IDEX Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results. IDEX manufactures fluid and metering, health and science, and fire, safety and diversified products.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $685.9 million | $561.2 million | $1,338.0 million | $1,155.7 million |
| Gross profit / margin | $306.1 million / 44.6% | $234.8 million / 41.8% | $598.7 million / 44.7% | $506.8 million / 43.8% |
| Operating income / margin | $158.3 million / 23.1% | $110.6 million / 19.7% | $313.8 million / 23.5% | $250.5 million / 21.7% |
| Net income attributable to IDEX | $102.2 million | $70.9 million | $214.9 million | $172.9 million |
| Diluted EPS | $1.34 | $0.93 | $2.81 | $2.27 |
| Operating cash flow | $136.3 million | $169.5 million | $245.6 million | $254.2 million |
| Free cash flow (non-GAAP) | $120.3 million | $161.1 million | $215.0 million | $233.1 million |
Q2 sales rose 22% year over year, including 17% organic growth and a 4% favorable foreign-currency effect. Six-month sales rose 16%, including 11% organic growth. Higher volume and price capture lifted margins; inflation, supply-chain constraints, and increased discretionary spending partly offset improvement. Q2 adjusted EPS was $1.61 versus $1.10; six-month adjusted EPS was $3.11 versus $2.44. These are company-defined non-GAAP measures.
All three segments grew in Q2: Fluid & Metering Technologies sales increased 15% and operating margin was 25.3%; Health & Science Technologies sales increased 28% and margin was 27.6%; Fire & Safety/Diversified Products sales increased 27% and margin was 26.6%. For the six-month period, segment sales increased 11%, 19%, and 18%, respectively. Fluid & Metering’s six-month margin declined to 25.5% from 26.4%, while the other two segments’ margins improved.
Balance sheet, debt and liquidity
- At June 30, 2021, cash and equivalents were $714.4 million, total borrowings were $1,200.1 million, and total equity was $2,672.9 million. Cash less total borrowings implies net debt of approximately $485.7 million.
- Current assets were $1,493.7 million and current liabilities $450.4 million; reported working capital was $1,043.3 million and the current ratio was 3.3 to 1. Cash held outside the U.S. was $519.3 million.
- Operating cash flow fell 3% for the six months, primarily from working-capital increases and tax-payment timing. Capital expenditures were $30.6 million. Investing cash use was $609.3 million, including $575.6 million for acquisitions.
- IDEX issued $500 million of 2.625% senior notes due 2031 and used proceeds to redeem $350 million of 4.2% notes due 2021, paying a $6.7 million make-whole premium. The company had no revolver borrowings and $792.8 million of net available capacity. It reported compliance with debt covenants; leverage was 1.66x and interest coverage 16.07x.
Material changes, outlook and risks
- 2021 acquisitions included ABEL Pumps for $106.3 million in March and Airtech for $469.3 million in June; both were funded with cash on hand. Goodwill and acquired intangible assets increased substantially. IDEX also sold CiDRA Precision Services in March.
- Other expense included an $8.6 million loss on early debt redemption and a $9.7 million noncash loss related to termination and settlement of the U.S. pension plan. The company recorded a $3.9 million reserve for a prior-divestiture transaction indemnity and $5.4 million of six-month restructuring and impairment costs.
- No specific full-year sales or earnings guidance is provided in the filing text. Management said available cash, operating cash flow and revolver access should be sufficient to fund operations and obligations for at least the next 12 months.
- Management cited inflation and supply-chain constraints, COVID-19 and potential variants, industrial and end-market conditions, oil-and-gas capital spending, foreign exchange, acquisition integration, labor and material costs, and litigation or other contingencies as risks. Energy sales remained weak amid delayed oil-and-gas spending. The company said ordinary-course legal matters were not expected to have a material adverse effect; asbestos claims are largely insured to date, but future insurance coverage is uncertain.
- Disclosure controls were assessed as effective at June 30, 2021, with no material change in internal control over financial reporting reported during the quarter.
Important facts for investors to verify
- How much of reported growth and margin improvement is sustainable organic growth versus pricing, foreign exchange, acquisitions, and post-pandemic recovery.
- Whether inflation and supply-chain constraints, working-capital needs, and lower free cash flow persist in subsequent periods.
- Integration progress, returns, and final purchase-price allocations for ABEL and Airtech, including the expected Airtech inventory step-up charge.
- Debt and liquidity after the acquisition spending, and continued compliance with covenants as the business and borrowing needs change.
- Potential effects of the $3.9 million indemnity reserve, pension settlement, restructuring, and asbestos-related claims and insurance coverage.