IDEX Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing; fourth-quarter figures are noted separately below. IDEX makes specialized pumps, valves, flow meters, fluidics and engineered products through three segments: Fluid & Metering Technologies (FMT), Health & Science Technologies (HST), and Fire & Safety/Diversified Products (FSDP).
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $2.352 billion | $2.495 billion | -6%; organic sales -9% |
| Gross profit / margin | $1.027 billion / 43.7% | $1.125 billion / 45.1% | Margin down 140 bps |
| Operating income / margin | $520.7 million / 22.1% | $579.0 million / 23.2% | Income -10%; margin down 110 bps |
| Net income | $377.8 million | $425.5 million | -11% |
| Diluted EPS | $4.94 | $5.56 | -11% |
| Cash from operations | $569.3 million | $528.1 million | +7.8% |
| Capital expenditures | $51.5 million | $50.9 million | Cash from operations exceeded capex |
Gross and operating profit declines primarily reflected lower volume and unfavorable business mix, partly offset by pricing and cost savings. Management-reported adjusted operating income was $536.6 million, adjusted operating margin 22.8%, adjusted net income $396.5 million, and adjusted diluted EPS $5.19. These non-GAAP measures exclude specified items and should be considered alongside GAAP results.
Fourth quarter: Sales were $614.8 million versus $606.0 million a year earlier; operating income was $139.0 million versus $134.2 million; net income was $101.1 million versus $96.9 million; diluted EPS was $1.32 versus $1.26.
Segment results
| Segment | FY2020 sales | Sales change | Operating income | Operating margin |
|---|---|---|---|---|
| FMT | $896.3 million | -6% | $235.0 million, -18% | 26.2%, down 360 bps |
| HST | $896.0 million | -2% | $206.4 million, +3% | 23.0%, up 110 bps |
| FSDP | $562.9 million | -10% | $144.2 million, -13% | 25.6%, down 80 bps |
HST operating income and margin improved despite lower sales, helped by pricing, cost savings, and prior-year impairment charges not recurring. FMT and FSDP were more affected by lower demand and mix.
Liquidity, debt and capital allocation
- Year-end cash and cash equivalents were $1.026 billion, including $556.9 million held outside the U.S.; current assets were $1.657 billion and current liabilities $399.1 million. The current ratio was 4.2.
- Gross borrowings were $1.050 billion at year-end, versus $850.6 million in 2019. Cash and gross debt were therefore broadly similar in amount. Cash-flow statement financing activity was a net use of $42.6 million.
- IDEX issued $500 million of 3.0% senior notes due 2030 and used proceeds in part to redeem $300 million of 4.5% notes, incurring an $8.4 million early-redemption loss. The $350 million 4.2% notes mature in December 2021 and were classified as long-term because management said it could refinance or repay them using available revolver capacity.
- The $800 million revolving facility had no balance outstanding and $792.8 million of net availability at year-end. The company reported compliance with its covenants: leverage ratio 1.66x against a 3.50x maximum, and interest coverage 14.66x against a 3.0x minimum.
- Operating cash flow funded $51.5 million of capital expenditures, $151.8 million of dividends paid, and $110.3 million of share repurchases. The annual dividend was $2.00 per share. Remaining repurchase authorization was $712 million.
Material changes and unusual items
- COVID-19 reduced customer purchases and affected end markets, particularly in the first half. IDEX reported improvement beginning in the third quarter and continuing in the fourth quarter.
- Acquisitions contributed approximately 3% to consolidated sales growth relative to the prior year, partially offsetting organic contraction. The company acquired Flow MD for $121.2 million and Qualtek for $1.9 million; acquisition cash outflow was $123.1 million.
- FY2020 restructuring expenses and asset impairments were $11.8 million, mainly severance, facility rationalization and impairments. A $4.1 million fair-value inventory step-up charge related to acquisitions was recorded in cost of sales.
- Net income also included the $8.4 million loss on early debt redemption. The effective income tax rate declined to 19.7% from 20.2%, reflecting tax-regulation benefits and the mix of earnings by jurisdiction.
- Goodwill was $1.896 billion and net intangible assets were $415.6 million at year-end. The annual impairment review found no impairment; a COVID-related interim test of definite-lived intangibles also resulted in no charge.
- On January 8, 2021, IDEX agreed to acquire Abel Pumps for $103.5 million, subject to regulatory approval and customary closing conditions; management expected closing by the end of Q1 2021.
Outlook, commentary and risks
Management expected end markets to continue normalizing toward historical levels through 2021, but provided no numerical sales, earnings or margin guidance in the supplied filing text. It said cash on hand, operating cash flow and available revolver capacity were expected to fund operations and planned needs for at least the next 12 months. Management cautioned that the duration and effects of COVID-19 remained uncertain.
- Key risks include renewed pandemic disruption to customers, operations and suppliers; economic weakness and lower industrial or customer capital spending; oil-price and other commodity volatility; competitive pricing pressure; and the company’s typically limited order backlog.
- International operations represented about 51% of sales, exposing results to currency movements, geopolitical and regulatory developments, tariffs and trade-policy changes.
- Other identified risks include successful product development and acquisition integration, raw-material availability, cybersecurity and IT interruptions, labor availability, litigation and environmental matters, and possible impairment of goodwill or intangible assets.
- IDEX reported ordinary-course legal proceedings and asbestos-related personal-injury claims. It stated that most resolved asbestos claims were dismissed or settled for immaterial amounts, insurance had covered most settlements and legal costs to date, and it did not currently expect the claims to have a material adverse effect.
Important facts for investors to verify
- Whether the recovery in end markets continued after Q4 2020 and how it affected organic sales, volume, mix and margins.
- The refinancing or repayment of the $350 million 4.2% notes due December 2021, and subsequent debt, cash and covenant levels.
- Completion and integration of the Abel Pumps acquisition, including its purchase accounting and contribution to growth.
- Whether restructuring savings and cost controls offset continuing volume pressure without impairing growth investment.
- Changes in pandemic, supply-chain, international-market and customer-capital-spending risks, as well as any material legal or impairment developments.