Applied Industrial Technologies : Q2 FY22 Recap Presentation

We Keep Industry Running	Fiscal Q2 2022 Recap
	January 27, 2022

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 qualifiers such as "believe," "expect," "outlook," "project" "guidance," "will" 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 (such as the inflationary environment and supply chain strains), 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.

Non-GAAP Financial Measures

This presentation sets forth certain non-GAAP financial measures including Adjusted Earnings per Share (EPS); Adjusted Net Income; Adjusted Gross Margin; Adjusted Selling, Distribution and Administrative (SD&A) Expense; EBITDA; Adjusted EBITDA; Free Cash Flow; Net Leverage Ratio - which are presented as supplemental disclosures to Net Income; Cash from Operations; Total Debt Outstanding; and reported results. Management believes these measures are useful indicators for normalizing earnings for non-routine items and facilitating effective evaluation of operating performance. A presentation of the most directly comparable GAAP measure and reconciliations of Adjusted Earnings per Share (EPS); Adjusted Net Income; Adjusted Gross Margin; Adjusted Selling, Distribution and Administrative (SD&A) Expense; EBITDA; Adjusted EBITDA; Free Cash Flow; Net Leverage Ratio are set forth in the appendix to this presentation.

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Primary Messages from Management

Reported record 2Q results reflecting solid execution, expanding industrial activity, traction with company- specific growth opportunities, and strong operating leverage.

Sales growth strengthened as the quarter progressed with F2Q22 daily sales rates up 3% sequentially on an organic basis vs. F1Q22 and above normal seasonal trends.

Gross margins expanded YoY and sequentially primarily reflecting broad-based execution across the business and countermeasures in response to ongoing inflation and supply chain dynamics.

Productivity gains and disciplined cost control providing further momentum to underlying operating leverage and EBITDA margin expansion (up 147 bps YoY).

Raising fiscal 2022 guidance for sales, EBITDA margins, and EPS given strong year-to-date performance and expectations for sustained positive momentum in F2H22.

Well-positionedwithin an increasingly positive industrial backdrop given our leading technical industry position, expanding addressable market, enhanced internal capabilities, and strong balance sheet.

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Fiscal Q2 2022 Key Financial Highlights

• Sales up 16.7% YoY

1. Up 16.4% on an organic daily basis

• 1. Acquisitions +1.6%, currency +0.3%, selling days -1.6%
• Net Income of $57.0M and EPS of $1.46
• 1. EPS up 49.1% from prior-year adjusted EPS of $0.98

• 1. Includes $4.7M pre-tax ($0.09/sh) of LIFO expense in F2Q22 vs. $0.9M ($0.02/sh) in F2Q21
• Gross margin 29.4%, up 51 bps vs. prior-year adjusted gross margin of 28.9%
• 1. Includes an unfavorable 42 bps YoY impact due to higher LIFO expense
• SD&A expense 20.5% of sales vs. prior-year adjusted SD&A expense of 21.6%
• 1. Up 9% YoY on an organic, constant currency basis
• EBITDA of $92.6M, up 35.6% vs. prior-year adjusted EBITDA of $68.3M
• 1. Includes a net $3.8M unfavorable YoY impact due to higher LIFO expense

• 1. 10.6% EBITDA margin up 147 bps YoY including an unfavorable 42 bps YoY impact due to higher LIFO expense
• Operating cash flow of $32.6M; free cash flow of $28.7M
• 1. Year-to-datefree cash flow of $74M or 67% of net income

Note: Prior-year fiscal 2Q adjusted results exclude a $49.5M pre-tax ($0.97 per share) asset impairment charge and $7.8M pre-tax ($0.15 per share) of non-routine costs.

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Current Investor Discussion Points

Discussion Point

1. Supply Chain
2. End-MarketTrends
3. Inflation & Pricing
4. Underlying Demand
5. Operating Leverage
6. Automation Expansion
7. Capital Deployment

Update	Detail
Industry-wide bottlenecks continue but not getting worse;	Sales exceeded expectations across Applied during F2Q22;
direct impact to Applied remains manageable reflecting	cross-functional inventory planning and procurement team executing
industry position, geographic footprint, and internal execution	well with operational inventories up 8% YTD and supporting growth
End-market demand remains broadly positive; underlying growth	25 of top 30 industry verticals up YoY in F2Q22; strongest 2-Year
STACK YoY growth across technology, metals, lumber & wood,
accelerating across heavy industrial and later-cycle verticals
industrial machinery, mining, and chemicals
Broad-based execution across Applied during F2Q22 with	Gross margin up 51 bps YoY and 75 bps sequentially in F2Q22 with
price actions, channel execution, and ongoing countermeasures
price / cost relationship positive YoY in the quarter
balancing supplier product inflation and YoY LIFO headwinds
Industrial backdrop remains healthy with customer break-fix activity	Underlying sales growth accelerated as the quarter progressed; booking
sustaining positive momentum and greater capital spending being	trends seasonally strong across both segments;
released; limited impact from Omicron variant to date	fluid power and automation backlogs remain at record levels
Incremental margins exceeded expectations on strong sales growth,	F2Q22 incremental EBIT margins at ~19% despite higher LIFO expense
broad-based gross margin improvement, productivity gains, and	YoY; record 2Q EBITDA margins of 10.6% up 147 bps YoY and 161 bps
operational execution	from pre-COVID F2Q20 levels
Solid order activity and sales growth during F2Q22;	Organic growth across automation business up over 25% YoY in
demand positively influenced by labor and production bottlenecks	F2Q22; growth pipeline remains solid with additional expansion
industry-wide and Applied's engineered solution capabilities	opportunities developing both organically and via potential M&A
Balance sheet and liquidity in solid position to support growth	Paid down $98M of debt in F2Q22; net leverage at 1.6x; refinanced
initiatives and shareholder returns; M&A remains primary focus with	credit agreement in early December, driving interest savings and
active pipeline across automation, flow control, and fluid power	additional balance sheet flexibility going forward

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