Applied Industrial Technologies : Q2 FY23 Recap Presentation

Fiscal Q2 2023 Recap

January 26, 2023

- 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 qualifiers such as "believe," "expect," "outlook," "project" "guidance," "target," "objectives," "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 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 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

Sustaining notable growth with organic sales up 21% and EPS up 41% in F2Q23; industry position, internal initiatives, strategic evolution, and execution supporting continued outgrowth and margin expansion.

Underlying demand resilient across both segments through quarter end; structural and secular tailwinds across legacy and new markets, company-specific opportunities, and backlog providing support.

EBITDA margins achieve new quarterly record at 11.8%; driving ongoing countermeasures to offset inflationary headwinds, as well as controlling costs and leveraging operational enhancements.

Announced acquisition of Automation, Inc. during F2Q23; further expands scaling automation platform across key verticals and geographies; automation growth pipeline remains favorable.

Raising fiscal 2023 guidance to reflect strong F2Q23 performance and increased F2H23 outlook; mindful of broader macro uncertainty and potential slower industrial activity industry wide.

Significant long-term potential given industry position, cash generation, and balance sheet capacity;

making notable early progress toward intermediate objectives of $5B in sales and 12% EBITDA margins.

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Fiscal Q2 2023 Key Financial Highlights

• Sales up 20.9% YoY

1. Up 21.1% on an organic basis

• 1. Acquisitions +0.5%, currency -0.7%
• Net Income of $80.5M and EPS of $2.05
• 1. EPS up 40.8% from prior year of $1.46

• 1. Includes $8.9M pre-tax ($0.17/sh) of LIFO expense in F2Q23 vs. $4.7M ($0.09/sh) in F2Q22
• Gross margin 29.1%, down 28 bps vs. prior year of 29.4%; up 22 bps sequentially
• 1. Includes an unfavorable 39 bps YoY impact due to higher LIFO expense
• SD&A expense 18.4% of sales vs. prior year of 20.5%
• 1. Up 9.0% YoY on an organic, constant currency basis
• EBITDA of $125.5M, up 35.6% vs. prior year of $92.6M
• 1. Includes a net $4.2M unfavorable YoY impact due to higher LIFO expense

• 1. 11.8% EBITDA margin up 128 bps YoY including an unfavorable 39 bps YoY impact due to higher LIFO expense
• Operating cash flow of $62.9M; free cash flow of $55.6M
• 1. Inclusive of ongoing growth-focused working capital investment

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Current Investor Discussion Points

Discussion Point

Update

Detail

1. Underlying Demand
2. End-MarketTrends
3. Inflation & Pricing
4. Growth Tailwinds

Strong sales growth trends through F2Q23 reflecting a productive		F2Q23 YoY organic sales growth over 21% vs. 19% in F1Q23; average
U.S. manufacturing backdrop, as well as ongoing traction with growth		daily sales up 4% on an organic basis vs. F1Q23 and above normal
initiatives and backlog support		seasonality; Jan to date up by a low-twenty pecent YoY
Breadth of growth remains favorable, particularly when considering		25 of top 30 industry verticals up YoY in F2Q23; strongest growth
difficult prior-year comparisons; some slowing in select markets, but		across food & beverage, pulp & paper, fabricated metals, energy,
customer feedback remains fairly positive		aggregates, and mining
Inflationary pressures persisting with ongoing supplier price		LIFO expense of $8.9M in F2Q23 vs. $4.7M in F2Q22 represented a 39
	bps YOY headwind on margins during the quarter; estimated pricing
increases, though number of price increase announcements
	contribution to YoY sales growth in F2Q23 was in the
continues to moderate from elevated FY22 levels, as expected
	mid single digits, relatively similar to F1Q23 levels
Growth profile more resilient and favorable vs. prior cycles reflecting a		Influenced by our technical industry position, more diversified
	end-market mix, exposure to secular tailwinds (U.S. manufacturing
diverse mix of growth tailwinds tied to our channel strategy, business
	investments, reshoring, infrastructure) and government stimulus,
evolution in recent years, and internal initiatives
	ongoing automation build out, and sales force initiatives

5. Operating Costs

Sustaining strong cost leverage despite ongoing inflationary headwinds reflecting enhanced internal processes and operational efficiencies from system investments and shared services model

F2Q23 incremental EBIT margins at ~19% including YoY LIFO expense headwinds; SD&A expense up 9% YoY vs. a 21% YoY sales increase, and at record lows as a percent of sales

1. Fiscal 2H23 Outlook
2. Capital Allocation

Strong F1H23 performance supporting improved F2H23 outlook	Increasing FY23 organic sales growth guidance to 13% to 15%
relative to prior expectations; balanced by ongoing economic
(prior 6% to 10%); assumes F2H23 YoY organic sales growth in the
uncertainty, normalizing order rates, more difficult comparisons, and
high single digits at the mid-point of guidance
sustained inflationary pressures near term
Balance sheet and liquidity in solid position to support growth	Net leverage at 1.0x; expect stronger free cash generation going
initiatives and shareholder returns; M&A remains priority with an	forward; announced acquisition of Automation, Inc. in early Nov 2022;
increasingly active pipeline across focus areas	increased quarterly dividend for the 14th time since 2010

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