Applied Industrial Technologies : Q4 FY21 Recap Presentation

We Keep Industry Running	Fiscal Q4 2021 Recap
	August 17, 2021

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, 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 Selling, Distribution and Administrative (SD&A) Expense; EBITDA; Adjusted EBITDA; Adjusted EBITDA Margin; 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 Selling, Distribution and Administrative (SD&A) Expense; EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, and Net Leverage Ratio are set forth in the appendix to this presentation.

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Primary Messages from Management

F4Q21 results exceeded expectations with strong execution, sustained demand improvement, and benefits from internal initiatives driving record quarterly earnings.

Underlying demand momentum remains positive with F4Q21 organic daily sales rates up 6% sequentially vs. F3Q21 and continued strength in orders F1Q22 to-date.

Fluid power backlog at record highs and later-cycle specialty flow control demand increasing; Fluid Power & Flow Control segment organic sales "2-YEAR YoY STACK" up 8% in F4Q21.

Ongoing traction across automation offering with strong organic sales growth in F4Q21 and an active M&A pipeline into early FY22.

Gross margins expanded YoY in F4Q21, partially reflecting strong channel execution, pricing actions, and improving demand conditions.

Benefits from a leaner cost structure and productivity gains driving favorable operating leverage and sustained EBITDA margin expansion as the demand environment improves.

Balance sheet in solid position to support growth initiatives following strong FY21 cash generation (free cash of $226M or 121% of adjusted net income); potential for additional value-creating M&A.

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Fiscal Q4 2021 Key Financial Highlights

• Sales up 23.6% YoY

1. Up 19.8% on an organic basis

• 1. Acquisitions +2.1%, currency +1.7%, selling days neutral this quarter
• Net Income of $59.2M; EPS of $1.51 up 89% vs. prior year adjusted EPS of $0.80
• 1. Includes a net $3.7M pre-tax ($0.07/sh) LIFO benefit vs. $0.8M pre-tax ($0.02/sh) of LIFO expense in F4Q20
  1. The LIFO benefit in F4Q21 relates to year-end LIFO adjustments for inventory layer liquidations
  1. F4Q21 includes discrete tax benefits related to stock option exercises
• Gross margin 29.4%, up 63 bps vs. prior year
• 1. Includes a favorable 52 bps YoY impact due to LIFO
• SD&A expense 20.3% of sales vs. prior year adjusted SD&A expense of 22.0%
• 1. Up 9% YoY on an organic, constant currency basis
• EBITDA of $94.8M, up 46.4% vs. prior year adjusted EBITDA of $64.8M
• 1. Includes a net $4.5M (~7%) favorable YoY impact due to LIFO

• 1. 10.6% EBITDA margin up 165 bps YoY including a favorable 52 bps YoY impact due to LIFO
• Operating cash flow of $38.3M; free cash flow of $34.6M
• 1. Full-yearFY21 operating cash flow of $241.7M; free cash flow of $225.8M (121.1% of adjusted net income)

Note: YoY comparisons exclude $1.5M pre-tax ($0.03 per share) of non-routine expense recorded in prior-year period (F4Q20)

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Current Investor Discussion Points

Discussion Point	Update		Detail
1.	Underlying Demand		Positive momentum sustaining across both segments; bookings		F4Q21 organic daily sales +19.8% YoY vs. +0.4% in F3Q21, and +6%
	strengthened in F4Q21 and remain firm in early F1Q22;		sequentially vs. a 4Q/3Q average of flat sequentially during the
			capital projects getting released; fluid power backlog at record highs		FY15-FY19 period
2.	End-Market Trends		Demand improvement remains broad-based with heavy industries		27 of top 30 industry verticals up YoY in F4Q21; strongest YoY trends
		across lumber & wood, food & beverage, aggregates, technology,
	continuing to gain greater momentum
				chemicals, transportation, and mining
3.	Inflation & Pricing		Pricing actions and channel execution balancing supplier product		Price / cost dynamic neutral YoY during F4Q21; price contributed
		80-100 bps to YoY sales growth in F4Q21; expect similar to slightly
	inflation; expect additional pricing opportunities in FY22
				higher level of price contribution in F1H22
4.	Supply Chain		Suppliers continue to face supply chain constraints though magnitude		Position across core verticals, supplier strategy, and localized scale
	not materially different vs. F3Q21; impact to Applied remains modest		provide supply chain support and share gain opportunities through an
			to date		upcycle
5.	FY22 Outlook		Optimistic on industrial backdrop and demand sustainability based on		Sales F1Q22 to-date up by a high-teens percent YoY; FY22 guidance
	breadth of demand drivers and industry position; partially balanced by
		assumes 7% to 9% organic sales growth for the full year
			lingering macro / pandemic-related uncertainty

1. Incremental Margins
2. Capital Deployment
3. Automation Expansion

Leaner cost structure and productivity gains remain positive factors;	F4Q21 incremental margins of 19% including a positive 300 bps
partially balanced in FY22 by LIFO expense, lapping of prior-year	impact from YoY LIFO favorability; reiterate incremental margin target
temporary cost actions, normalizing medical / personnel expense	of mid to high-teens on average over an upcycle
Balance sheet and liquidity in solid position to support growth	Deployed ~$230M in FY21 toward M&A, debt paydown, dividends, and
initiatives and shareholder returns; M&A remains primary focus with	share buybacks; includes a net $24M of debt paydown and $40M of
active pipeline across Automation, Flow Control, and Fluid Power	share buybacks in F4Q21
Solid organic growth across automation platform during F4Q21 with	Automation organic sales up over 30% YoY in F4Q21; M&A pipeline
continued expansion expected in FY22 focused on next generation
remains active into early FY22
robotics, vision, motion, and digital solutions

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