Applied Industrial Technologies AIT Form 10-Q filing Q3 FY2025

Page No.

Part I: FINANCIAL INFORMATION

Item 1: Financial Statements

Condensed Statements of Consolidated Income - Three andNineMonths EndedMarch31, 2025and 2024 2

Condensed Statements of Consolidated Comprehensive Income - Three andNineMonths EndedMarch31, 2025and 2024 3

Condensed Consolidated Balance Sheets -March31, 2025and June 30, 2024 4

Condensed Statements of Consolidated Cash Flows -NineMonths EndedMarch31, 2025and 2024 5

Condensed Statements of Shareholders' Equity - Three andNineMonths EndedMarch31, 2025and 2024 6

Notes to Condensed Consolidated Financial Statements 8

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 21

Item 3: Quantitative and Qualitative Disclosures About Market Risk 30

Item 4: Controls and Procedures 31

Part II: OTHER INFORMATION

Item 1: Legal Proceedings 32

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 32

Item 4: Mine Safety Disclosures 32

Item 5: Other Information 32

Item 6: Exhibits 32

Signatures 35

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

ITEM I: FINANCIAL STATEMENTS

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of Applied Industrial Technologies, Inc. (the “Company”, or “Applied”) as of March 31, 2025, and the results of its operations and its cash flows for the nine month periods ended March 31, 2025 and 2024, are included. The condensed consolidated balance sheet as of June 30, 2024 is derived from the audited consolidated financial statements at that date. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2024.

Operating results for the nine month period ended March 31, 2025 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year ending June 30, 2025.

Inventory

The Company uses the last-in, first-out (LIFO) method of valuing U.S. inventories. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to a final year-end LIFO inventory determination. LIFO expense of $2,198 and $4,758 in the three months ended March 31, 2025 and 2024, respectively, and $4,841 and $12,726 in the nine months ended March 31, 2025 and 2024, respectively, is recorded in cost of sales in the condensed statements of consolidated income.

Recently Issued Accounting Guidance

In November 2024, the Financial Accounting Standards Board (FASB) issued its final standard on the Disaggregation of Income Statement Expenses (DISE). This standard, issued as ASU 2024-03, requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. This update is effective for annual periods beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027. The requirements can be applied prospectively with the option for retrospective application. The Company is currently evaluating the impacts of this guidance on its financial statements and related disclosures.

In December 2023, the FASB issued its final standard to improve income tax disclosures. This standard, issued as ASU 2023-09, requires public business entities to annually disclose specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This update is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impacts of this guidance on its financial statements and related disclosures, and expects the standard will only impact its income taxes disclosures with no material impact to the consolidated financial statements.

In November 2023, the FASB issued its final standard to improve reportable segment disclosures. This standard, issued as ASU 2023-07, requires enhanced disclosures about significant segment expenses, enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. This update is effective for all public business entities for fiscal years beginning after December 15, 2023 for annual disclosure requirements, with the interim disclosure requirements being effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impacts of this guidance on its financial statements and related disclosures, and expects the standard will only impact its segment disclosures with no material impact to the consolidated financial statements.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

2. REVENUE RECOGNITION

Disaggregation of Revenues

The following tables present the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product for the three and nine months ended March 31, 2025 and 2024. Other countries consist of Mexico, Australia, New Zealand, Singapore, and Costa Rica.

The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three and nine months ended March 31, 2025 and 2024:

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

The following tables present the Company’s percentage of revenue by reportable segment and product line for the three and nine months ended March 31, 2025 and 2024:

Contract Assets

The Company’s contract assets consist of unbilled amounts resulting from contracts for which revenue is recognized over time using the cost-to-cost method, and for which revenue recognized exceeds the amount billed to the customer.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Changes related to contract assets, which are included in other current assets on the condensed consolidated balance sheet, is as follows:

The change in balances noted above of the Company's contract assets primarily results from the timing difference between the Company's satisfaction of performance obligations and when the customer is billed.

3. BUSINESS COMBINATIONS

The operating results of all acquired entities are included within the consolidated operating results of the Company from the date of each respective acquisition.

Hydradyne Acquisition

On December 31, 2024, the Company acquired all of the membership interests of Hydradyne, LLC (Hydradyne), a Dallas, Texas based provider of fluid power solutions and value-added services including product offerings in hydraulics, pneumatics, electromechanical, instrumentation, filtration and fluid conveyance. The purchase price is $282,136, of which $276,091 was funded using available cash. The remaining balance of $6,045 is a post-closing liability and included in other current liabilities on the condensed consolidated balance sheet as of March 31, 2025. Hydradyne is included in the Engineered Solutions segment.

The following table summarizes the assets acquired and liabilities assumed in connection with this acquisition based on their preliminary estimated fair values at the acquisition date, which are subject to adjustment. The purchase accounting will be finalized within one year from the acquisition date.

The acquired goodwill is expected to be deductible for income tax purposes. The Company incurred $135 and $1,608 in third-party costs pertaining to the acquisition of Hydradyne, which are included in selling, distribution, and administration expense in the condensed statements of consolidated income during the three and nine months ended March 31, 2025, respectively.

Net sales and net income from the Hydradyne acquisition included in the Company's results since December 31, 2024, the date of the acquisition, are $58,717 and $1,580, respectively.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

The following unaudited pro forma consolidated results of operations are prepared as if the Hydradyne acquisition (including the related acquisition costs) occurred at the beginning of fiscal 2024:

These pro forma amounts are calculated after applying the Company's accounting policies and adjusting the results to reflect additional amortization that would have been recorded assuming the fair value adjustments to identified intangible assets were applied as of July 1, 2023. Additional amortization of $2,863 is included in the pro forma results for the three months ended March 31, 2024, and additional amortization of $5,473 and $8,590 is included in the pro forma results for the nine months March 31, 2025 and 2024, respectively. In addition, pro forma adjustments of $2,761 for the three months ended March 31, 2025 and 2024 and of $8,283 for the nine months March 31, 2025 and 2024 were made for interest income that would not have been earned as a result of the cash used for the acquisition. The pro forma net income amounts also incorporate an adjustment to the recorded income tax expense for the income tax effect of the pro forma adjustments described above. These pro forma results of operations do not include any anticipated synergies or other effects of the planned integration of Hydradyne; accordingly, such pro forma adjustments do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred as of the date indicated or that may result in the future.

Other Fiscal 2025 Acquisitions

On August 1, 2024, the Company acquired substantially all of the net assets of Total Machine Solutions (TMS), a Fairfield, New Jersey based provider of electrical and mechanical power transmission products and solutions including bearings, drives, motors, conveyor components, and related repair services. TMS is included in the Service Center Based Distribution segment. The purchase price for TMS was $6,025, net tangible assets acquired were $1,115, identifiable intangible assets were $2,738, and goodwill was $2,172; the values are based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

On August 1, 2024, the Company acquired 100% of the outstanding shares of Stanley Proctor, a Twinsburg, Ohio based provider of hydraulic, pneumatic, measurement, control, and instrumentation components, as well as fluid power engineered systems. Stanley Proctor is included in the Engineered Solutions segment. The purchase price for Stanley Proctor was $3,924, net tangible assets acquired were $365, identifiable intangible assets were $1,725, and goodwill was $1,834; the values are based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

Fiscal 2024 Acquisitions

On May 1, 2024, the Company acquired 100% of the outstanding shares of Grupo Kopar (Kopar), a Monterrey, Mexico based provider of emerging automation technologies and engineered solutions. Kopar is included in the Engineered Solutions segment. The purchase price for the acquisition was $61,870, net liabilities assumed were $3,160, and intangible assets including goodwill were $65,030 based upon preliminary estimated fair values at the acquisition date, which are subject to adjustment. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

On September 1, 2023, the Company acquired substantially all of the net assets of Bearing Distributors, Inc. (BDI), a Columbia, South Carolina based provider of bearings, power transmission, industrial motion, and related service and repair capabilities. BDI is included in the Service Center Based Distribution segment. The purchase price for the acquisition was $17,926, net tangible assets acquired were $4,102, and intangible assets including goodwill were $13,824 based upon estimated fair values at the acquisition date. The purchase price includes $1,800 of acquisition holdback payments, of which $900 was paid in the nine months ended March 31, 2025. The remaining balance is included in other current liabilities on the condensed consolidated balance sheet as of March 31, 2025, and will be paid on the second anniversary of the acquisition date with interest at a fixed rate of 3.0% per annum. The Company

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

On August 1, 2023, the Company acquired substantially all of the net assets of Cangro Industries, Inc. (Cangro), a Farmingdale, New York based provider of bearings, power transmission, industrial motion, and related service and repair capabilities. Cangro is included in the Service Center Based Distribution segment. The purchase price for the acquisition was $6,219, net tangible assets acquired were $2,070, and intangible assets including goodwill were $4,149 based upon estimated fair values at the acquisition date. The purchase price includes $930 of acquisition holdback payments, of which $310 was paid in the nine months ended March 31, 2025. The remaining balance is included in other current liabilities and other liabilities on the condensed consolidated balance sheet as of March 31, 2025, and will be paid on the second and third anniversaries of the acquisition date with interest at a fixed rate of 1.0% per annum. The Company funded this acquisition using available cash. The acquisition price and the results of operations for the acquired entity are not material in relation to the Company's consolidated financial statements.

4. GOODWILL AND INTANGIBLES

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Engineered Solutions segment for the fiscal year ended June 30, 2024 and the nine month period ended March 31, 2025 are as follows:

During the third quarter of fiscal 2025, the Company recorded working capital adjustments related to the Kopar acquisition, which increased the purchase price by $645, decreased the fair value of net tangible assets acquired by $290, and increased goodwill by $935. During the third quarter of fiscal 2025, the Company recorded working capital adjustments related to the TMS acquisition, which decreased the purchase price by $475, increased the fair value of net tangible assets acquired by $91, and decreased goodwill by $566. Further, during the third quarter of fiscal 2025, the Company recorded purchase accounting and working capital adjustments related to the Hydradyne acquisition, which increased the purchase price by $6,045, decreased the fair value of net assets acquired by $1,751, increased net intangible assets by $410, and increased goodwill by $7,386.

The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2025. Based on the assessment performed, the Company concluded that the fair value of all of the reporting units exceeded their carrying amount as of January 1, 2025, therefore no impairment exists.

At March 31, 2025 and June 30, 2024, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $64,794 related to the Service Center Based Distribution segment and $167,605 related to the Engineered Solutions segment.

The Company’s identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Fully amortized finite-lived identifiable intangible assets are written off in the period when they become fully amortized.

During the nine month period ended March 31, 2025, the Company acquired identifiable intangible assets with a preliminary acquisition cost allocation and weighted-average life as follows:

Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable.

Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of March 31, 2025) for the next five years is as follows: $10,000 for the remainder of 2025, $38,900 for 2026, $36,300 for 2027, $34,000 for 2028, $31,800 for 2029 and $29,900 for 2030.

5. DEBT

A summary of long-term debt, including the current portion, follows:

Revolving Credit Facility & Term Loan

In December 2021, the Company entered into a five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes. The revolving credit facility provides a $900,000 unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500,000. Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on the Company's net leverage ratio or Secured Overnight Financing Rate (SOFR) plus a margin that ranges from 80 to 155 basis points based on the Company's net leverage ratio. Borrowing capacity under this facility, without exercising the accordion feature, totaled $515,800 at March 31, 2025 and June 30, 2024 and is available to fund future acquisitions or other capital and operating requirements. These amounts are net of outstanding letters of credit of $200 at March 31, 2025 and June 30, 2024 to secure certain insurance obligations. The interest rate on the revolving credit facility was 5.22% and 6.24% as of March 31, 2025 and June 30, 2024, respectively.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $5,336 and $4,046 as of March 31, 2025 and June 30, 2024, respectively, in order to secure certain insurance obligations.

Trade Receivable Securitization Facility

In August 2018, the Company established a trade receivable securitization facility (AR Securitization Facility). The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. The AR Securitization Facility's maximum borrowing capacity is $250,000, fees on amounts borrowed are 0.90% per year, and the facility terminates on August 4, 2026. Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the $250,000 of borrowing capacity available under the AR Securitization Facility. Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of March 31, 2025 and June 30, 2024 was 5.32% and 6.35%, respectively.

Unsecured Shelf Facility

At March 31, 2025 the Company had no remaining borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management. Fees on this facility ranged from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The “Series E” notes carried a fixed interest rate of 3.08%, and the remaining principal balance of $25,000 was paid in October 2024.

Other Long-Term Borrowing

In 2014, the Company assumed $2,359 of debt as a part of the headquarters facility acquisition. The 1.50% fixed interest rate note, held by the State of Ohio Development Services Agency, was fully paid in November 2024.

6. DERIVATIVES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

In January 2019, the Company entered into an interest rate swap to mitigate variability in forecasted interest payments on $463,000 of the Company’s U.S. dollar-denominated unsecured variable rate debt. The notional amount declined over time to $384,000 as principal payments were made. The interest rate swap effectively converts a portion of the floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swap as a pay-fixed, receive-floating interest rate swap instrument and is accounting for this derivative as a cash flow hedge. During fiscal 2021, the Company completed a transaction to amend and extend the interest rate swap agreement which resulted in an extension of the maturity date to January 31, 2026. The pay-fixed interest rate swap is considered a

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

hybrid instrument with a financing component and an embedded at-market derivative that was designated as a cash flow hedge. The weighted average fixed pay rate is 1.58% and the interest rate swap is indexed to SOFR. The Company made various accounting elections related to changes in critical terms of the hedging relationship due to reference rate reform to preserve the hedging relationship.

The interest rate swap converted $384,000 of variable rate debt to a rate of 2.48% as of March 31, 2025 and June 30, 2024. The fair value (Level 2 in the fair value hierarchy) of the interest rate cash flow hedge was $7,600 as of March 31, 2025, which is included in other current assets in the condensed consolidated balance sheet, and was $18,081 as of June 30, 2024, which is included in other current assets and other assets in the condensed consolidated balance sheet. Amounts reclassified from other comprehensive loss, before tax, to interest expense (income), net was income of $3,654 and $4,671 for the three months ended March 31, 2025 and 2024, respectively, and $12,436 and $14,024 for the nine months ended March 31, 2025 and 2024, respectively.

7. FAIR VALUE MEASUREMENTS

Marketable securities measured at fair value at March 31, 2025 and June 30, 2024 totaled $23,421 and $22,519, respectively. The majority of these marketable securities are held in a rabbi trust for a non-qualified deferred compensation plan. The marketable securities are included in other assets on the accompanying condensed consolidated balance sheets and their fair values were determined using quoted market prices (Level 1 in the fair value hierarchy).

As of March 31, 2025 the Company had no fixed interest rate debt outstanding. As of June 30, 2024, the carrying values of the Company's fixed interest rate debt outstanding under its unsecured shelf facility agreement with Prudential Investment Management approximated fair value (Level 2 in the fair value hierarchy).

The revolving credit facility and the AR Securitization Facility contain variable interest rates and their carrying values approximate fair value (Level 2 in the fair value hierarchy).

8. SHAREHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

Changes in the accumulated other comprehensive loss are comprised of the following amounts, shown net of taxes:

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

Other Comprehensive (Loss) Income

Details of other comprehensive (loss) income are as follows:

Anti-dilutive Common Stock Equivalents

In the three months ended March 31, 2025 and 2024, stock options and stock appreciation rights related to 68 and 77 shares of common stock, respectively, were not included in the computation of diluted earnings per share for the period then ended as they were anti-dilutive. In the nine months ended March 31, 2025 and 2024, stock options and stock appreciation rights related to 88 and 102 shares of common stock, respectively, were not included in the computation of diluted earnings per share for the period then ended as they were anti-dilutive.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

9. SEGMENT INFORMATION

The accounting policies of the Company’s reportable segments are generally the same as those used to prepare the condensed consolidated financial statements. LIFO expense of $2,198 and $4,758 in the three months ended March 31, 2025 and 2024, respectively, and $4,841 and $12,726 in the nine months ended March 31, 2025 and 2024, respectively, is recorded in cost of sales in the condensed statements of consolidated income, and is included in operating income for the related reportable segment, as the Company allocates LIFO expense between the segments. Intercompany sales, primarily from the Engineered Solutions segment to the Service Center Based Distribution segment, of $12,927 and $13,790, in the three months ended March 31, 2025 and 2024, respectively, and $40,680 and $38,565 in the nine months ended March 31, 2025 and 2024 respectively, are eliminated in the Segment Financial Information tables below.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts) (Unaudited)

A reconciliation of operating income for reportable segments to the condensed consolidated income before income taxes is as follows:

The change in corporate and other expense, net is due to changes in corporate expenses, as well as in the amounts and levels of certain expenses being allocated to the segments. The expenses being allocated include corporate charges for working capital, logistics support, and other items.

10. OTHER EXPENSE (INCOME), NET

Other expense (income), net consists of the following:

11. SUBSEQUENT EVENTS

We have evaluated events and transactions occurring subsequent to March 31, 2025 through the date the financial statements were issued.

On May 1, 2025, the Company acquired substantially all of the net assets of IRIS Factory Automation (IRIS), an Aurora, Illinois provider of automation products, services, and turn-key productized solutions focused on optimizing material handling and traceability workflows across production environments. The purchase price for IRIS was $14,000 and it is included in the Engineered Solutions segment. The Company funded the acquisition using available cash.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Applied Industrial Technologies (“Applied,” the “Company,” “We,” “Us” or “Our”) 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 (Maintenance, Repair & Operations) and OEM (Original Equipment Manufacturer) end users in virtually all industrial markets through our multi-channel capabilities that provide choice, convenience, and expertise. We have a long tradition of growth dating back to 1923, the year our business was founded in Cleveland, Ohio. During the third quarter of fiscal 2025, business was conducted in the United States, Puerto Rico, Canada, Mexico, Australia, New Zealand, Singapore, and Costa Rica from 619 facilities.

The following is Management's Discussion and Analysis of significant factors which have affected our financial condition, results of operations and cash flows during the periods included in the accompanying condensed consolidated balance sheets, statements of consolidated income, consolidated comprehensive income and consolidated cash flows. When reviewing the discussion and analysis set forth below, please note that the majority of SKUs (Stock Keeping Units) we sell in any given period are not necessarily sold in the comparable period of the prior year, resulting in the inability to quantify certain commonly used comparative metrics analyzing sales, such as changes in product mix and volume.

Overview

Consolidated sales for the quarter ended March 31, 2025 increased $20.3 million or 1.8% compared to the prior year quarter, with acquisitions contributing to sales growth by $75.7 million or 6.6%, and unfavorable foreign currency translation of $10.1 million reducing sales by 0.9%. The Company had operating income of $129.4 million, or operating margin of 11.1% of sales for the quarter ended March 31, 2025 compared to an operating income of $121.2 million, or operating margin of 10.6% of sales for the same quarter in the prior year. Net income of $99.8 million increased 2.7% compared to the prior year quarter.

On December 31, 2024, the Company acquired all of the membership interests of Hydradyne, LLC (Hydradyne), a Dallas, Texas based provider of fluid power solutions and value-added services including product offerings in hydraulics, pneumatics, electromechanical, instrumentation, filtration and fluid conveyance. The purchase price of $282.1 million was funded using $276.1 million of available cash and the remaining $6.0 million will be funded within the next twelve months. Hydradyne is included in the Engineered Solutions segment.

Applied monitors several economic indices that are key indicators for industrial economic activity in the United States. These include the Industrial Production (IP) and total industry Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Historically, our performance correlates well with the MCU, which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output. When manufacturing plants are running at a high rate of capacity, they tend to wear out machinery more frequently and require replacement parts.

The MCU and IP indices have increased since December 2024. The MCU for March 2025 was 77.8, which is up from the December 2024 reading of 77.6 but down from the June 2024 reading of 78.2. The ISM PMI registered 49.0 in March 2025, down from the December 2024 reading of 49.2, but up from the June 2024 reading of 48.3, reflecting continued contraction in the U.S. manufacturing sector. The indices for the months during the current quarter, along with the indices for the prior fiscal year end and prior quarter end, were as follows:

The number of Company employees was 6,818 at March 31, 2025, 6,562 at June 30, 2024, and 6,350 at March 31, 2024. The number of operating facilities totaled 619 at March 31, 2025, 590 at June 30, 2024, and 586 at March 31, 2024. The increases in employees and operating facilities are primarily due to the Hydradyne acquisition.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations

Three Months Ended March 31, 2025 and 2024

The following table is included to aid in review of Applied's condensed statements of consolidated income.

During the quarter ended March 31, 2025, sales increased $20.3 million or 1.8% compared to the prior year quarter, with sales from acquisitions adding $75.7 million or 6.6%, and unfavorable foreign currency translation reducing sales by $10.1 million or 0.9%. There were 63 selling days in the quarter ended March 31, 2025 and 63.5 selling days in the quarter ended March 31, 2024. Excluding the impact of businesses acquired and foreign currency translation, sales were down $45.3 million or 3.9% during the quarter, driven by a decrease of 3.1% primarily due to continued subdued demand due to economic uncertainty, in addition to a decrease of 0.8% due to the change in sales days.

The following table shows changes in sales by reportable segment (amounts in millions).

Sales from our Service Center Based Distribution segment, which operates primarily in MRO markets, decreased $27.8 million or 3.5%. Acquisitions within this segment increased sales by $1.5 million or 0.2% and unfavorable foreign currency translation decreased sales by $10.1 million or 1.3%. Excluding the impact of businesses acquired and foreign currency translation, sales decreased $19.2 million or 2.4%, driven by a decrease of 1.6% primarily driven by softer MRO spending and capital maintenance projects, as well as a decrease of 0.8% due to the change in sales days.

Sales from our Engineered Solutions segment increased $48.1 million or 13.5%. Acquisitions within this segment increased sales by $74.2 million or 20.8%. Excluding the impact of businesses acquired, sales decreased $26.1 million or 7.3%, driven by a decrease of 6.5% reflecting ongoing weakness across mobile fluid power OEM customers, and to a lesser extent, softer flow control and automation sales, as well as a decrease of 0.8% due to the change in sales days, offset by growth across the technology sector.

The following table shows changes in sales by geographic area. Other countries includes Mexico, Australia, New Zealand, Singapore, and Costa Rica (amounts in millions).

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Sales in our U.S. operations were up $15.1 million or 1.5%, as acquisitions added $65.5 million or 6.4%. Excluding the impact of businesses acquired, sales in the United States were down $50.4 million or 4.9%, driven by a 4.1% decrease from operations due to lower demand, in addition to a decrease of 0.8% due to the change in sales days. Sales from our Canadian operations decreased $1.9 million or 2.5%. Unfavorable foreign currency translation reduced Canadian sales by $4.5 million or 6.2%. Excluding the impact of foreign currency translation, Canadian sales increased $2.6 million or 3.7%, driven by an increase of 5.3% from operations due to higher demand, offset by a decrease of 1.6% due to the change in sales days. Sales in other countries increased $7.1 million or 12.7% from the prior year quarter, primarily due to acquisitions contributing $10.2 million or 18.3% along with an increase from operations of $2.5 million or 4.4%, offset by unfavorable foreign currency translation of $5.6 million or 10.0%.

Our gross profit margin was 30.5% in the quarter ended March 31, 2025 compared to 29.5% in the prior year quarter. The gross profit margin for the current year quarter was positively impacted by 22 basis points due to a $2.6 million decrease in LIFO expense as compared to the prior year quarter, in addition to a positive impact from recent acquisitions and ongoing margin expansion initiatives.

The following table shows the changes in selling, distribution and administrative expense (SD&A) (amounts in millions).

SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management and providing marketing and distribution of the Company's products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, and facility related expenses. SD&A was 19.4% of sales in the quarter ended March 31, 2025 compared to 18.9% in the prior year quarter, an increase of $8.9 million or 4.1% compared to the prior year quarter. SD&A from businesses acquired added $24.5 million or 11.3% of SD&A expenses, including $3.7 million of intangibles amortization related to acquisitions. Changes in foreign currency exchange rates reduced SD&A during the quarter ended March 31, 2025 by $2.0 million or 0.9% compared to the prior year quarter. Excluding the impact of businesses acquired and the favorable currency translation impact, SD&A decreased $13.6 million or 6.3% during the quarter ended March 31, 2025 compared to the prior year quarter, as total compensation decreased $13.5 million primarily due to cost controls, efficiency gains, and lower incentive compensation based on company performance. All other expenses within SD&A were down $0.1 million.

Operating income increased $8.2 million or 6.8% over the prior year period. As a percent of sales, operating income increased to 11.1% during the quarter ended March 31, 2025 from 10.6% during the prior year quarter due to expanded gross profit, including from acquisitions, despite softer demand.

Operating income, as a percentage of sales for the Service Center Based Distribution segment, increased to 14.1% in the current year quarter from 12.7% in the prior year quarter. Operating income, as a percentage of sales for the Engineered Solutions segment, decreased to 13.3% in the current year quarter from 13.9% in the prior year quarter.

Other expense (income), net was expense of $1.3 million for the current year quarter, which primarily included net unfavorable foreign currency transaction losses of $1.0 million. During the prior year quarter, other expense (income), net was income of $1.7 million, which primarily included unrealized gains on investments held by non-qualified deferred compensation trusts of $1.6 million.

The effective income tax rate was 21.6% for the quarter ended March 31, 2025 compared to 20.7% for the quarter ended March 31, 2024. The increase in the effective tax rate is primarily due to a decrease in compensation-related deductions during the quarter ended March 31, 2025 compared to the prior year quarter.

As a result of the factors addressed above, net income for the quarter ended March 31, 2025 increased $2.6 million or 2.7% compared to the prior year quarter. Diluted net income per share was $2.57 per share for the quarter ended March 31, 2025 compared to $2.48 per share in the prior year quarter, an increase of 3.6%.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Results of Operations

Nine Months Ended March 31, 2025 and 2024

The following table is included to aid in review of Applied's condensed statements of consolidated income.

During the nine months ended March 31, 2025, sales increased $20.0 million or 0.6% compared to the prior year period, with sales from acquisitions adding $117.6 million or 3.5% and unfavorable foreign currency translation accounting for a decrease of $18.8 million or 0.6%. There were 189 selling days in the nine months ended March 31, 2025 and 187.5 selling days in the nine months ended March 31, 2024. Excluding the impact of businesses acquired and foreign currency translation, sales were down $78.8 million or 2.3% during the period, driven by a decrease of 3.1% from operations primarily due to continued subdued demand due to economic uncertainty, offset by an increase of 0.8% due to the change in the sales days.

The following table shows changes in sales by reportable segment (amounts in millions).

Sales from our Service Center Based Distribution segment, decreased $30.0 million or 1.3%. Acquisitions within this segment increased sales by $9.2 million or 0.4% and unfavorable foreign currency translation reduced sales by $18.8 million or 0.8%. Excluding the impact of businesses acquired and foreign currency translation, sales decreased $20.4 million or 0.9%, driven by a decrease of 1.7% from operations driven by softer MRO spending and capital maintenance projects, offset by an increase of 0.8% due to the change in sales days.

Sales from our Engineered Solutions segment increased $50.0 million or 4.7%. Acquisitions within this segment increased sales by $108.4 million or 10.3%. Excluding the impact of businesses acquired, sales decreased $58.4 million or 5.6%, driven by a decrease of 6.4% reflecting ongoing weakness across mobile fluid power OEM customers, and to a lesser extent, softer flow control and automation sales, offset by an increase of 0.8% due to the change in sales days.

The following table shows changes in sales by geographic area. Other countries includes Mexico, Australia, New Zealand, Singapore, and Costa Rica (amounts in millions).

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Sales in our U.S. operations were down $2.0 million or 0.1%, as acquisitions added $82.7 million or 2.8%. Excluding the impact of businesses acquired, sales in the United States were down $84.7 million or 2.9%, driven by a 3.7% decrease from operations due to lower demand, offset by an increase of 0.8% due to the change in sales days. Sales from our Canadian operations decreased $5.1 million or 2.2%. Unfavorable foreign currency translation decreased Canadian sales by $8.0 million or 3.5%. Excluding the impact of foreign currency translation, Canadian sales were up $2.9 million or 1.3%, driven primarily by an increase in sales days. Sales in other countries increased $27.1 million or 15.8% from the prior year, primarily due to acquisitions contributing $34.9 million or 20.3%, along with an increase from operations of $3.0 million or 1.8%, offset by unfavorable foreign currency translation of $10.8 million or 6.3%.

Our gross profit margin was 30.2% in the nine months ended March 31, 2025 compared to 29.5% in the prior year period. The gross profit margin for the current year period was positively impacted by 24 basis points due to a $7.9 million decrease in LIFO expense as compared to the prior year period, in addition to a positive impact from recent acquisitions and ongoing margin expansion initiatives.

The following table shows the changes in selling, distribution and administrative expense (SD&A) (amounts in millions).

SD&A consists of associate compensation, benefits and other expenses associated with selling, purchasing, warehousing, supply chain management and providing marketing and distribution of the Company's products, as well as costs associated with a variety of administrative functions such as human resources, information technology, treasury, accounting, insurance, legal, and facility related expenses. SD&A was 19.3% of sales in the nine months ended March 31, 2025 compared to 18.8% in the prior year period, an increase of $21.1 million or 3.4% compared to the prior year period. SD&A from businesses acquired added $35.1 million or 5.6% of SD&A expenses, including $5.6 million of intangibles amortization related to acquisitions. Changes in foreign currency exchange rates reduced SD&A during the nine months ended March 31, 2025 by $3.5 million or 0.6% compared to the prior year period. Excluding the impact of businesses acquired and the favorable currency translation impact, SD&A decreased $10.5 million or 1.6% during the nine months ended March 31, 2025 compared to the prior year period as total compensation decreased $18.8 million due to cost controls, efficiency gains, and lower incentive compensation based on company performance. This reduction in total compensation was offset by a $4.2 million increase in occupancy costs (excluding acquisitions) and a $1.7 million increase in bad debt expense during the nine months ended March 31, 2025 compared to the prior year period. All other expenses within SD&A were up $2.4 million.

Operating income increased $7.0 million or 2.0% over the prior year period. As a percent of sales, operating income was 10.9% for the nine months ended March 31, 2025 compared to 10.7% for the prior year period.

Operating income, as a percentage of sales for the Service Center Based Distribution segment, increased to 13.2% in the current year period from 12.7% in the prior year period. Operating income, as a percentage of sales for the Engineered Solutions segment, was 14.3% in both the current year and prior year periods.

The Company had net interest income in the current year period of $0.7 million compared to net interest expense of $3.5 million in the prior year period due to reduced debt levels in fiscal 2025 coupled with greater interest income from higher cash balances and investment yields.

Other expense (income), net was income of $1.8 million for the nine months ended March 31, 2025, which included unrealized gains on investments held by non-qualified deferred compensation trusts of $0.7 million, life insurance income of $0.7 million, net favorable foreign currency transaction gains of $0.2 million, and $0.2 million of other income. During the prior year period, other expense (income), net was income of $4.2 million, which primarily consisted of unrealized gains on investments held by non-qualified deferred compensation trusts of $3.0 million and life insurance income of $0.8 million.

The effective income tax rate was 22.1% for the nine months ended March 31, 2025 compared to 21.0% for the nine months ended March 31, 2024. The increase in the effective tax rate is primarily due to the reversal of a tax valuation allowance related to Mexico during the prior year period. We expect our full year tax rate for fiscal 2025 to be in the 22.0% to 23.0% range.

As a result of the factors addressed above, net income for the nine months ended March 31, 2025 increased $2.9 million or 1.0% compared to the prior year period. Diluted net income per share was $7.33 per share for the nine months ended March 31, 2025 compared to $7.18 per share in the prior year period.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt. At March 31, 2025, we had total debt obligations outstanding of $572.3 million compared to $597.4 million at June 30, 2024. Management expects that our existing cash, cash equivalents, funds available under the revolving credit facility, and cash provided from operations will be sufficient to finance normal working capital needs in each of the countries in which we operate, payment of dividends, acquisitions, investments in properties, facilities and equipment, debt service, and the purchase of additional Company common stock. Management also believes that additional long-term debt and line of credit financing could be obtained based on the Company's credit standing and financial strength.

On December 31, 2024, the Company acquired all of the membership interests of Hydradyne, LLC (Hydradyne), a Dallas, Texas based provider of fluid power solutions and value-added services including product offerings in hydraulics, pneumatics, electromechanical, instrumentation, filtration and fluid conveyance. The purchase price of $282.1 million was funded using $276.1 million of available cash and the remaining $6.0 million will be funded within the next twelve months. Hydradyne is included in the Engineered Solutions segment.

The Company's working capital at March 31, 2025 was $1,217.2 million, compared to $1,268.8 million at June 30, 2024. The current ratio was 3.6 to 1 at March 31, 2025 and 3.5 to 1 at June 30, 2024.

Net Cash Flows

The following table is included to aid in review of Applied's condensed statements of consolidated cash flows (amounts in thousands).

The increase in cash provided by operating activities during the nine months ended March 31, 2025 from the prior period is due to changes in working capital for the period of $82.8 million primarily driven by (amounts in thousands):

Net cash used in investing activities during the nine months ended March 31, 2025 increased from the prior period primarily due to $273.3 million used for acquisitions in the nine months ended March 31, 2025 compared to $21.4 million used for acquisitions in the prior year period.

Net cash used in financing activities during the nine months ended March 31, 2025 increased from the prior year period primarily due to $79.8 million of cash used to repurchase shares of common stock during the nine months ended March 31, 2025 compared to $28.9 million used to repurchase shares of common stock in the prior year period.

Share Repurchases

The Board of Directors has authorized the repurchase of shares of the Company's common stock. These purchases may be made in open market and negotiated transactions, from time to time, depending upon market conditions. During the three months ended March 31, 2025, the Company acquired 204,500 shares of the Company's common stock on the open market for $49.3 million. During the nine months ended March 31, 2025, the Company acquired 331,876 shares of the Company's common stock on the open market for $79.3 million. During the three months ended March 31, 2024, the Company acquired 100,053 shares of treasury stock on the open market for $18.2 million. During the nine months ended March 31, 2024, the Company acquired 163,000 shares of treasury stock on the open market for $28.9 million. At March 31, 2025, we had

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

authorization to repurchase an additional 770,124 shares. On April 28, 2025 the Board of Directors authorized the repurchase of 1.5 million shares of the Company's stock under a new authorized program, replacing the prior authorized program.

Borrowing Arrangements

A summary of long-term debt, including the current portion, follows (amounts in thousands):

Revolving Credit Facility & Term Loan

In December 2021, the Company entered into a five-year revolving credit facility with a group of banks to refinance the existing credit facility as well as provide funds for ongoing working capital and other general corporate purposes. The revolving credit facility provides a $900.0 million unsecured revolving credit facility and an uncommitted accordion feature which allows the Company to request an increase in the borrowing commitments, or incremental term loans, under the credit facility in aggregate principal amounts of up to $500.0 million. Borrowings under this agreement bear interest, at the Company's election, at either the base rate plus a margin that ranges from 0 to 55 basis points based on the Company's net leverage ratio or Secured Overnight Financing Rate (SOFR) plus a margin that ranges from 80 to 155 basis points based on the Company's net leverage ratio. Borrowing capacity under this facility, without exercising the accordion feature, totaled $515.8 million at March 31, 2025 and June 30, 2024, and is available to fund future acquisitions or other capital and operating requirements. These amounts are net of outstanding letters of credit of $0.2 million at March 31, 2025 and June 30, 2024, to secure certain insurance obligations. The interest rate on the revolving credit facility was 5.22% and 6.24% as of March 31, 2025 and June 30, 2024, respectively.

Additionally, the Company had letters of credit outstanding not associated with the revolving credit agreement, in the amount of $5.3 million and $4.0 million as of March 31, 2025 and June 30, 2024, respectively, in order to secure certain insurance obligations.

Trade Receivable Securitization Facility

In August 2018, the Company established a trade receivable securitization facility (AR Securitization Facility). The AR Securitization Facility effectively increases the Company’s borrowing capacity by collateralizing a portion of the amount of the U.S. operations’ trade accounts receivable. The Company uses the proceeds from the AR Securitization Facility as an alternative to other forms of debt, effectively reducing borrowing costs. The AR Securitization Facility's maximum borrowing capacity is $250.0 million, fees on amounts borrowed are 0.90% per year, and the facility terminates on August 4, 2026. Borrowing capacity is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable portfolio and, therefore, at certain times, we may not be able to fully access the $250.0 million of borrowing capacity available under the AR Securitization Facility. Borrowings under the AR Securitization Facility carry variable interest rates tied to SOFR. The interest rate on the AR Securitization Facility as of March 31, 2025 and June 30, 2024 was 5.32% and 6.35%, respectively.

Unsecured Shelf Facility

At March 31, 2025 the Company had no remaining borrowings outstanding under its unsecured shelf facility agreement with Prudential Investment Management. Fees on this facility ranged from 0.25% to 1.25% per year based on the Company's leverage ratio at each quarter end. The “Series E” notes carried a fixed interest rate of 3.08%, and the remaining principal balance of $25.0 million was paid in October 2024.

Other Long-Term Borrowing

In 2014, the Company assumed $2.4 million of debt as a part of the headquarters facility acquisition. The 1.50% fixed interest rate note, held by the State of Ohio Development Services Agency, was fully paid in November 2024.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

In 2019, the Company entered into an interest rate swap which mitigates variability in forecasted interest payments on $384.0 million of the Company’s U.S. dollar-denominated unsecured variable rate debt. For more information, see note 6, Derivatives, to the consolidated financial statements, included in Item 1 under the caption “Notes to Condensed Consolidated Financial Statements.”

The credit facility and the unsecured shelf facility contain restrictive covenants regarding liquidity, net worth, financial ratios, and other covenants. At March 31, 2025, the most restrictive of these covenants required that the Company maintain net indebtedness less than 3.75 times consolidated income before interest, taxes, depreciation and amortization (as defined in these agreements). At March 31, 2025, the Company's net indebtedness was less than 0.5 times consolidated income before interest, taxes, depreciation and amortization. The Company was in compliance with all financial covenants at March 31, 2025.

Accounts Receivable Analysis

The following table is included to aid in analysis of accounts receivable and the associated provision for losses on accounts receivable (amounts in thousands):

Accounts receivable are reported at net realizable value and consist of trade receivables from customers. Management monitors accounts receivable by reviewing Days Sales Outstanding (DSO) and the aging of receivables for each of the Company's locations.

On a consolidated basis, DSO was 58.2 at March 31, 2025 compared to 56.2 June 30, 2024 due to timing of customer payments.

As of March 31, 2025, approximately 1.8% of our accounts receivable balances are more than 90 days past due, compared to 1.5% at June 30, 2024. On an overall basis, our provision for losses on accounts receivable represents 0.08% of sales for the nine months ended March 31, 2025 compared to 0.03% of sales for the nine months ended March 31, 2024. The increase primarily relates to provisions recorded in the nine months ended March 31, 2025 for customer credit deterioration and bankruptcies primarily in the U.S. operations of the Service Center Based Distribution segment as well as recoveries recorded in the same operations in the nine months ended March 31, 2024. Historically, this percentage is between 0.10% to 0.15%. Management believes the overall receivables aging and provision for losses on accounts receivable are at reasonable levels.

Inventory Analysis

Inventories are valued using the last-in, first-out (LIFO) method for U.S. inventories and the average cost method for foreign inventories. Management uses an inventory turnover ratio to monitor and evaluate inventory. Management calculates this ratio on an annual as well as a quarterly basis, and believes that using average costs to determine the inventory turnover ratio instead of LIFO costs provides a more useful analysis. The annualized inventory turnover based on average costs was 4.3 for the periods ended March 31, 2025 and June 30, 2024.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended June 30, 2024.

APPLIED INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

On December 31, 2024, the Company completed the acquisition of Hydradyne, LLC (Hydradyne). As permitted by SEC guidance, the scope of management’s evaluation of internal control over financing reporting as of March 31, 2025 did not include the internal control over financial reporting of Hydradyne. Management is in the process of integrating, evaluating, and where necessary, implementing changes in controls and procedures in Hydradyne. As a result, the Company anticipates excluding Hydradyne from our evaluation of internal control over financial reporting as of June 30, 2025.

Other than with respect to the acquisition of Hydradyne, there are no changes in internal control over financial reporting during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is a party to pending legal proceedings with respect to various product liability, commercial, personal injury, employment, and other matters. Although it is not possible to predict the outcome of these proceedings or the range of reasonably possible loss, the Company does not expect, based on circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of common stock in the quarter ended March 31, 2025 were as follows:

(1) On August 9, 2022, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the prior authorization. We publicly announced the new authorization on August 11, 2022. Purchases can be made in the open market or in privately negotiated transactions.

On April 29, 2025, the Board of Directors authorized the repurchase of up to 1.5 million shares of the Company's common stock, replacing the August 9, 2022 authorization. We publicly announced the new authorization on May 1, 2025. Purchases can be made in the open market or in privately negotiated transactions. The authorization is in effect until all shares are purchased, or the Board revokes or amends the authorization.

ITEM 4. Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of the SEC Regulation S-K is included in Exhibit 95 to this quarterly report on Form 10-Q.

ITEM 5. Other Information

Rule 10b5-1 Trading Plans and Non-Rule 10b5-1 Trading Arrangements

During the quarter ended March 31, 2025, none of the Company’s directors or officers (as defined in Rule 16a-1(f)) adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that (i) was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or (ii) that constituted a “non-Rule 10b5-1 trading arrangement” as defined in Regulation S-K 408(c) of the Securities Exchange Act of 1934, as amended.

ITEM 6. Exhibits

• Asterisk indicates an executive compensation plan or arrangement.

Exhibit No. Description

2.1 Securities Purchase Agreement, dated November 21, 2024, by and among Applied Industrial Technologies, Inc., LOR, Inc., and Hydradyne, LLC (filed as Exhibit 2.1 to the Company’s Form 8-K filed November 22, 2024, SEC File No. 1-2299, and incorporated here by reference). 3.1 Amended and Restated Articles of Incorporation of Applied Industrial Technologies, Inc., as amended on October 25, 2005 (filed as Exhibit 3(a) to the Company’s Form 10-Q for the quarter ended December 31, 2005, SEC File No. 1-2299, and incorporated here by reference). 3.2 Code of Regulations of Applied Industrial Technologies, Inc., as amended on October 19, 1999 (filed as Exhibit 3(b) to the Company’s Form 10-Q for the quarter ended September 30, 1999, SEC File No. 1-2299, and incorporated here by reference). 4.1 Certificate of Merger of Bearings, Inc. (Ohio) (now named Applied Industrial Technologies, Inc.) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988, including an Agreement and Plan of Reorganization dated September 6, 1988 (filed as Exhibit 4(a) to the Company’s Registration Statement on Form S-4 filed May 23, 1997, Registration No. 333-27801, and incorporated here by reference). 4.2 Amended and Restated Note Purchase and Private Shelf Agreement dated as of October 30, 2019, between Applied Industrial Technologies, Inc.and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates (filed as Exhibit 10.1 to the Company's Form 8-K filed November 5, 2019, SEC File No. 1-2299, and incorporated here by reference). 4.3 Amendment No. 1 to Amended and Restated Note Purchase and Private Shelf Agreement dated as of March 26, 2021 between Applied Industrial Technologies, Inc. and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), and certain of its affiliates, (filed as Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference). 4.4 Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 9, 2021, between Applied and PGIM, Inc., (filed as Exhibit 10.2 to the Company's Form 8-K filed December 14, 2021, SEC File No. 1-2299, and incorporated here by reference). 4.5 Amendment No. 3 to Amended and Restated Note Purchase and Private Shelf Agreement, dated as of October 28, 2022, between Applied and PGIM, Inc. (filed as Exhibit 10.1 to the Company's Form 8-K filed November 1, 2022, SEC File No. 1-2299, as incorporated here by reference). 4.6 Credit Agreement dated as of December 9, 2021, among Applied Industrial Technologies, Inc., KeyBank National Association as Agent, and various financial institutions, (filed as Exhibit 10.1 to the Company's Form 8-K filed December 14, 2021, SEC File No. 1-2299, and incorporated here by reference). 4.7 First Amendment Agreement, dated as of May 12, 2023, among Applied Industrial Technologies, Inc., KeyBank National Association as Agent, and the Lenders set forth therein (filed as Exhibit 4.7 to Applied’s Form 10-K for the fiscal year ended June 30, 2023, SEC File No. 1-2299, and incorporated here by reference). 4.8 Guaranty of Payment Joinder, dated as of January 16, 2025, among Applied Bearing Distributors, LLC, Cangro Industries, LLC, Itech Automation Solutions, LLC, KeyBank National Association as Agent, and various financial institutions. 4.9 Guaranty of Payment Joinder, dated as of March 14, 2025, among Stanley M. Proctor Company, LLC, KeyBank National Association as Agent, and various financial institutions. 4.10 Guaranty of Payment Joinder, dated as of March 14, 2025, among Hydradyne, LLC., KeyBank National Association as Agent, and various financial institutions. 4.11 Receivables Financing Agreement dated as of August 31, 2018 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.1 to the Company's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference). 4.12 Amendment No. 1 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of March 26, 2021 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.2 to the Company's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference).

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4.13 Amendment No. 2 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty, dated as of May 12, 2023, by and among AIT Receivables, LLC, Applied Industrial Technologies, Inc., PNC Bank, National Association, Regions Bank, and PNC Capital Markets LLC (filed as Exhibit 4.10 to Applied’s Form 10-K for the fiscal year ended June 30, 2023, SEC File No. 1-2299, and incorporated here by reference). 4.14 Purchase and Sale Agreement dated as of August 31, 2018 among various entities listed on Schedule I thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to the Company's Form 8-K filed September 6, 2018, SEC File No. 1-2299, and incorporated here by reference). 4.15 Amendment No. 1 to Purchase and Sale Agreement dated as of November 19, 2018 among Applied Industrial Technologies, Inc. and various of its affiliates, as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer, (filed as Exhibit 4.10 to the Company’s Form 10-Q for the quarter ended March 31, 2021, SEC File No. 1-2299, and incorporated here by reference). 4.16 Amendment No. 2 to Purchase and Sale Agreement dated as of March 26, 2021 among various entities listed on Schedule 1 thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to the Company's Form 8-K filed March 29, 2021, SEC File No. 1-2299, and incorporated here by reference). 4.17 Amendment No. 3 to Receivables Financing Agreement and Reaffirmation of Performance Guaranty dated as of August 6, 2023 among AIT Receivables LLC, as borrower, PNC Bank, National Association, as administrative agent, Applied Industrial Technologies, Inc., as initial servicer, PNC Capital Markets LLC, as structuring agent, and the additional persons from time to time party thereto, as lenders (filed as Exhibit 10.1 to Applied’s Form 8-K filed August 9, 2023, SEC File No. 1-2299, and incorporated here by reference). 4.18 Amendment No. 3 to Purchase and Sale Agreement dated as of August 4, 2023 among various entities listed on Schedule I thereto (including Applied Industrial Technologies, Inc.), as originators, Applied Industrial Technologies, Inc., as servicer, and AIT Receivables LLC, as buyer (filed as Exhibit 10.2 to Applied’s Form 8-K filed August 9, 2023, SEC File No. 1-2299, and incorporated here by reference). (31) Rule 13a-14(a)/15d-14(a) certifications (32) Section 1350 certifications (95) Mine safety and health disclosures (101) The following financial information from Applied Industrial Technologies Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Statements of Consolidated Income, (ii) the Condensed Statements of Consolidated Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Statements of Consolidated Cash Flows, (v) the Condensed Statements of Shareholders' Equity, and (vi) the Notes to Condensed Consolidated Financial Statements. (104) Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

The Company will furnish a copy of any exhibit described above and not contained herein upon payment of a specified reasonable fee which shall be limited to the Company’s reasonable expenses in furnishing the exhibit.

Certain instruments with respect to long-term debt have not been filed as exhibits because the total amount of securities authorized under any one of the instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of each such instrument.