Ingersoll Rand Inc. — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021. Ingersoll Rand is a global industrial technology company reporting two continuing-operations segments: Industrial Technologies and Services (compression, vacuum, blower, fluid-transfer and related aftermarket products and services) and Precision and Science Technologies (specialized pumps, fluid-management systems and related technologies). Results are not fully comparable with 2020 because the 2021 period includes 12 months of Ingersoll Rand Industrial, acquired in February 2020, versus 10 months in 2020. The company sold its majority interest in High Pressure Solutions (HPS) and sold Specialty Vehicle Technologies (SVT) during 2021; both are reported as discontinued operations.
Key financial metrics
Amounts below are in millions of dollars except per-share data and percentages. Continuing-operations results are shown unless stated otherwise.
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $5,152.4 | $3,973.2 |
| Gross profit / margin | $1,988.5 / 38.6% | $1,404.9 / 35.4% |
| Operating income / margin | $565.7 / 11.0% | $59.6 / 1.5% |
| Income (loss) from continuing operations | $523.4 | $(56.8) |
| Net income (loss) attributable to Ingersoll Rand | $562.5 | $(33.3) |
| Diluted EPS, total company | $1.34 | $(0.09) |
| Adjusted EBITDA (non-GAAP) / margin | $1,191.9 / 23.1% | $878.1 / 22.1% |
| Adjusted net income (non-GAAP) | $881.4 | $520.0 |
| Operating cash flow from continuing operations | $627.8 | $653.5 |
| Capital expenditures | $64.1 | $42.0 |
| Free cash flow from continuing operations (non-GAAP) | $563.7 | $611.5 |
- Revenue drivers: Revenue increased 29.7%. Management attributed the increase to acquisitions, including $537.5 million of acquisition contribution, and organic volume growth, particularly in Industrial Technologies and Services. Aftermarket revenue was 36.2% of total revenue, compared with 35.5% in 2020.
- Segments: Industrial Technologies and Services revenue rose 28.1% to $4,161.0 million; Segment Adjusted EBITDA rose 36.0% to $1,033.7 million and margin expanded 140 basis points to 24.8%. Precision and Science Technologies revenue rose 36.7% to $991.4 million; Segment Adjusted EBITDA rose 32.3% to $291.4 million, while margin fell 100 basis points to 29.4%.
- Liquidity and debt: Cash and cash equivalents were $2,109.6 million at year-end. Total debt was $3,440.6 million, down from $3,899.5 million. The company had no revolving-credit borrowings, $1,093.4 million of unused availability, and reported compliance with debt covenants. Most term debt matures in 2027.
- Balance sheet: Current assets were $4,114.9 million and current liabilities $1,467.7 million. Goodwill and other intangible assets totaled approximately $9.9 billion, or 65% of total assets.
Material changes versus 2020
- Profitability improved substantially, reflecting higher volume and pricing, acquisitions, and the nonrecurrence of 2020 purchase-accounting inventory impacts. Adjusted EBITDA increased 35.7%, and its margin improved by 100 basis points.
- Operating cash flow declined $25.7 million and free cash flow declined $47.8 million. Working-capital movements, especially inventory and receivables, used cash in 2021.
- Investing cash outflow increased to $1,029.4 million, principally reflecting $974.8 million of net cash paid in business combinations. Financing cash outflow was $1,157.0 million, including $736.8 million of treasury-stock purchases and $435.7 million of debt repayments.
- SVT was sold for $1.68 billion and generated a reported pre-tax gain of $298.3 million. HPS was divested with $278.3 million of net cash proceeds for a 55% interest; the company retained 45% and recorded a pre-tax loss on sale of $207.7 million. Total net cash from discontinued operations was $1,931.4 million.
- The company completed several acquisitions, including Seepex, M-D Pneumatics and Kinney Vacuum Pumps, Maximus Solutions, Air Dimensions and Tuthill Pumps.
Outlook, commentary, risks and unusual items
- Management reported strong 2021 demand and fourth-quarter orders up 20.5% year over year in Industrial Technologies and Services and 38.9% in Precision and Science Technologies. It noted that some early-2021 demand reflected deferred 2020 purchases. No specific revenue or earnings guidance is provided in the filing.
- Management expected 2022 capital expenditures of approximately 2% of consolidated revenue and stated that cash from operations plus revolving-credit availability should fund foreseeable obligations, working capital, debt service and capital spending, subject to economic conditions.
- Management cited ongoing supply-chain tightness, component availability and cost pressures, along with uncertain COVID-19 effects on the company, suppliers and customers. Other risks include international and currency exposure, competition, acquisition integration, variable-rate debt and benchmark-rate transition, cybersecurity, product liability, and environmental and regulatory obligations.
- Asbestos and silica matters remain a significant contingency. The balance sheet included a $136.9 million asbestos-related reserve and a $145.1 million receivable for probable insurance recoveries; recovery depends in part on insurer coverage and ongoing litigation. Environmental liabilities were $12.9 million.
- The 2021 income-tax benefit was $21.8 million, producing a negative 4.2% effective rate; management attributed the rate to earnings mix and discrete tax items. Other notable items included a $30.1 million gain from settlement of post-acquisition contingencies and a $9.0 million debt-extinguishment loss.
- The board authorized a $750 million repurchase program in August 2021, but the filing says no shares were repurchased under that program in 2021. Separately, the company bought 14.9 million shares from KKR in a secondary offering for $730.6 million, included in treasury-stock purchases.
Most important facts for investors to verify
- Separate continuing-operations performance from discontinued-operation results and confirm how divestitures and acquisitions affect year-over-year comparisons.
- Review the cash conversion and working-capital trend, especially the cash absorbed by inventory and receivables, against management’s growth and capex expectations.
- Assess leverage, variable-rate exposure and the sensitivity of debt service to interest-rate changes; verify the 2027 maturity profile and refinancing capacity.
- Examine the assumptions supporting the asbestos liability and insurance-recovery receivable, including the status and potential outcome of the Adams County litigation.
- Evaluate whether acquisitions are delivering expected growth and synergies, and whether Precision and Science Technologies’ margin decline persists.
- Note that the auditor gave an unqualified opinion on the financial statements and assessed internal control over financial reporting as effective; the assessment excluded certain 2021 acquisitions representing 3% of revenue and 1% of assets, excluding goodwill and intangibles.