Applied Industrial Technologies : 2021 Annual Report

LEADING TECHNICAL POSITION

DIFFERENTIATED CAPABILITIES

ENHANCED GROWTH POTENTIAL

ANNUAL REPORT  |  2021

APPLIED INDUSTRIAL TECHNOLOGIES

Applied® 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.

BOARD OF DIRECTORS

Peter C. Wallace (2, 3, 4)	Mary Dean Hall (1, 2)	Joe A. Raver (2, 4)
Chairman of the Board of Directors	Executive Vice President and	President and Chief Executive Officer
Former Chief Executive Officer	Chief Financial Officer	Hillenbrand, Inc.
Gardner Denver, Inc.	Ingevity Corporation	(Diversified Industrial Company)
(Specialty Chemicals, High-Performance Carbon
(Equipment Manufacturer)	Neil A. Schrimsher (3)
Materials, and Engineered Polymers)
Former President and Chief Executive Officer	President & Chief Executive Officer
Dan P. Komnenovich (1, 2)
Robbins & Myers, Inc.	Applied Industrial Technologies, Inc.
Former President and Chief Executive Officer
(Equipment Manufacturer)	Committees of The Board
Madhuri A. Andrews (1, 2)	Aviall, Inc.
(1) Audit Committee
(Aviation Parts, Related Aftermarket Operations)
Executive Vice President, Chief Digital
Robert J. Pagano, Jr. (1, 2, 4)	Chair: Vincent K. Petrella
and Information Officer	(2) Corporate Governance Committee
Jacobs	President and Chief Executive Officer	Chair: Peter C. Wallace
(Technical, Professional, and Construction Services)	Watts Water Technologies, Inc.	(3) Executive Committee
Peter A. Dorsman (2, 3, 4)	(Plumbing, Heating, and Water Quality Solutions)	Chair: Peter C. Wallace
Vincent K. Petrella (1, 2, 3, 4)	(4) Executive Organization and
Former Executive Vice President, Services	Compensation Committee
NCR Corporation	Former Executive Vice President	Chair: Peter A. Dorsman
(Self-Service Technology Solutions)	Lincoln Electric Holdings, Inc.
	(Welding, Brazing Products Manufacturer)

OFFICERS

Neil A. Schrimsher	Warren E. "Bud" Hoffner	Christopher Macey
President & Chief Executive Officer	Vice President, General Manager -	Corporate Controller
David K. Wells	Fluid Power & Flow Control	Ryan D. Cieslak
Kurt W. Loring
Vice President - Chief Financial Officer & Treasurer	Assistant Treasurer
Fred D. Bauer	Vice President - Chief Human Resources Officer
Jason W. Vasquez
Vice President - General Counsel & Secretary
	Vice President - Sales & Marketing, U.S. Service Centers

SENIOR MANAGEMENT

Mike R. Allen	James A. Jeffiers	Sergio H. Nevárez
President - Applied Industrial Technologies, LP (Canada)	Vice President - Central States Area	President - Applied Mexico
Ivan J. Batista	Lonny D. Lawrence	Darren B. "Ben" Padd
General Director - Rafael Benitez Carrillo, Inc.	Vice President - Information Technology	Vice President - Midwest Area
(Puerto Rico)	Tracie M. Longpre	William P. Rozier
Barbara D. Emery
Vice President - Supply Chain	Vice President - Western Area
Vice President - Human Resources	Joe Mangiapane
David S. Green
Managing Director - Australia & New Zealand
Vice President - North Atlantic Area	Jeremy S. Moorman
Thomas R. Hayes
Vice President - Operational Excellence
Vice President - Southeast Area

About the Cover: As the leading technical products, services and solutions provider to industrial markets, Applied continually strives to enhance customer partnerships - even in challenging times. In recognition of our excellent support and great customer service, our Chula Vista, CA service center team received a Supplier Recognition Award for going above and beyond on a consistent basis.

This report 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. All forward-looking statements are based on current expectations regarding important risk factors, including those identified on pages 1, 7-12 and 27 of Applied's Form 10-K for the fiscal year ended June 30, 2021 included herein. 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 results expressed will be achieved.

TO OUR STAKEHOLDERS

Fiscal 2021 was characterized by an evolving environment in which we demonstrated and strengthened our ability to adapt and respond. Across the organization, we can look back at the solid progress we have made and be proud of how well we served and supported our customers, critical industrial infrastructure, and our fellow associates. Our operational procedures and protocols - aligned with the CDC, OSHA and other leading health organizations - proved beneficial in our resolve.

During the initial weeks of the COVID-19 pandemic, I stated my belief that Applied® has never been in a better position to manage through the current environment and exit the pandemic-driven downturn even stronger. Our performance since then provides confirmation of this position, including generating record earnings, significant cash flow, and expanding margins through the year, while further strengthening our balance sheet. This is a direct reflection of the tremendous team we have across the organization and highlights the strong potential that lies ahead.

As fiscal 2021 progressed, we saw order momentum intensify as customers increased production activity across their facilities and turned to us for critical MRO support. Our local presence, and expanding technical and service capabilities proved impactful as customers began to reaccelerate growth investments and solidify supply chains. In addition, we benefited from our strategic focus to expand our service offerings and end-market mix. Of special mention is the recent work of our flow control teams and their involvement in providing critical products and solutions for the COVID-19 vaccine production. This includes hygienic diaphragm valves, WFI pumps, and Clean-In-Place flow systems used to clean and regulate material flow and temperature as the vaccine is manufactured. We are proud and grateful to contribute to society's recovery!

Today, we feel the power of resiliency. What we have gained and accomplished since the onset of the pandemic is significant and sets the stage for our fiscal 2022 and years to come. Looking forward, we have many exciting near-term opportunities to productively and effectively impact our customers as the leading technical products, services and solutions provider to industrial markets.

We join many others in being hopeful and excited about the prospects for our health, well-being and return to familiar activity - personally and professionally. Still, as we have experienced since its onset, the COVID journey is a marathon, not a sprint, and we remain firm on providing a healthy and safe work environment at Applied. Ensuring we satisfy our customers' needs while also adhering to associate safety remains our primary objective.

FISCAL 2021 FINANCIAL HIGHLIGHTS

• Sales of $3.2 billion, down 0.3% year-over-year and down 1.8% on an organic daily basis
• EPS of $3.68; Non-GAAP adjusted EPS of $4.74, up 24% year-over-yearand at record levels (a)
• Adjusted EBITDA margin of 9.8%, up 80 bps year-over-yearincluding a favorable 20 bps LIFO impact (b)
• Cash from operations of $242 million, free cash flow of $226 million or 121% of adjusted net income (a) (c)

• Reduced debt by $106 million, or 11% from prior year end
• Deployed $121 million toward growth and shareholder returns through dividends, share buybacks, and M&A
• Raised quarterly dividend to $0.33 per share, the 12th dividend increase since 2010

Refer to the inside back cover for:

1. Reconciliation of Net Income and Net Income Per Share to Adjusted Net Income and Adjusted Net Income Per Share
2. Reconciliation of EBITDA and Adjusted EBITDA
3. Reconciliation of Free Cash Flow

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LEADING TECHNICAL POSITION DIFFERENTIATED CAPABILITIES

ENHANCED GROWTH POTENTIAL

"New opportunities" and "expanding growth potential" are words that accurately describe Applied and continue to inspire our associates. This view reflects the deep belief in our value proposition and technical industry positon, as well as a long-standing commitment to operational excellence. These attributes have strengthened our competitive moat, while expanding our addressable market in recent years - providing an engaging path for faster growth and margin expansion. We have the most comprehensive portfolio and technical service capabilities, premier engineered solution expertise, and greatest track record of consistency and commitment across our core industrial product categories. We are applying a similar focus into new emerging industrial solutions as we adapt and position the Company for years to come. Our strong local presence and ongoing talent investment provide further support to this foundation.

Across Applied, we are eager to demonstrate our full value-add as we continue to leverage our differentiated industry position. From our comprehensive MRO capabilities to our technical products and engineered solutions, we have multiple channels to accelerate growth. Central to this effort is fully leveraging and cross-selling our expanded fluid power,

flow control, automation, consumables, and e-business capabilities. We can see evidence of this cross-selling potential emerging throughout the Company, supported by our We Are AppliedSM business positioning and marketing campaign. While we are still in the early innings of fully capitalizing on our potential, we are clearly gaining momentum, with related business wins increasing and our broader teams actively engaged.

Having launched in September 2020, we have seen the We Are AppliedSM campaign take hold - internally and externally - showcasing our vast experience, innovative technologies and multi-channel initiatives that work together to make us THE supplier of choice for technical MRO, OE, and return-enhancing solutions across critical industrial infrastructure. It also serves as a timely prelude to our approaching 100-year anniversary, demonstrating our strong foundation and the many chapters yet to be written on the successful story of Applied.

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NEXT GENERATION TECHNOLOGIES

Following several acquisitions over the past two years and ongoing execution of our strategic growth initiatives, we have established Applied as a leading distributor and solutions provider of advanced factory automation technologies focused on machine vision, robotics, motion control, and digital networking. Our expanding automation offering aligns with and complements related trends across our legacy operations. This includes fluid power where our industry-leading capabilities around electronic integration, software coding, pneumatics automation, and smart technology applications are driving new growth opportunities as customers increasingly focus on machine advancements and data analytics. In addition, we continue to expand our industrial IoT offering throughout our Service Center network to address our customers' Factory of the Future initiatives.

We are encouraged by our progress in identifying and developing opportunities aimed at connecting our automation and smart technology capabilities across varied vertical markets, such as Semiconductors & Electronics, Medical & Life Science, Food Processing, Logistics, and Data Centers. Our growing position across these emerging industrial technologies together with our holistic design, assembly, and integration solutions are driving greater recognition across our served industries.

We aim to expand this position in coming years, presenting a significant growth opportunity as technology continues to converge within traditional industrial supply chains and end markets.

COLLECTIVELY COMMITTED, RESPONSIBLE, SUPPORTIVE

We recognize that building on our legacy also means being a responsible corporate citizen. This responsibility is demonstrated as we implement greener practices in our operations, promote diversity and continuous learning across our organization, and continue to focus on and support the well-being of our associates and communities. Overall, our Environmental, Social and Governance (ESG) efforts are best summarized as Committed, Responsible and Supportive. We advise customers on energy saving opportunities, including conducting energy audits in critical areas such as motors, belting and gearing. Our innovative fluid power systems and solutions reduce greenhouse gas emissions, increase equipment efficiency, and support cleaner energy sources and emerging electrification technologies. Additionally, our specialty flow control products support power generation infrastructure with cleaner technologies such as steam and geothermal. We also promote product alternatives that are bio-based,non-toxic and / or made from recycled content.

Collectively, we recognize our business requirements and social responsibility in serving all stakeholders. Our updated Corporate Social Responsibility report highlights this ongoing progress and demonstrated commitment to ensuring that Applied conducts business fairly, honestly and ethically, in every location where we do business.

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