The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Actual results may differ materially from those contained in any forward-looking statements. You should carefully read "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Overview Our Company We are a leading global provider of mission-critical flow creation technologies and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, includingIngersoll Rand ,Gardner Denver ,CompAir , Nash, Elmo Rietschle, Robuschi, Thomas,Milton Roy , ARO, Emco Wheaton andRuntech Systems , which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service. Recent Developments Sale of Majority Interest in HPS Business OnFebruary 14, 2021 , the Company entered into an agreement to sell a majority interest in its High Pressure Solutions ("HPS") business to private equity firmAmerican Industrial Partners . In exchange for its majority interest of 55%, the Company received cash of$278.3 million at closing and retains a 45% common equity interest in the newly-formed entity comprising the HPS business. This transaction substantially closed onApril 1, 2021 . The sale of the majority interest in the HPS business significantly reduces our direct exposure to the upstream oil and gas market. The historical financial results of the HPS Segment are reflected in our unaudited condensed consolidated financial statements as discontinued operations. Refer to Note 2 " Discontinued Operations " to our unaudited condensed consolidated financial statements for additional discussion of the sale of the HPS segment. Sale of Special Vehicle Technologies Segment OnApril 9, 2021 , the Company entered into an agreement to sell its Specialty Vehicle Technologies segment ("SVT" or "Club Car") to private equity firmPlatinum Equity Advisors, LLC for an aggregate purchase price of$1.68 billion . This transaction substantially closed onJune 1, 2021 . The historical financial results of the SVT Segment are reflected in our unaudited condensed consolidated financial statements as discontinued operations. Refer to Note 2 " Discontinued Operations " to our unaudited condensed consolidated financial statements for additional discussion of the SVT divestiture. Recent and Pending Acquisitions OnJune 19, 2021 , the Company entered into an agreement to acquireSeepex GmbH , a global leader in progressive cavity (positive displacement) pump technology, for €431.5 million. This transaction is expected to close in Q3 2021, subject to regulatory approvals and customary closing conditions. OnJune 25, 2021 , the Company entered into an agreement to acquire Maximus Solutions, a provider of digital controls and Industrial Internet of Things (IIoT) production management systems for the agritech software and controls market, forC$135.4 million . This transaction closed onJuly 30, 2021 . Refer to Note 20 " Subsequent Event " to our unaudited condensed consolidated financial statements for additional discussion of this acquisition. 39
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Table of Content Our Segments Effective upon the presentation of the HPS business as discontinued operations, the Company began operating with three reportable segments and effective upon the presentation of the SVT business as discontinued operations, the Company began operating with two reportable segments. As a result of these changes, information that the Company's chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Therefore, beginning in the three month period endedJune 30, 2021 , we report utilizing the two reportable segments of Industrial Technologies and Services and Precision and Science Technologies. Our Chief Operating Decision Maker regularly reviews financial information to allocate resources and assess performance utilizing these reorganized segments. See Note 6 "Goodwill and Other Intangible Assets" for the allocation of goodwill to the remaining reportable segments. See Note 17 "Segment Results" for a description of the remaining reportable segments. Industrial Technologies and Services We design, manufacture, market and service a broad range of air and gas compression, vacuum and blower products, fluid transfer equipment, loading systems, power tools and lifting equipment, including associated aftermarket parts, consumables and services. We primarily sell under the Ingersoll Rand,Gardner Denver ,CompAir , Elmo Rietschle, Robuschi, Nash, Emco Wheaton and Runtech Systems brands. Our customers deploy our products across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of pneumatic tools, pumps and motion control components, air and gas separation, vacuum packaging of food products and aeration of waste water, among others. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. Our power tools and lifting equipment portfolio includes electric and cordless fastening systems, pneumatic bolting tools, drilling and material removal tools, hoists, winches and ergonomic handling devices. Typical applications for these products include the precision fastening of bolted joints in the production, assembly and servicing of industrial machinery, on-highway and off-highway vehicles, aircraft, electronics and other equipment. Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. Our liquid ring vacuum pumps and compressors are highly engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing and industrial applications. In addition to our vacuum and blower technology, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products in a wide range of industries. We complement these products with a broad portfolio of service options tailored to customer needs and a complete range of aftermarket parts, air treatment equipment, controls and other accessories delivered through our global network of manufacturing and service locations and distributor partners. The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers' needs in one complete solution. We sell our products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, the useful life of a compressor is, on average, between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product's life cycle will typically exceed its original sale price. 40
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Table of Content Precision and Science Technologies We design, manufacture and market a broad range of highly-specialized positive displacement pumps, fluid management systems and aftermarket parts that provide liquid and gas dosing, transfer, dispensing, compression, sampling, pressure management and flow control in specialized or critical applications. Our product offering covers a range of pump and flow control technologies, including mechanically- and hydraulically-actuated diaphragm pumps, air-operated diaphragm and piston pumps, water-powered pumps, peristaltic pumps, gear pumps, flexible impeller pumps, self-priming centrifugal pumps, syringe pumps, motion control components, filtration/regulation/lubrication components, gas boosters, high pressure valves, hydrogen compression systems, liquid and gas sampling systems, odorant injection systems and more. These offerings are sold under brands that are highly recognized in their end markets including ARO, Dosatron, Haskel,Milton Roy , Oberdorfer, Thomas and Welch. Our customer base is composed of a wide range of end users in markets including medical, laboratory, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage, agriculture and others. Our sales are realized primarily through a combination of independent specialty and national distributors and relationships directly with original equipment manufacturers ("OEM"). Components of Our Revenue and Expenses Revenues We generate revenue from sales of original equipment and associated aftermarket parts, consumables and services. We sell our products and deliver services both directly to end-users and through independent distribution channels, depending on the product line and geography. Revenue derived from short duration contracts is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or as services are performed. Certain contracts involve significant design engineering to customer specifications, and depending upon the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer. Expenses Cost of Sales Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant material inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations. Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers. Selling and Administrative Expenses Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) expenses related to our public stock offerings and to establish public company reporting compliance; (vii) employee related stock-based compensation for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (viii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers inthe United States andEurope , that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments. 41
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Table of Content Amortization of Intangible Assets Amortization of intangible assets includes the periodic amortization of intangible assets including customer relationships, tradenames, developed technology, backlog and internally developed software. Other Operating Expense, Net Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, certain shareholder litigation settlement recoveries, acquisition and other transaction related expenses and non-cash charges, losses and gains on asset disposals and other miscellaneous operating expenses. Provision for Income Taxes The provision for income taxes includesU.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 46 jurisdictions outside ofthe United States . Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items. Items Affecting our Reported Results General Economic Conditions and Capital Spending in the Industries We Serve Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost. In particular, demand for our Industrial Technologies and Services products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production. Capacity utilization rates above 80% have historically indicated a strong demand environment for industrial equipment. In the midstream and downstream portions of our Industrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products. In our Precision and Science Technologies segment we expect demand for our products to be driven by favorable trends, including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies. Over longer time periods, we believe that demand for all of our products also tends to follow economic growth patterns indicated by the rates of change in the GDP around the world, as augmented by secular trends in each segment. Our ability to grow and our financial performance will also be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities and engineering innovative new product applications for end-users in a variety of geographic markets. Foreign Currency Fluctuations A significant portion of our revenues, approximately 58% for the six month period endedJune 30, 2021 , was denominated in currencies other than theU.S. dollar. Because much of our manufacturing facilities and labor force costs are outside ofthe United States , a significant portion of our costs are also denominated in currencies other than theU.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion. Factors Affecting the Comparability of our Results of Operations As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Key factors affecting the comparability of our results of operations are summarized below. Acquisition ofIngersoll Rand Industrial OnFebruary 29, 2020 , we completed the acquisition ofIngersoll Rand Industrial . We reorganized our reportable segments as a result of theIngersoll Rand Industrial acquisition and formed four new reportable segments. 42
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Table of Content •Industrial Technologies and Services segment -Ingersoll Rand Industrial's Compression Technologies and Services ("CTS") and Power Tools and Lift ("PTL") businesses joined the legacyGardner Denver Industrial segment (excluding the Specialty Pump businesses) and the midstream and downstream portions of the Gardner Denver Energy segment to form the new "Industrial Technologies and Services" segment. •Precision and Science Technologies segment -Ingersoll Rand Industrial's Precision Flow Systems ("PFS") and ARO businesses joined the legacy Gardner Denver Medical segment and Specialty Pump businesses from the legacyGardner Denver Industrial segment to form the new "Precision and Science Technologies" segment. •Specialty Vehicle Technologies segment -Ingersoll Rand Industrial's Club Car golf, utility and consumer low-speed vehicles business formed the new "Specialty Vehicle Technologies" segment. OnApril 9, 2021 , we entered into an agreement to sell the Specialty Vehicle Technologies segment. For additional information, see "-Recent Developments" above and refer to Note 2 " Discontinued Operations " for discussion on the sale of the Specialty Vehicle Technologies segment that closed onJune 1, 2021 . •High Pressure Solutions segment - The upstream energy portion of the legacy Gardner Denver Energy segment was disaggregated to form the new "High Pressure Solutions" segment. For additional information, see "-Recent Developments" above and refer to Note 2 " Discontinued Operations " for discussion on the sale of the High Pressure Solutions segment that closed onApril 1, 2021 .Ingersoll Rand Industrial is included in our results of operations beginning on the acquisition date (close of businessFebruary 29, 2020 ). Comparability between the six month periods endedJune 30, 2021 and 2020 will be affected by two months of activity fromIngersoll Rand Industrial . See Note 3 " Business Combinations " to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further discussion of the acquisition ofIngersoll Rand Industrial . Impact of Coronavirus (COVID-19) We continue to assess and actively manage the impact of the ongoing COVID-19 pandemic on our global operations and also the operations of our suppliers and customers. Demand for our products was negatively impacted throughout the majority of 2020 as a result of the pandemic. Demand began to improve in the fourth quarter of 2020 and accelerated in the first half of 2021 as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. Order rates in the first half of 2021 were particularly strong and we believe represents some deferred demand from 2020. In order to position ourselves to fulfill demand we continue to monitor the supply chain closely and are taking proactive steps to ensure continuity of supply. We are adhering to all state and country mandates and guidelines wherever we operate. Currently all our major manufacturing locations inthe United States ,United Kingdom ,Germany ,Italy ,Brazil andChina are operational. We have taken certain actions to reduce costs and preserve cash given the uncertain environment. The degree to which the pandemic will continue to impact our operations, and the operations of our customers and suppliers remains uncertain. See "The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future" in Part I Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Restructuring and Other Business Transformation Initiatives Subsequent to the acquisition ofIngersoll Rand Industrial , we announced a restructuring program ("2020 Plan") to drive efficiencies and synergies, reduce the number of facilities and optimize operating margins within our merged Company. We expect total expenses of approximately$350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022. We expect to realize approximately$300.0 million in annualized cost synergies by the end of 2022. We continue to evaluate operating efficiencies and anticipate incurring additional costs in the coming years in connection with these activities, but we are unable to estimate those amounts at this time as such plans are not yet finalized. For the three month period endedJune 30, 2021 , expense of$6.8 million was recognized within "Other operating expense, net" in the Condensed Consolidated Statements of Operations ($2.5 million for Industrial Technologies and Services,$(0.2) million for Precision and Science Technologies and$4.5 million for Corporate). For the six month period endedJune 30, 2021 , expense of$9.2 million was recognized within "Other operating expense, net" in the Condensed Consolidated Statements of Operations ($4.2 million for Industrial Technologies and Services,$0.1 million for Precision and Science Technologies and$4.9 million for Corporate). ThroughJune 30, 2021 , we recognized expense related to the 2020 Plan of$74.5 million ,$7.0 million , and$10.9 million for Industrial Technologies and Services, Precision and Science Technologies, and Corporate, respectively. 43
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Table of Content Outlook Industrial Technologies and Services Segment The mission-critical nature of our products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth. Economic conditions remain uncertain with regard to COVID-19, and its impact on end markets, however, recent order rates have begun to improve as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. In the second quarter of 2021, we had$1,204.0 million of orders in our Industrial Technologies and Services segment, an increase of 52.8% over the second quarter of 2020. Precision and Science Technologies Segment During the COVID-19 pandemic, the Precision and Science Technologies segment has seen increased demand for our vacuum pump and compressor solutions used in respirator and ventilator applications. Demand of other products and services which had been negatively impacted in 2020 have begun to recover in 2021 as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. In the second quarter of 2021, we had$255.2 million of orders in our Precision and Science Technologies segment, an increase of 26.8% over 2020. How We Assess the Performance of Our Business We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow. We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions. We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities. Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP. See "Non-GAAP Financial Measures" below for reconciliation information. Results of Continuing Operations Consolidated results should be read in conjunction with the segment results section herein and Note 17 " Segment Results " to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, which provides more detailed 44
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Table of Content discussions concerning certain components of our Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated within the consolidated results. The following table presents selected Consolidated Results of Operations of our business for the three and six month periods endedJune 30, 2021 and 2020.
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