Ingersoll Rand Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Ingersoll Rand is a global provider of industrial flow-creation products and solutions, reporting through Industrial Technologies and Services and Precision and Science Technologies. Amounts below are U.S. dollars; financial statement figures are in millions except per-share data.
Financial performance
- Q3 revenue: $1,515.7, up 14.4% year over year. Price and organic volume contributed $120.3 and $117.6, respectively, and acquisitions $52.6; unfavorable currency effects reduced revenue by $99.8.
- Q3 earnings and margins: Gross profit was $575.3, with a 38.0% gross margin versus 38.8% a year earlier. Operating income was $190.0, or 12.5% of revenue, versus $163.9, or 12.4%. Net income attributable to Ingersoll Rand was $145.1 versus $126.0; diluted EPS was $0.36 versus $0.30.
- Q3 adjusted results: Adjusted EBITDA was $376.1, up from $313.7; adjusted EBITDA margin expanded to 24.8% from 23.7%. Adjusted net income was $253.1 versus $238.6. These are non-GAAP measures defined and reconciled in the filing.
- First nine months: Revenue was $4,292.6, up 15.0%; operating income was $544.4 versus $425.3; net income attributable to Ingersoll Rand was $387.3 versus $269.5. Diluted EPS was $0.94 versus $0.64. Adjusted EBITDA was $1,014.6 versus $849.8, and free cash flow was $449.5 versus $339.7.
- Cash flow and investment: Continuing-operations operating cash flow for the first nine months was $510.6 versus $380.9; capital expenditures were $61.1. Working-capital needs, particularly for inventory and receivables, used cash. The company attributed the operating cash flow increase in part to lower cash taxes than in 2021.
- Debt and liquidity: September 30 cash was $1,459.5 and total debt was $2,752.9, implying net debt of approximately $1,293.4. Cash declined from $2,109.6 at year-end 2021, while debt declined from $3,440.6. The company had $1,100.0 of unused revolving-credit availability and reported compliance with debt covenants. It repaid its €589.1 million Euro Term Loan in June.
- Segments: Q3 Industrial Technologies and Services revenue rose 12.0% to $1,199.6 and adjusted EBITDA margin increased 70 basis points to 26.2%. Precision and Science Technologies revenue rose 24.3% to $316.1, while its margin fell 60 basis points to 29.1%. For the nine months, the latter segment’s margin fell 230 basis points to 28.2%.
Changes, outlook and notable items
- Pricing, volumes and acquisitions lifted revenue and adjusted EBITDA, but inflation and product mix partly offset those benefits. GAAP gross margin declined in both the quarter and nine-month period, with management citing LIFO reserve adjustments and product mix.
- Orders increased year over year in Q3: 10.1% in Industrial Technologies and Services and 12.4% in Precision and Science Technologies. The latter’s increase included acquisitions, while COVID-related demand for certain products had moderated from earlier elevated levels.
- Management said cash from operations and available revolver capacity should fund obligations, working capital, debt service and capital spending for the foreseeable future, while cautioning that economic conditions and access to financing could affect liquidity. The filing does not provide a specific earnings or revenue forecast.
- Supply constraints and production interruptions at some Chinese facilities continued to affect customer lead times. Management also cited inflation, foreign-exchange exposure, global economic uncertainty and the Russia-Ukraine conflict as risks; it reported no material impact from the conflict to date. About 56% of nine-month revenue was denominated in currencies other than the U.S. dollar.
- Q3 included $33.0 of LIFO inventory adjustments in the nine-month period, elevated restructuring charges, and a $6.2 gain from settling post-acquisition contingencies. The 2021 comparison included significant discontinued-operation activity and sale proceeds; the Club Car and HPS sales were substantially completed in 2021, with Club Car separation activities concluded in Q3 2022.
- After quarter-end, the company acquired Dosatron for $90 plus up to $15 of contingent consideration; agreed to acquire SPX FLOW’s Air Treatment business for approximately $525; and agreed to acquire Everest Group for approximately $72 upfront plus potential consideration of up to approximately $17. The latter two transactions were subject to closing conditions.
- Asbestos litigation reserves were $130.3, with an associated insurance recovery receivable of approximately $143.5. The company said ordinary legal matters and environmental obligations were not expected to have a material adverse effect, but noted outcomes could differ from estimates.
Investor verification priorities
- Check whether pricing continues to offset input-cost inflation and whether gross and segment margins stabilize, particularly in Precision and Science Technologies.
- Monitor order trends, organic demand, aftermarket mix, and the duration and financial impact of supply-chain and China-related disruptions.
- Assess cash conversion and working-capital requirements alongside debt reduction, interest-rate exposure and remaining liquidity.
- Review acquisition closing, funding, integration and expected contribution for the post-quarter transactions.
- Track foreign-currency impacts, restructuring costs, LIFO adjustments, tax-rate changes and the assumptions supporting asbestos insurance recoveries.