ongoing sales initiatives and technology investments are expected to drive performance beyond underlying market demand [6][9] - The integration of the Hydrodine acquisition is progressing well, with EBITDA contribution up over 20% sequentially and strong sales synergies being realized [13][25]