IDEX CORPORATION Cautionary Statement Under the Private Securities Litigation Reform Act
This quarterly report on Form 10-Q, including the "Overview," "Liquidity and Capital Resources" and "Results of Operations" sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, the Company's expected organic sales growth and expected earnings per share, and the assumptions underlying these expectations, plant and equipment capacity for future growth, anticipated future acquisition behavior, availability of cash and financing alternatives and the anticipated benefits of the Company's acquisitions of bothABEL Pumps, L.P. and certain of its affiliates andAirtech Group, Inc. ,US Valve Corporation and related entities, and are indicated by words or phrases such as "anticipates," "estimates," "plans," "guidance," "expects," "projects," "forecasts," "should," "could," "will," "management believes," "the Company believes," "the Company intends" and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this report. The risks and uncertainties include, but are not limited to, the following: the duration of the COVID-19 pandemic and the continuing effects of the COVID-19 pandemic (including the emergence of variant strains) on the Company's ability to operate its business and facilities, on the Company's customers, on supply chains and on theU.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in theU.S. and other countries around the world; pricing pressures and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company's results; the Company's ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of theU.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; interest rates; capacity utilization and the effect this has on costs; labor markets; supply chain backlogs, including risks affecting component availability, labor inefficiencies and freight logistical challenges; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the "Risk Factors" section included in the Company's most recent annual report on Form 10-K and the Company's subsequent quarterly reports filed with theSecurities and Exchange Commission ("SEC") and the other risks discussed in the Company's filings with theSEC . The forward-looking statements included here are only made as of the date of this report, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.
Overview
IDEX Corporation ("IDEX" or the "Company") is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers' specifications. IDEX's products are sold in niche markets across a wide range of industries throughout the world. Accordingly, IDEX's businesses are affected by levels of industrial activity and economic conditions in theU.S. and in other countries where it does business and by the relationship of theU.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for IDEX's products. The Company has three reportable business segments:Fluid & Metering Technologies ("FMT"), Health & Science Technologies ("HST") and Fire & Safety/Diversified Products ("FSDP"). Within its three reportable segments, the Company maintains 13 reporting units that focus on organic growth and strategic acquisitions. Each of the 13 reporting units is tested annually for goodwill impairment. The FMT segment designs, produces and distributes positive displacement pumps, small volume provers, flow meters, injectors and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water and wastewater, agriculture and energy industries. The FMT segment contains the Energy reporting unit (comprised ofCorken , Liquid Controls, SAMPI, Toptech and Flow MD), the Valves reporting unit (comprised of Alfa Valvole, OBL, Richter and Aegis), the Water reporting unit (comprised ofPulsafeeder , Knight, ADS, Trebor and iPEK), the Pumps reporting unit (comprised of Viking,Warren Rupp and ABEL) and the Agriculture reporting unit (comprised of Banjo). The HST segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and 35 -------------------------------------------------------------------------------- Table of Content cosmetics, pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded sealing components, custom mechanical and shaft seals for a variety of end markets including food and beverage, marine, chemical, wastewater and water treatment, engineered hygienic mixers and valves for the global biopharmaceutical industry, biocompatible medical devices and implantables, air compressors and regenerative blowers used in medical, dental, alternative energy and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The HST segment contains the Scientific Fluidics & Optics reporting unit (comprised of Eastern Plastics, Rheodyne, Sapphire Engineering, Upchurch Scientific, ERC, thinXXS,CVI Melles Griot , Semrock,Advanced Thin Films and FLI), the Sealing Solutions reporting unit (comprised ofPrecision Polymer Engineering , FTL Seals Technology, Novotema,SFC Koenig andVelcora ), the Performance Pneumatic Technologies reporting unit (comprised of Gast and Airtech), theMicropump reporting unit and the Material Processing Technologies reporting unit (comprised of Quadro, Fitzpatrick,Microfluidics andMatcon ). The FSDP segment designs, produces and develops firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world. The FSDP segment is comprised of the Fire & Safety reporting unit (comprised of Class 1, Hale, Akron Brass, Weldon, AWG Fittings, Godiva, Dinglee,Hurst Jaws of Life , Lukas and Vetter), the BAND-IT reporting unit and the Dispensing reporting unit. Management's primary measurements of segment performance are sales, operating income and operating margin. These measures are monitored by management and significant changes in operating results versus current trends in end markets and variances from forecasts are analyzed with segment management. Discussed below are certain non-GAAP financial measures, including Organic sales, Adjusted operating income, Adjusted net income, Adjusted earnings per share ("EPS"), Earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA. These non-GAAP measures have been defined and reconciled to their most directly comparableU.S. GAAP measures in Item 2 under the heading "Non-GAAP Disclosures." The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance withU.S. GAAP. The financial results prepared in accordance withU.S. GAAP and the reconciliations from these results should be carefully evaluated.
Some of the Company's key financial results for the three months ended
•Sales of$712.0 million increased 23%; organic sales (which excludes acquisitions/divestitures and foreign currency translation) were up 15%. •Operating income of$161.2 million increased 23%. Adjusted operating income increased 29% to$173.1 million . •Operating margin of 22.6% was flat. Adjusted operating margin increased 120 basis points to 24.3%. •Net income attributable to IDEX of$115.7 million increased 11%. Adjusted net income increased 18% to$125.0 million . •EBITDA of$187.5 million was 26% of sales and covered interest expense by almost 20 times. Adjusted EBITDA of$199.4 million was 28% of sales and covered interest expense by 21 times. •Diluted EPS of$1.51 increased14 cents , or 10%. Adjusted EPS of$1.63 increased23 cents , or 16%.
Some of the Company's key financial results for the nine months ended
•Sales of$2,050.0 million increased 18%; organic sales (which excludes acquisitions/divestitures and foreign currency translation) were up 12%. •Operating income of$475.0 million increased 24%. Adjusted operating income increased 27% to$498.6 million . •Operating margin increased 120 basis points to 23.2%. Adjusted operating margin increased 170 basis points to 24.3%. •Net income attributable to IDEX of$330.6 million increased 19%. Adjusted net income increased 25% to$363.1 million . 36 -------------------------------------------------------------------------------- Table of Content •EBITDA of$531.0 million was 26% of sales and covered interest expense by almost 17 times. Adjusted EBITDA of$572.9 million was 28% of sales and covered interest expense by over 18 times. •Diluted EPS of$4.33 increased69 cents , or 19%. Adjusted EPS of$4.75 increased91 cents , or 24%.
Results of Operations
The following is a discussion and analysis of the Company's results of
operations for the three and nine months ended
Consolidated Results for the Three and Nine Months Ended
Nine Months Ended
(In thousands except per share amounts) Three Months Ended September 30, September 30,
2021 2020 2021 2020
Net sales $ 712,019 $ 581,113 $ 2,050,002 $ 1,736,824
Cost of sales 400,450 329,613 1,139,738 978,568
Gross profit 311,569 251,500 910,264 758,256
Selling, general and administrative expenses 147,180 117,370 426,708 369,750
Restructuring expenses and asset impairments 3,204 2,917 8,568 6,758
Operating income 161,185 131,213 474,988 381,748
Other expense (income) - net 630 (704) 16,957 7,321
Interest expense 9,498 10,642 31,479 33,958
Income before taxes 151,057 121,275 426,552 340,469
Provision for income taxes 35,343 17,427 95,987 63,759
Net income 115,714 103,848 330,565 276,710
Net loss attributable to noncontrolling
interest 28 - 80 -
Net income attributable to IDEX $ 115,742 $ 103,848 $ 330,645 $ 276,710
Basic earnings per common share attributable
to IDEX $ 1.52 $ 1.38 $ 4.35 $ 3.66
Diluted earnings per common share
attributable to IDEX $ 1.51 $ 1.37 $ 4.33 $ 3.64
Sales in the third quarter of 2021 were $712.0 million , which was a 23% increase
compared to the same period in 2020. This reflects a 15% increase in organic
sales, a net 7% increase from acquisitions (Airtech - June 2021 and ABEL - March
2021 ) and a 1% favorable impact from foreign currency translation. Sales to
customers outside the U.S. represented approximately 49% of total sales in the
third quarter of 2021 compared to 51% during the same period in 2020.
Sales in the first nine months of 2021 were $2,050.0 million , which was an 18%
increase compared to the same period in 2020. This reflects a 12% increase in
organic sales, a net 3% increase from acquisitions (Airtech - June 2021 , ABEL -
March 2021 and Flow MD - February 2020 ) and a 3% favorable impact from foreign
currency translation. Sales to customers outside the U.S. represented
approximately 52% of total sales in the first nine months of 2021 compared to
50% during the same period in 2020.
Gross profit of $311.6 million in the third quarter of 2021 increased $60.1
million , or 24%, compared to the same period in 2020 and gross margin of 43.8%
in the third quarter of 2021 increased 50 basis points from 43.3% during the
same period in 2020. Gross profit of $910.3 million in the first nine months of
2021 increased $152.0 million , or 20%, compared to the same period in 2020 and
gross margin of 44.4% in the first nine months of 2021 increased 70 basis points
from 43.7% during the same period in 2020. These increases are a result of
higher volume and price capture, partially offset by the fair value inventory
step-up charges related to both the ABEL and Airtech acquisitions, inflation and
supply chain constraints.
Selling, general and administrative expenses increased to $147.2 million in the
third quarter of 2021 from $117.4 million during the same period in 2020 and to
$426.7 million in the first nine months of 2021 from $369.8 million during the
same period in 2020. The increase in both comparative periods was primarily due
to higher fixed and variable compensation expenses and amortization from both
the ABEL and Airtech acquisitions. Additionally, expenses in the first nine
months of 2021 include the impact of the settlement for a Corporate transaction
indemnity and higher professional fees related to acquisitions as compared to
the prior year period. As a percentage of sales, selling, general and
administrative expenses were 20.7% for the
37--------------------------------------------------------------------------------
Table of Content third quarter of 2021, up 50 basis points compared to 20.2% during the same period in 2020, and 20.8% for the first nine months of 2021, down 50 basis points compared to 21.3% during the same period in 2020.
The Company incurred$3.2 million and$8.6 million of restructuring expenses and asset impairments in the three and nine months endedSeptember 30, 2021 , respectively, primarily related to severance benefits for cost reduction actions consisting of employee reductions as well as asset impairments related to property, plant and equipment resulting from the consolidation of certain facilities. The restructuring expenses in the three and nine months endedSeptember 30, 2020 primarily related to severance benefits for cost reduction actions primarily consisting of employee reductions due to lower demand as a result of the COVID-19 pandemic. Operating income of$161.2 million in the third quarter of 2021 was higher than the$131.2 million recorded during the same period in 2020, while operating margin of 22.6% was flat compared with the same period in 2020. Operating income of$475.0 million and operating margin of 23.2% in the first nine months of 2021 were up from the$381.7 million and 22.0%, respectively, recorded during the same period in 2020. The increase in operating income in both comparative periods was driven by higher volume and price capture, partially offset by amortization and the fair value inventory step-up charges related to the ABEL and Airtech acquisitions, inflation, supply chain constraints and targeted increases in discretionary spending. Other expense (income) - net increased to$0.6 million of expense in the third quarter of 2021 compared to$0.7 million of income during the same period in 2020, primarily due to$1.2 million of losses on trading securities. Other expense (income) - net was$17.0 million of expense in the first nine months of 2021 compared to$7.3 million of expense during the same period in 2020, primarily due to a$9.7 million noncash loss related to the termination of theU.S. pension plan in the current year period. Other expense (income) - net includes a loss on early debt redemption of$8.6 million for the nine months endedSeptember 30, 2021 and$8.4 million for the nine months endedSeptember 30, 2020 .
Interest expense decreased in both comparative periods as a result of lower interest rates on the Senior Notes, partially offset by an increase in the amount of debt outstanding compared to the prior year.
The Company's provision for income taxes is based upon estimated annual tax rates for the year applied to federal, state and foreign income. The provision for income taxes increased to$35.3 million in the third quarter of 2021 compared to$17.4 million during the same period in 2020. The effective tax rate increased to 23.4% in the third quarter of 2021 compared to 14.4% during the same period in 2020. The provision for income taxes increased to$96.0 million in the first nine months of 2021 compared to$63.8 million during the same period in 2020. The effective tax rate increased to 22.5% in the first nine months of 2021 compared to 18.7% during the same period in 2020. The increase in both comparative periods was primarily due to the impact of the finalization of the GILTI regulations enacted in the third quarter of 2020 as well as a decrease in the excess tax benefit related to share-based compensation in the current period. Net income attributable to IDEX of$115.7 million in the third quarter of 2021 increased from$103.8 million during the same period in 2020. Diluted earnings per share of$1.51 in the third quarter of 2021 increased$0.14 , or 10%, compared to the same period in 2020. Net income attributable to IDEX of$330.6 million in the first nine months of 2021 increased from$276.7 million during the same period in 2020. Diluted earnings per share of$4.33 in the first nine months of 2021 increased$0.69 , or 19%, compared to the same period in 2020. The table below illustrates sales, operating income and EBITDA contributed by each segment on a basis of total segments (not total Company) for the three and nine months endedSeptember 30, 2021 . Segment operating income and EBITDA exclude unallocated corporate operating expenses of$17.3 million and$14.2 million for the three months endedSeptember 30, 2021 and 2020, respectively, and$59.9 million and$48.9 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 FMT HST FSDP IDEX FMT HST FSDP IDEX Sales 35 % 43 % 22 % 100 % 36 % 40 % 24 % 100 % Operating Income 39 % 39 % 22 % 100 % 36 % 40 % 24 % 100 % EBITDA 37 % 42 % 21 % 100 % 35 % 42 % 23 % 100 % 38
--------------------------------------------------------------------------------
Table of Content
Fluid & Metering Technologies Segment
(In thousands) Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Net sales $ 251,297 $ 220,747 $ 30,550 $ 745,939 $ 666,720 $ 79,219
Operating income 69,020 58,402 10,618 195,384 176,111 19,273
Operating margin 27.5 % 26.5 % 100 bps 26.2 % 26.4 % (20) bps
Sales of $251.3 million increased $30.6 million , or 14%, in the third quarter of
2021 compared to the same period in 2020. This reflects a 7% increase in organic
sales, a 6% percent increase from acquisitions (ABEL - March 2021 ) and a 1%
favorable impact from foreign currency translation. In the third quarter of
2021, sales increased 12% domestically and 16% internationally compared to the
same period in 2020. Sales to customers outside the U.S. were approximately 46%
of total segment sales in the third quarter of 2021 compared to 45% during the
same period in 2020.
Sales of $745.9 million increased $79.2 million , or 12%, in the first nine
months of 2021 compared to the same period in 2020. This reflects a 6% increase
in organic sales, a 4% increase from acquisitions (ABEL - March 2021 and Flow MD
- February 2020 ) and a 2% favorable impact from foreign currency translation. In
the first nine months of 2021, sales increased 4% domestically and 23%
internationally compared to the same period in 2020. Sales to customers outside
the U.S. were approximately 47% of total segment sales in the first nine months
of 2021 compared to 42% during the same period in 2020.
Sales within the Company's Pumps reporting unit increased in the third quarter
and first nine months of 2021 compared to the same periods in 2020 due to the
acquisition of ABEL and recovery within the industrial market. Sales within the
Company's Agriculture reporting unit increased in the third quarter and first
nine months of 2021 compared to the same periods in 2020 due to increased global
demand. Sales within the Company's Water reporting unit increased in the third
quarter and first nine months of 2021 compared to the same periods in 2020 due
to municipal water recovery and water saving projects. Sales within the
Company's Valves reporting unit slightly decreased in the third quarter of 2021
compared to the same period in 2020 primarily due to lower large project volume
in the chemical market, while sales increased in the first nine months of 2021
compared to the same period in 2020 primarily due to the rebound of the global
industrial landscape. Sales within the Company's Energy reporting unit decreased
in the third quarter and first nine months of 2021 compared to the same periods
in 2020 due to a decline in capital spending in the oil and gas markets.
Operating income of $69.0 million and operating margin of 27.5% in the third
quarter of 2021 were higher than the $58.4 million and 26.5%, respectively,
recorded during the same period in 2020, primarily due to higher volume, price
capture and favorable mix, partially offset by the amortization related to the
ABEL acquisition, inflation, supply chain constraints and targeted increases in
discretionary spending.
Operating income of $195.4 million in the first nine months of 2021 was higher
than the $176.1 million recorded during the same period in 2020, while operating
margin of 26.2% in the first nine months of 2021 was lower than the 26.4%
recorded during the same period in 2020. The decrease in operating margin is
primarily due to the fair value inventory step-up charge and amortization
related to the ABEL acquisition. Higher volume, price capture and favorable mix
more than offset the impacts of inflation, supply chain constraints and targeted
increases in discretionary spending.
Health & Science Technologies Segment
(In thousands) Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Net sales $ 302,287 $ 220,378 $ 81,909 $ 827,668 $ 660,105 $ 167,563
Operating income 70,374 49,912 20,462 212,987 150,562 62,425
Operating margin 23.3 % 22.6 % 70 bps 25.7 % 22.8 % 290 bps
Sales of $302.3 million increased $81.9 million , or 37%, in the third quarter of
2021 compared to the same period in 2020. This reflects a 24% increase in
organic sales, a net 12% increase from acquisitions (Airtech - June 2021 ) and a
1% favorable impact from foreign currency translation. In the third quarter of
2021, sales increased 50% domestically and 27% internationally compared to the
same period in 2020. Sales to customers outside the U.S. were approximately 51%
of total segment sales in the third quarter of 2021 compared to 55% during the
same period in 2020.
39
--------------------------------------------------------------------------------
Table of Content
Sales of $827.7 million increased $167.6 million , or 25%, in the first nine
months of 2021 compared to the same period in 2020. This reflects an 18%
increase in organic sales, a net 4% increase from acquisitions (Airtech - June
2021 ) and a 3% favorable impact from foreign currency translation. In the first
nine months of 2021, sales increased 24% domestically and 27% internationally
compared to the same period in 2020. Sales to customers outside the U.S. were
approximately 57% of total segment sales in the first nine months of 2021
compared to 56% during the same period in 2020.
Sales within the Company's Performance Pneumatic Technologies reporting unit
increased in the third quarter and first nine months of 2021 compared to the
same periods in 2020 primarily due to the acquisition of Airtech, recovery in
the industrial market and targeted growth initiatives. Sales within the
Company's Sealing Solutions reporting unit increased in the third quarter and
first nine months of 2021 compared to the same periods in 2020 primarily due to
strength in the semiconductor market and favorability in the automotive market.
Sales within the Company's Scientific Fluidics & Optics reporting unit increased
in the third quarter and first nine months of 2021 compared to the same periods
in 2020 due to recovery in analytical instrumentation as well as microfluidics
and optics demand. Sales within the Company's Micropump reporting unit increased
in the third quarter and first nine months of 2021 compared to the same periods
in 2020 due to recovery of demand in the inkjet printing market. Sales within
the Company's Material Processing Technologies reporting unit increased in the
third quarter and first nine months of 2021 compared to the same periods in 2020
primarily due to increased demand in the food and pharmaceutical markets.
Operating income of $70.4 million and operating margin of 23.3% in the third
quarter of 2021 were higher than the $49.9 million and 22.6%, respectively,
recorded during the same period in 2020, while operating income of $213.0
million and operating margin of 25.7% in the first nine months of 2021 were
higher than the $150.6 million and 22.8%, respectively, recorded during the same
period in 2020. The increases in operating income and operating margin in both
comparative periods were driven primarily by higher volume, price capture and
favorable mix, partially offset by amortization and the $9.1 million fair value
inventory step-up charge related to the Airtech acquisition, inflation, supply
chain constraints and targeted increases in discretionary spending.
Fire & Safety/Diversified Products Segment
(In thousands) Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Net sales $ 159,106 $ 140,896 $ 18,210 $ 479,402 $ 412,296 $ 67,106
Operating income 39,126 37,103 2,023 126,483 103,977 22,506
Operating margin 24.6 % 26.3 % (170) bps 26.4 % 25.2 % 120 bps
Sales of $159.1 million increased $18.2 million , or 13%, in the third quarter of
2021 compared to the same period in 2020. This reflects a 12% increase in
organic sales and a 1% favorable impact from foreign currency translation. In
the third quarter of 2021, sales increased 22% domestically and 5%
internationally compared to the same period in 2020. Sales to customers outside
the U.S. were approximately 50% of total segment sales in the third quarter of
2021 compared to 54% during the same period in 2020.
Sales of $479.4 million increased $67.1 million , or 16%, in the first nine
months of 2021 compared to the same period in 2020. This reflects a 13% increase
in organic sales and a 3% favorable impact from foreign currency translation. In
the first nine months of 2021, sales increased 11% domestically and 21%
internationally compared to the same period in 2020. Sales to customers outside
the U.S. were approximately 53% of total segment sales in the first nine months
of 2021 compared to 51% during the same period in 2020.
Sales within the Company's Dispensing reporting unit increased in the third
quarter and first nine months of 2021 compared to the same periods in 2020
primarily due to strong demand in the paint market. Sales within the Company's
BAND-IT reporting unit increased in the third quarter and first nine months of
2021 compared to the same periods in 2020 due to a rebound in the aerospace,
energy and industrial markets. Sales within the Company's Fire & Safety
reporting unit decreased in the third quarter of 2021 compared to the same
period in 2020 due to supply chain constraints and a delay in larger project
tenders, while sales increased in the first nine months of 2021 compared to the
same period in 2020 primarily due to recovery of the market globally for the
Fire business.
Operating income of $39.1 million in the third quarter of 2021 was higher than
the $37.1 million recorded during the same period in 2020, while operating
margin of 24.6% in the third quarter of 2021 was lower than the 26.3% recorded
during the same period in 2020. Price capture and volume leverage offsets faced
stronger headwinds within the segment due to higher direct OEM exposure and
higher levels of material intensity due to vertical integration.
40
--------------------------------------------------------------------------------
Table of Content
Operating income of $126.5 million and operating margin of 26.4% in the first
nine months of 2021 were higher than the $104.0 million and 25.2%, respectively,
recorded during the same period in 2020, primarily due to higher volume and
price capture, partially offset by inflation, supply chain constraints and
targeted increases in discretionary spending.
Corporate
Corporate costs increased to$17.3 million in the third quarter of 2021 from$14.2 million during the same period in 2020 and$59.9 million in the first nine months of 2021 compared to$48.9 million during the same period in 2020, primarily as a result of higher variable compensation and employee-related expenses.
Liquidity and Capital Resources
Liquidity
The Company believes current cash, cash from operations and cash available under the Revolving Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements and quarterly dividend payments to holders of the Company's common stock for the foreseeable future. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings. As ofSeptember 30, 2021 , there was no balance outstanding under the Revolving Facility and$7.2 million of outstanding letters of credit, resulting in a net available borrowing capacity under the Revolving Facility of$792.8 million . The Company believes that additional borrowings through various financing alternatives remain available, if required. The Company also has Senior Notes outstanding. For a discussion of the Company's Senior Notes, please see Note 11 in the Notes to Condensed Consolidated Financial Statements. AtSeptember 30, 2021 , the Company was in compliance with covenants contained in the Credit Agreement and other long-term debt agreements.
Operating Activities
Cash flows from operating activities for the first nine months of 2021 decreased$5.7 million , or 1%, to$402.2 million compared to the first nine months of 2020 primarily due to unfavorable changes in working capital, partially offset by higher earnings. AtSeptember 30, 2021 , working capital was$1,114.3 million and the Company's current ratio was 3.4 to 1. AtSeptember 30, 2021 , the Company's cash and cash equivalents totaled$806.5 million , of which$527.3 million was held outside ofthe United States . The COVID-19 pandemic (including the emergence of variant strains) has impacted and may continue to impact the Company's operating cash flows through direct and indirect effects on the Company's operations, customers and supply chain. Although the Company has been able to operate through the COVID-19 pandemic with only temporary shutdowns, any future disruptions due to operational shutdowns may impact the Company's ability to operate as well as generate operating cash flow. Based on currently available information and management's current expectations, the Company anticipates that it has sufficient cash on hand and sufficient access to capital to continue to fund operations for at least the next twelve months.
Investing Activities
Cash flows used in investing activities for the first nine months of 2021
increased by
Financing Activities
Cash flows provided by financing activities for the first nine months of 2021 were$24.5 million compared to$20.8 million used in financing activities during the same period in 2020, primarily due to share repurchases in 2020 that did not reoccur in 2021, partially offset by the redemption of an incremental$50.0 million of Senior Notes as compared to the prior year period and lower proceeds from stock option exercises. 41 -------------------------------------------------------------------------------- Table of Content Capital Expenditures Cash flows from operations were more than adequate to fund capital expenditures of$45.5 million and$39.4 million in the first nine months of 2021 and 2020, respectively. The Company believes it has sufficient operating cash flow to continue to meet current obligations and invest in planned capital expenditures. Capital expenditures are generally expenditures for machinery and equipment that support growth and improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. Management believes that the Company has ample capacity in its plants and equipment to meet demand increases for future growth in the intermediate term.
Share Repurchases
OnMarch 17, 2020 , the Company's Board of Directors approved an increase of$500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorization of the Board of Directors of$300.0 million onDecember 1, 2015 . Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. There were no share repurchases during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2020 , the Company repurchased a total of 876 thousand shares at a cost of$110.3 million . As ofSeptember 30, 2021 , the amount of share repurchase authorization remaining is$712.0 million . Non-GAAP Disclosures Set forth below are reconciliations of Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS, EBITDA and Adjusted EBITDA to the comparable measures of gross profit, operating income, net income and EPS, as determined in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). The Company has reconciled Adjusted gross profit to Gross profit, Adjusted operating income to Operating income; Adjusted net income to Net income; Adjusted EPS to EPS; and consolidated EBITDA, segment EBITDA, Adjusted consolidated EBITDA and Adjusted segment EBITDA to Net income. The reconciliation of segment EBITDA and Adjusted segment EBITDA to net income was performed on a consolidated basis due to the fact that the Company does not allocate consolidated interest expense or the consolidated provision for income taxes to its segments. Given the acquisitive nature of the Company, which results in a higher level of amortization expense from recently acquired businesses, management uses EBITDA as an internal operating metric to provide another representation of the businesses' performance across the Company's three segments and for enterprise valuation purposes. Management believes that EBITDA is useful to investors as an indicator of the strength and performance of the Company and a way to evaluate and compare operating performance and value companies within the Company's industry. Management believes that EBITDA margin is useful for the same reason as EBITDA. EBITDA is also used to calculate certain financial covenants, as discussed in Note 11 in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, "Financial Statements" such as EBITDA interest coverage, which is EBITDA divided by consolidated interest expense. In addition, this report presents Adjusted EBITDA, which is EBITDA adjusted for items that are not reflective of ongoing operations, such as fair value inventory step-up charges, restructuring expenses and asset impairments, the impact of the settlement for a Corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of theU.S. pension plan, and Adjusted EBITDA interest coverage, which is Adjusted EBITDA divided by consolidated interest expense. Management believes that Adjusted EBITDA is useful as a performance indicator of ongoing operations. The Company believes that Adjusted EBITDA is also useful to some investors as an indicator of the strength and performance of the Company and its segments' ongoing business operations and a way to evaluate and compare operating performance and value companies within the Company's industry. The definition of Adjusted EBITDA used here may differ from that used by other companies. This report references organic sales, a non-GAAP measure, that refers to sales from continuing operations calculated according toU.S. GAAP but excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or prior to divestiture. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping to identify underlying growth trends in the Company's business and facilitating easier comparisons of the Company's revenue performance with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management's control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers. 42
--------------------------------------------------------------------------------
Table of Content
Organic sales have been reconciled to net sales and EBITDA has been reconciled to net income in Item 2 under the heading "Non-GAAP Disclosures." The reconciliation of segment EBITDA to net income was performed on a consolidated basis due to the fact that the Company does not allocate consolidated interest expense or the consolidated provision for income taxes to its segments. Management uses Adjusted gross profit, Adjusted operating income, Adjusted net income, Adjusted EPS and Adjusted EBITDA as metrics by which to measure performance of the Company since they exclude items that are not reflective of ongoing operations, such as fair value inventory step-up charges, restructuring expenses and asset impairments, the impact of the settlement for a Corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of theU.S. pension plan. Management also supplements itsU.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making. In addition to measuring the Company's cash flow generation and usage based upon the operating, investing and financing classifications included in the Condensed Consolidated Statements of Cash Flows, the Company also measures free cash flow (a non-GAAP measure) which represents net cash provided by operating activities minus capital expenditures. The Company believes that free cash flow is an important measure of operating performance because it provides management a measurement of cash generated from operations that is available for mandatory payment obligations and investment opportunities, such as funding acquisitions, paying dividends, repaying debt and repurchasing the Company's common stock. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance withU.S. GAAP. The financial results prepared in accordance withU.S. GAAP and the reconciliations from these results should be carefully evaluated. 1. Reconciliations of the Change inNet Sales to OrganicNet Sales
Three Months Ended
FMT HST FSDP IDEX
Change in net sales 14 % 37 % 13 % 23 %
- Net impact from acquisitions/divestitures 6 % 12 % - % 7 %
- Impact on foreign currency 1 % 1 % 1 % 1 %
Change in organic net sales 7 % 24 % 12 % 15 %
Nine Months Ended
FMT HST FSDP IDEX
Change in net sales 12 % 25 % 16 % 18 %
- Net impact from acquisitions/divestitures 4 % 4 % - % 3 %
- Impact on foreign currency 2 % 3 % 3 % 3 %
Change in organic net sales 6 % 18 % 13 % 12 %
43
--------------------------------------------------------------------------------
Table of Content
2. Reconciliations of Reported-to-Adjusted Gross Profit and Margin
(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Gross profit $ 311,569 $ 251,500 $ 910,264 $ 758,256
+ Fair value inventory step-up charges 9,100 - 11,586 4,107
Adjusted gross profit $ 320,669 $ 251,500 $ 921,850 $ 762,363
Net sales $ 712,019 $ 581,113 $ 2,050,002 $ 1,736,824
Gross profit margin 43.8 % 43.3 % 44.4 % 43.7 %
Adjusted gross profit margin 45.0 % 43.3 % 45.0 % 43.9 %
3. Reconciliations of Reported-to-Adjusted Operating Income and Margin
(dollars in thousands)
Three Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss) $ 69,020 $
70,374
+ Restructuring expenses and asset impairments 1,934 626 (55) 699 3,204 + Fair value inventory step-up charges - 9,100 - - 9,100 + Corporate transaction indemnity - - - (400) (400) Adjusted operating income (loss)$ 70,954 $ 80,100 $ 39,071 $ (17,036) $ 173,089 Net sales (eliminations)$ 251,297 $ 302,287 $ 159,106 $ (671) $ 712,019 Operating margin 27.5 % 23.3 % 24.6 % n/m 22.6 % Adjusted operating margin 28.2 % 26.5 % 24.6 % n/m 24.3 % Three
Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
585 978 1,249 105 2,917
Adjusted operating income (loss)
Net sales (eliminations)$ 220,747 $ 220,378 $ 140,896 $ (908) $ 581,113 Operating margin 26.5 % 22.6 % 26.3 % n/m 22.6 % Adjusted operating margin 26.7 % 23.1 % 27.2 % n/m 23.1 % 44
--------------------------------------------------------------------------------
Table of Content
Nine
Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses and asset impairments 4,787 1,693 161 1,927 8,568 + Fair value inventory step-up charges 2,486 9,100 - - 11,586 + Corporate transaction indemnity - - - 3,500 3,500
Adjusted operating income (loss)
Net sales (eliminations)$ 745,939 $ 827,668
Operating margin 26.2 % 25.7 % 26.4 % n/m 23.2 %
Adjusted operating margin 27.2 % 27.0 % 26.4 % n/m 24.3 %
Nine
Months Ended
FMT HST FSDP Corporate IDEX
Reported operating income (loss)
+ Restructuring expenses and asset impairments 2,433 2,162 1,890 273 6,758 + Fair value inventory step-up charges 4,107 - - - 4,107
Adjusted operating income (loss)
Net sales (eliminations)$ 666,720 $ 660,105 $ 412,296 $ (2,297) $ 1,736,824 Operating margin 26.4 % 22.8 % 25.2 % n/m 22.0 % Adjusted operating margin 27.4 % 23.1 % 25.7 % n/m 22.6 %
4. Reconciliations of Reported-to-Adjusted Net Income and EPS
(in thousands, except EPS) Three Months Ended
2021 2020 2021 2020
Reported net income attributable to IDEX $ 115,742 $
103,848
+ Restructuring expenses and asset impairments 3,204 2,917 8,568 6,758 + Tax impact on restructuring expenses and asset impairments (771) (703) (2,060) (1,540) + Fair value inventory step-up charges 9,100 - 11,586 4,107 + Tax impact on fair value inventory step-up charges (1,961) - (2,707) (932) + Loss on early debt redemption - - 8,561 8,421 + Tax impact on loss on early debt redemption - - (1,841) (1,912) + Termination of the U.S. pension plan - - 9,688 - + Tax impact on termination of theU.S. pension plan - - (2,083) - + Corporate transaction indemnity (400) - 3,500 - + Tax impact on Corporate transaction indemnity 85 - (754) - Adjusted net income attributable to IDEX$ 124,999 $
106,062
45--------------------------------------------------------------------------------
Table of Content
Three Months Ended September
30, Nine Months Ended
2021 2020 2021 2020
Reported EPS attributable to IDEX $ 1.51 $
1.37
+ Restructuring expenses and asset impairments 0.04 0.04 0.11 0.09 + Tax impact on restructuring expenses and asset impairments (0.01) (0.01) (0.03) (0.02) + Fair value inventory step-up charges 0.12 - 0.15 0.05 + Tax impact on fair value inventory step-up charges (0.03) - (0.04) (0.01) + Loss on early debt redemption - - 0.11 0.11 + Tax impact on loss on early debt redemption - - (0.02) (0.02) + Termination of the U.S. pension plan - - 0.13 - + Tax impact on termination of theU.S. pension plan - - (0.03) - + Corporate transaction indemnity - - 0.05 - + Tax impact on Corporate transaction indemnity - - (0.01) - Adjusted EPS attributable to IDEX$ 1.63 $
1.40
Diluted weighted average shares 76,452 75,960 76,408 76,119 5. Reconciliations of EBITDA to Net Income (dollars in thousands)
Three Months Ended
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 69,020 $ 70,374 $ 39,126 $ (17,335) $ 161,185
- Other expense (income) - net 384 (236) 50 432 630
+ Depreciation and amortization 7,737 15,335 3,787 110 26,969
EBITDA 76,373 85,945 42,863 (17,657) 187,524
- Interest expense 9,498
- Provision for income taxes 35,343
- Depreciation and amortization 26,969
Net income $ 115,714
Net sales (eliminations) $ 251,297 $ 302,287 $ 159,106 $ (671) $ 712,019
Operating margin 27.5 % 23.3 % 24.6 % n/m 22.6 %
EBITDA margin 30.4 % 28.4 % 26.9 % n/m 26.3 %
EBITDA interest coverage 19.7
46--------------------------------------------------------------------------------
Table of Content
Three
Months Ended
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 58,402 $ 49,912 $ 37,103 $ (14,204) $ 131,213
- Other expense (income) - net (719) (32) 340 (293) (704)
+ Depreciation and amortization 7,163 10,230 3,854 104 21,351
EBITDA 66,284 60,174 40,617 (13,807) 153,268
- Interest expense 10,642
- Provision for income taxes 17,427
- Depreciation and amortization 21,351
Net income $ 103,848
Net sales (eliminations) $ 220,747 $ 220,378 $ 140,896 $ (908) $ 581,113
Operating margin 26.5 % 22.6 % 26.3 % n/m 22.6 %
EBITDA margin 30.0 % 27.3 % 28.8 % n/m 26.4 %
EBITDA interest coverage 14.4
Nine
Months Ended
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 195,384 $ 212,987 $ 126,483 $ (59,866) $ 474,988
- Other expense (income) - net 5,968 (290) 1,833 9,446 16,957
+ Depreciation and amortization 22,743 38,382 11,510 327 72,962
EBITDA 212,159 251,659 136,160 (68,985) 530,993
- Interest expense 31,479
- Provision for income taxes 95,987
- Depreciation and amortization 72,962
Net income $ 330,565
Net sales (eliminations) $ 745,939 $ 827,668 $ 479,402 $ (3,007) $ 2,050,002
Operating margin 26.2 % 25.7 % 26.4 % n/m 23.2 %
EBITDA margin 28.4 % 30.4 % 28.4 % n/m 25.9 %
EBITDA interest coverage 16.9
47--------------------------------------------------------------------------------
Table of Content
Nine
Months Ended
FMT HST FSDP Corporate IDEX
Operating income (loss) $ 176,111 $ 150,562 $ 103,977 $ (48,902) $ 381,748
- Other expense (income) - net (35) (91) 148 7,299 7,321
+ Depreciation and amortization 19,370 30,806 11,409 389 61,974
EBITDA 195,516 181,459 115,238 (55,812) 436,401
- Interest expense 33,958
- Provision for income taxes 63,759
- Depreciation and amortization 61,974
Net income $ 276,710
Net sales (eliminations) $ 666,720 $ 660,105 $ 412,296 $ (2,297) $ 1,736,824
Operating margin 26.4 % 22.8 % 25.2 % n/m 22.0 %
EBITDA margin 29.3 % 27.5 % 28.0 % n/m 25.1 %
EBITDA interest coverage 12.9
6. Reconciliations of EBITDA to Adjusted EBITDA
(dollars in thousands)
Three Months Ended
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 76,373 $ 85,945 $ 42,863 $ (17,657) $ 187,524
+ Restructuring expenses and asset
impairments 1,934 626 (55) 699 3,204
+ Fair value inventory step-up charges - 9,100 - - 9,100
+ Corporate transaction indemnity - - - (400) (400)
Adjusted EBITDA $ 78,307 $ 95,671 $ 42,808 $ (17,358) $ 199,428
Adjusted EBITDA margin 31.2 % 31.6 % 26.9 % n/m 28.0 %
Adjusted EBITDA interest coverage 21.0
Three
Months Ended
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 66,284 $ 60,174 $ 40,617 $ (13,807) $ 153,268
+ Restructuring expenses and asset
impairments 585 978 1,249 105 2,917
Adjusted EBITDA $ 66,869 $ 61,152 $ 41,866 $ (13,702) $ 156,185
Adjusted EBITDA margin 30.3 % 27.7 % 29.7 % n/m 26.9 %
Adjusted EBITDA interest coverage 14.7
48--------------------------------------------------------------------------------
Table of Content
Nine
Months Ended
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 212,159 $ 251,659 $ 136,160 $ (68,985) $ 530,993
+ Restructuring expenses and asset
impairments 4,787 1,693 161 1,927 8,568
+ Fair value inventory step-up
charges 2,486 9,100 - - 11,586
+ Loss on early debt redemption - - - 8,561 8,561
+ Termination of the U.S. pension
plan 6,293 - 1,782 1,613 9,688
+ Corporate transaction indemnity - - - 3,500 3,500
Adjusted EBITDA $ 225,725 $ 262,452 $ 138,103 $ (53,384) $ 572,896
Adjusted EBITDA margin 30.3 % 31.7 % 28.8 % n/m 27.9 %
Adjusted EBITDA interest coverage 18.2
Nine
Months Ended
FMT HST FSDP Corporate IDEX
EBITDA(1) $ 195,516 $ 181,459 $ 115,238 $ (55,812) $ 436,401
+ Restructuring expenses and asset
impairments 2,433 2,162 1,890 273 6,758
+ Fair value inventory step-up
charges 4,107 - - - 4,107
+ Loss on early debt redemption - - - 8,421 8,421
Adjusted EBITDA $ 202,056 $ 183,621 $ 117,128 $ (47,118) $ 455,687
Adjusted EBITDA margin 30.3 % 27.8 % 28.4 % n/m 26.2 %
Adjusted EBITDA interest coverage 13.4
(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most
directly comparable
7. Reconciliations of Cash Flows from Operating Activities to Free Cash Flow
(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Cash flows from operating activities
$ 402,229 $ 407,899 - Capital expenditures 14,894 18,353 45,487 39,438 Free cash flow$ 141,739 $ 135,333 $ 356,742 $ 368,461 Critical Accounting Policies As discussed in the Annual Report on Form 10-K for the year endedDecember 31, 2020 , the preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. There have been no changes to the Company's critical accounting policies described in the Annual Report on Form 10-K for the year endedDecember 31, 2020 .
© Edgar Online, source
