# Applied Industrial Technologies (AIT) — Financial Analysis

**Exchange:**   
**Coverage as of:** 2026-Q2  
**Updated:** 2026-06-10  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/AIT/thesis · /stocks/AIT/memo

## Financial Snapshot

---
source: coverage-next-full
ticker: AIT
step: 04
title: Financial Quality & Adversarial Sweep
date: 2026-06-08
---

### Step 04 — Financial Quality: Applied Industrial Technologies (AIT)

#### 1. Financial Statement Quality Assessment

##### Income Statement Quality

| Item | Assessment | Notes |
|------|-----------|-------|
| Revenue recognition | Clean | Product sales recognized on delivery; no complex multi-element arrangements |
| Gross margin trend | Genuine improvement | 28.9% → 30.3% FY2021–FY2025; driven by mix shift and pricing [S1] |
| SG&A | Disciplined | Growing sublinearly with revenue; operating leverage visible |
| D&A | Normal | ~$60M on ~$3B+ goodwill/assets; no unusual acceleration |
| Tax rate | Normalized | 21-23% effective rate for last 4 years; clean |
| EPS adjustments | Minimal | Low SBC ($12M on $393M net income = 3%); no persistent "adjusted" EPS inflation |
| FY2020 anomaly | Explained | Large impairment charge related to goodwill write-down; clearly disclosed, non-recurring |

##### Cash Flow Quality

| Metric | FY2025 | FY2024 | FY2023 | FY2022 | Assessment |
|--------|--------|--------|--------|--------|-----------|
| OCF / Net Income | 125% | 96% | 99% | 73% | FY2025/FY2022 timing; FY2022 was inventory build |
| FCF / Net Income | 118% | 90% | 92% | 66% | Above 100% = high quality |
| D&A / Capex | ~2.2x | ~2.2x | ~2.1x | ~1.8x | Capex << D&A → not asset-starved; maintenance capex only |
| Working capital | Neutral | Neutral | Modest drag | Large build | FY2022 inventory build (supply chain); normalized since |

**FCF quality: HIGH.** AIT's FCF conversion averages ~90-100% of net income over the cycle. FY2025's 118% reflects inventory normalization after supply-chain surge. No evidence of channel stuffing or aggressive A/R management. [S2]

##### Balance Sheet Quality

| Item | Assessment |
|------|-----------|
| Goodwill/Intangibles | ~$1.2B on $3.2B total assets (~38%); reasonable for M&A-driven distributor |
| Inventory | ~$800M (est.); turns ~5-6x annually consistent with distribution business |
| Receivables | ~$800M (est.); consistent 45-50 day DSO for industrial distribution |
| Debt structure | $572M term loans; maturity profile comfortable; de-levering trend |
| Pension obligations | Minimal; defined contribution plan primarily |
| Off-balance-sheet | No material operating leases concealed; ASC 842 adopted |

#### 2. Financial Statement Adjustments

##### Adjustments to Reported Figures

| Adjustment | Amount | Direction | Rationale |
|------------|--------|-----------|-----------|
| FY2020 goodwill impairment | +$X (unknown exact) | One-time removal | Non-cash; not representative of ongoing earnings |
| SBC expense | $12M FY2025 | Leave in; not adjusted | Low; management discipline on equity comp |
| Amortization of acquired intangibles | ~$40-50M est. | Leave in for GAAP EPS | Include in adjusted EBITDA; normal for M&A roll-up |
| Restructuring charges | Minor; disclosed | Leave in | AIT has not run a restructuring program in recent years |

**Conclusion:** AIT's reported earnings require minimal adjustment. GAAP EPS and adjusted EPS are close. No persistent non-GAAP inflation. [S1][S3]

#### 3. Adversarial Research Sweep

**Note:** This analysis is based on filings, press releases, and publicly available information. Earnings transcripts were not reviewed (coverage-next-full path).

##### Short Interest / Short Reports
- **Short interest:** AIT is not a heavily shorted stock. No prominent short-seller reports identified. Short interest is estimated at <3% of float (typical for quality industrials).
- **No Muddy Waters / Hindenburg / Spruce Point reports found** [S4]

##### Legal / Regulatory Risk
- **No material litigation disclosed** in recent 10-K filings. AIT discloses routine commercial litigation as immaterial.
- **Antitrust risk:** Industrial distribution is fragmented and no M&A has triggered significant antitrust review.
- **OSHA/EPA compliance:** Routine for a distributor; no material violations identified.
- No material legal proceedings in FY2025 10-K [S2].

##### Accounting Concerns
- **Revenue recognition:** Product sales on delivery; straightforward. No long-term contract revenue concerns.
- **Goodwill:** ~$1.2B goodwill; last impairment was FY2020. Management performs annual impairment tests; no indicators of impairment in recent filings.
- **Inventory valuation:** FIFO method; no unusual write-downs identified. Inventory turns consistent with distribution norms.
- **Related-party transactions:** None identified beyond standard executive compensation arrangements.

##### ESG / Governance Concerns
- **Board tenure:** SimplyWallSt flagged that only one new director was added in 3 years — a governance yellow flag. Board is predominantly long-tenured. [S5]
- **CEO tenure:** Neil Schrimsher has been CEO 14+ years — very long tenure; succession planning is a legitimate concern.
- **Insider selling:** CEO and Chairman sold ~$24M in AIT shares over trailing 12 months. Pattern appears to be systematic 10b5-1 plan diversification rather than bearish conviction — CEO retains ~130,966 shares (~$37-40M in value). [S5]
- **Say-on-pay:** 96.3% approval — high; no governance crisis here.
- **Environmental:** No material litigation; AIT is a distributor (does not manufacture), so direct environmental footprint is limited.

##### Quality Flags Summary

| Flag | Severity | Resolution |
|------|---------|-----------|
| Board refreshment slow | Yellow | Monitor; no immediate risk |
| CEO tenure (14 years) | Yellow | Long tenure has also delivered excellent results |
| FY2020 goodwill impairment | Resolved | One-time; not repeated |
| Insider selling pattern | Yellow/Green | Systematic 10b5-1 plan; CEO retains large position |
| FY2022 OCF/NI only 73% | Explained | Supply-chain inventory build; reversed in FY2023-FY2025 |

**Overall quality assessment: HIGH QUALITY — PASS.** No red flags. AIT is a well-run company with transparent financials, clean cash conversion, and a conservative capital structure. Minor governance yellow flags exist but do not affect investment thesis.

#### Source Index

[S1] SEC EDGAR XBRL — financial history FY2020–FY2025
[S2] AIT 10-K FY2025 — sec_filings/10K_FY2025_summary.md (litigation, accounting policies)
[S3] StockAnalysis.com — FCF conversion, ratio analysis
[S4] Public records search — no short reports found
[S5] Proxy/governance file — proxy/governance_and_compensation.md; insider transactions file

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/AIT/fundamental

## Navigation

- Overview: /stocks/AIT
- Financials (this page): /stocks/AIT/financials
- Thesis: /stocks/AIT/thesis
- Investment Memo: /stocks/AIT/memo
- Coverage universe: /stocks