IDEX Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. IDEX makes engineered products for fluid and metering, health and science, fire and safety, and other markets. Comparisons are with Q1 2021 unless otherwise noted. Dollars are in millions except per-share amounts.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $751.1 | $652.0 | +15%; organic sales +12% |
| Gross profit / margin | $342.5 / 45.6% | $292.6 / 44.9% | Margin +70 bps |
| Operating income / margin | $187.6 / 25.0% | $155.5 / 23.9% | Income +21%; margin +110 bps |
| Net income attributable to IDEX | $140.0 | $112.7 | +24% |
| Diluted EPS attributable to IDEX | $1.83 | $1.48 | +$0.35 |
| Operating cash flow | $79.7 | $109.3 | Down $29.6 |
| Free cash flow (non-GAAP) | $63.6 | $94.7 | Down $31.1 |
Management also reported adjusted net income of $149.8, adjusted diluted EPS of $1.96, and adjusted EBITDA of $214.7 (28.6% of sales). These are non-GAAP measures; adjusted net income and EPS exclude acquisition-related intangible amortization, among other specified items.
Cash, debt and liquidity: Cash and equivalents were $733.2 at March 31, versus $855.4 at December 31, 2021. Long-term borrowings, net of issuance costs and discount, were $1,190.6; gross borrowings were $1,200.1, all fixed-rate. The company had no Revolving Facility balance and approximately $792.9 of available capacity. Working capital was $1,213.0 and the current ratio was 3.6:1. Management reported compliance with debt covenants; covenant leverage was 1.46:1 against a maximum of 3.50:1.
Material changes and business drivers
- Sales growth reflected 12% organic growth, a 5% contribution from acquisitions, and a 2% unfavorable foreign-currency impact. Operating income rose 21%; management attributed improvement to volume, productivity and favorable price/cost, partly offset by employee costs, spending and investment.
- FMT sales increased 12% and operating income 28%; operating margin rose 370 bps to 29.5%. HST sales increased 26% and operating income 26%, while margin edged down 10 bps to 26.5%, including acquisition-related amortization. FSDP sales increased 3%, but operating income fell 9% and margin declined 330 bps to 24.6%, reflecting employee costs, discretionary spending and price/cost pressure under long-term OEM contracts.
- Operating cash flow and free cash flow fell as working capital increased. Operating working capital rose $81.5 to $629.5; inventory increased to support production amid supply-chain difficulties.
- Investing cash outflow included $114.7 for the February acquisition of Nexsight, funded with cash on hand. The acquisition added sewer inspection, monitoring and software businesses to FMT’s Water reporting unit; its purchase-price allocation was preliminary.
- Q1 financing included $41.4 of dividends and repurchases of 147,500 shares at a cost of $28.3. Cash declined by $122.2 during the quarter.
Outlook, risks and unusual items
- The filing provides no specific numerical full-year sales or EPS guidance. Management said it expected available cash, operating cash flow and Revolving Facility capacity to meet operating needs, planned capital expenditure, debt service, retirement funding, dividends and repurchases for the foreseeable future.
- Management described record quarterly sales, operating margin and EPS, robust demand and strong operating performance, while noting material availability and logistics challenges. Inflation, supply-chain disruption, labor costs and freight constraints could affect results; the company seeks to offset inflation through pricing.
- On March 30, IDEX agreed to acquire KZValve for $120.0 cash, subject to customary conditions and regulatory approval, and expected closing by the end of Q2 2022. KZValve had annual sales of approximately $28.0, according to the filing.
- Q1 restructuring expense was $0.6, versus $2.2 a year earlier. A $2.7 gain on asset sales was recorded and excluded from adjusted results. Acquisition-related intangible amortization was $15.3, versus $11.0 a year earlier.
- Risks identified include COVID-19 impacts, Russia’s invasion of Ukraine and related economic effects, industrial demand, pricing and competition, currency, interest rates, inflation, supply availability, labor and acquisition integration. The company reported ordinary-course litigation and asbestos-related lawsuits; it said these were not expected to have a material adverse effect and that most resolved claims had been dismissed or settled for immaterial amounts. It noted uncertainty about future insurance coverage for asbestos claims.
Important facts for investors to verify
- Whether working-capital growth and weaker cash conversion persist as supply constraints and production needs evolve.
- Organic demand, pricing, margins and recovery in FSDP, alongside the extent to which HST growth and margins reflect Airtech acquisition effects.
- Integration and returns from Nexsight, and whether KZValve closed on the expected terms and timetable.
- Cash deployment across acquisitions, repurchases and dividends, and continued covenant headroom and liquidity.
- Potential effects of geopolitical, currency, inflation, supply-chain and litigation developments; the filing provides no quantified estimate for these exposures.