Applied Industrial Technologies(AIT) - 2024 Q3 - Quarterly Report

Part I Item 1: Financial Statements This section presents the unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheet, cash flow, and equity statements, with detailed notes Condensed Statements of Consolidated Income For the nine months ended March 31, 2024, net sales increased to $3.32 billion and net income rose to $282.3 million, with diluted EPS at $7.18 | Financial Metric (in thousands) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,146,390 | $1,132,035 | $3,318,731 | $3,254,720 | | Gross profit | $338,246 | $333,118 | $980,418 | $948,406 | | Operating income | $121,206 | $126,911 | $356,480 | $346,336 | | Net income | $97,217 | $97,187 | $282,271 | $254,524 | | Net income per share - diluted | $2.48 | $2.47 | $7.18 | $6.49 | Condensed Statements of Consolidated Comprehensive Income For the nine months ended March 31, 2024, comprehensive income was $273.1 million, primarily impacted by a net other comprehensive loss of $9.2 million | Metric (in thousands) | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net income | $282,271 | $254,524 | | Other comprehensive (loss) income, net of tax | $(9,193) | $6,651 | | Comprehensive income, net of tax | $273,078 | $261,175 | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased to $2.85 billion, total liabilities decreased to $1.19 billion, and shareholders' equity grew to $1.67 billion | Balance Sheet Item (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total current assets | $1,767,682 | $1,646,807 | | Total Assets | $2,854,943 | $2,743,332 | | Total current liabilities | $468,406 | $540,344 | | Total Liabilities | $1,185,919 | $1,284,895 | | Total Shareholders' Equity | $1,669,024 | $1,458,437 | Condensed Statements of Consolidated Cash Flows For the nine months ended March 31, 2024, net cash from operating activities significantly increased to $252.2 million, leading to a $112.5 million net increase in cash | Cash Flow Activity (in thousands) | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Cash provided by Operating Activities | $252,159 | $164,027 | | Net Cash used in Investing Activities | $(38,280) | $(56,250) | | Net Cash used in Financing Activities | $(101,176) | $(111,526) | | Increase (Decrease) in Cash and Cash Equivalents | $112,497 | $(2,347) | Condensed Statements of Shareholders' Equity Shareholders' equity increased to $1.67 billion, driven by net income, partially offset by dividends, treasury stock purchases, and other comprehensive loss - Total Shareholders' Equity grew to $1,669,024 thousand at March 31, 2024, from $1,458,437 thousand at June 30, 2023[23] - Key activities impacting equity during the nine months ended March 31, 2024 include net income of $282.3 million, dividend payments of $41.5 million, and treasury stock purchases of $28.9 million[20][23] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies and financial results, including revenue disaggregation, acquisitions, goodwill, debt, derivatives, and segment performance Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month fiscal 2024 financial results, covering sales growth, segment performance, margin improvements, operating expenses, and the company's strong liquidity position Overview Q3 FY2024 consolidated sales rose 1.3% to $1.15 billion, with operating income at $121.2 million and net income flat at $97.2 million | Metric | Q3 FY2024 (in Billions/Millions) | Q3 FY2023 (in Billions/Millions) | | :--- | :--- | :--- | | Consolidated Sales | $1.146 B | $1.132 B | | Sales Growth | 1.3% | - | | Operating Income | $121.2 M | $126.9 M | | Operating Margin | 10.6% | 11.2% | - The ISM Purchasing Managers Index (PMI) rose to 50.3 in March 2024, indicating expansion, up from 47.1 in December 2023[83] - The Manufacturing Capacity Utilization (MCU) index slightly decreased to 78.4 in March 2024[83] Results of Operations (Three Months Ended March 31, 2024 and 2023) Q3 2024 sales increased 1.3% to $1.15 billion, with mixed segment performance, improved gross margin, and increased SD&A expenses | Segment | Q3 2024 Sales (in Millions) | Change vs Q3 2023 | Organic Change | | :--- | :--- | :--- | :--- | | Service Center Based Distribution | $789.4 M | +3.6% | +1.8% | | Engineered Solutions | $357.0 M | -3.6% | -4.0% | - Gross profit margin was positively impacted by 30 basis points due to a $3.4 million decrease in LIFO expense compared to the prior year quarter[92] - SD&A expenses increased by $10.8 million (5.3%), primarily due to a $4.9 million increase in bad debt expense[93] Results of Operations (Nine Months Ended March 31, 2024 and 2023) For the nine months ended March 31, 2024, sales grew 2.0% to $3.32 billion, with improved gross profit margin and a 10.9% rise in net income | Segment | Nine Months 2024 Sales (in Millions) | Change vs Nine Months 2023 | Organic Change | | :--- | :--- | :--- | :--- | | Service Center Based Distribution | $2,265.2 M | +3.7% | +2.1% | | Engineered Solutions | $1,053.5 M | -1.5% | -2.7% | - Gross profit margin for the nine-month period was positively impacted by 40 basis points due to a $13.4 million decrease in LIFO expense[106] - The effective income tax rate decreased to 21.0% from 22.2%, primarily due to the reversal of a tax valuation allowance in Mexico[111] Liquidity and Capital Resources The company maintains strong liquidity, with total debt reduced to $597.1 million, working capital increased to $1.3 billion, and cash from operations significantly rising | Metric (in Millions) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Working Capital | $1,299.3 M | $1,106.5 M | | Current Ratio | 3.8 to 1 | 3.0 to 1 | | Total Debt | $597.1 M | $622.2 M | - Net cash provided by operating activities increased to $252.2 million for the nine months ended March 31, 2024, up from $164.0 million in the prior year period[116] - The company was in compliance with all financial covenants, with net indebtedness at less than 0.4 times consolidated EBITDA, well below the required maximum of 3.75 times[125] Cautionary Statement Under Private Securities Litigation Reform Act This section contains forward-looking statements, warning that actual results may differ materially due to various uncontrollable risk factors, including economic conditions and supply chain issues - The company identifies several important risk factors that could cause actual results to differ from forward-looking statements[130][131] - Key risks cited include: customer operations levels, inflation, supply chain issues, competitive pressures, information system security, and ability to integrate acquisitions[132] Item 3: Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures have not materially changed since the last annual report, referring readers to the Form 10-K for detailed information - There have been no material changes in the company's market risk exposures since the fiscal year ended June 30, 2023[135] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[137] - No material changes to the company's internal control over financial reporting occurred during the third fiscal quarter of 2024[138] Part II Item 1: Legal Proceedings The company is involved in various legal proceedings but does not anticipate a material adverse effect on its financial position or results - The company does not expect any pending legal proceedings to have a material adverse effect on its consolidated financial position, results, or cash flows[140] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2024, the company repurchased 100,053 shares at an average price of $181.89, with 1,337,000 shares remaining authorized for repurchase | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2024 | 37,053 | $168.18 | | Feb 2024 | 0 | $0.00 | | Mar 2024 | 63,000 | $189.96 | | Total Q3 2024 | 100,053 | $181.89 | - As of March 31, 2024, the company has authorization to repurchase an additional 1,337,000 shares[141] Item 5: Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements during the quarter[142] Item 6: Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, CEO/CFO certifications, and Inline XBRL financial data - The report includes standard exhibits such as CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) and financial statements in Inline XBRL format[147][148]