IDEX Corporation — FY 2021 Form 10-K
Business context and reporting period. This filing covers the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. IDEX is a diversified applied-solutions manufacturer operating through three segments: Fluid & Metering Technologies (FMT), Health & Science Technologies (HST), and Fire & Safety/Diversified Products (FSDP). International sales represented 52% of total sales.
Financial results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $2,764.8 million | $2,351.6 million |
| Gross margin | 44.3% | 43.7% |
| Operating income / margin | $637.0 million / 23.0% | $520.7 million / 22.1% |
| Net income attributable to IDEX | $449.4 million | $377.8 million |
| Diluted EPS attributable to IDEX | $5.88 | $4.94 |
| Cash from operating activities | $565.3 million | $569.3 million |
| Free cash flow (non-GAAP) | $492.6 million | $517.7 million |
Sales increased 18%: organic growth was 12%, acquisitions contributed 4%, and foreign currency translation contributed 2%. Adjusted operating income was $661.4 million and adjusted operating margin was 23.9%; adjusted net income was $481.6 million and adjusted diluted EPS was $6.30. These are non-GAAP measures and should be considered alongside GAAP results. EBITDA was $723.8 million, or 26% of sales.
Segment sales and operating income were: FMT $998.7 million and $259.3 million; HST $1,121.8 million and $288.9 million; FSDP $647.9 million and $169.3 million. HST had the strongest sales growth, with sales up 25% and operating income up 40%.
Liquidity, debt and capital allocation
Year-end cash and cash equivalents were $855.4 million; working capital was $1,198.0 million and the current ratio was 3.5 to 1. Total borrowings were $1,200.1 million, predominantly fixed-rate. There were no borrowings under the $800 million revolving facility, with approximately $792.8 million of net capacity available. IDEX reported compliance with its debt covenants: leverage ratio 1.52 to 1 and covenant interest coverage 20.12 to 1.
Operating cash flow was nearly flat year over year, while free cash flow declined as higher sales and supply constraints increased working capital and growth investment. Investing cash outflow was $698.1 million, including $577.4 million for acquisitions and $72.7 million of capital expenditures. IDEX issued $500 million of 2.625% notes due 2031 and redeemed $350 million of 4.20% notes. It paid $161.1 million in dividends, raised the quarterly dividend 8% to $0.54 per share, and made no share repurchases in 2021.
Material changes and unusual items
- Sales, operating income, net income and diluted EPS rose substantially from 2020, reflecting demand recovery, organic growth, acquisitions, favorable pricing and volume leverage.
- Gross margin improved 60 basis points and operating margin improved 90 basis points. Inflation, material availability and logistics challenges remained significant operating headwinds.
- Cash from operations was $4.0 million lower than in 2020; operating working capital increased $117.0 million to $548.0 million.
- 2021 acquisitions included ABEL for $106.3 million and Airtech for $471.0 million. The company also had a pending $120.0 million Nexsight acquisition, expected to close by the end of Q1 2022, subject to approval and customary conditions.
- Other expense included an $8.6 million loss on early debt redemption and an $8.6 million noncash U.S. pension-plan termination loss, net of curtailment. Adjusted results also exclude restructuring, acquisition inventory step-up charges and a corporate transaction indemnity.
Outlook, risks and contingencies
The filing provides no specific numerical 2022 sales or EPS guidance. Management cited strong demand for differentiated products, but emphasized uncertainty about the duration of supply-chain constraints and COVID-related disruption. Its stated priorities were managing near-term operating challenges while investing for growth, developing global teams, expanding facilities in China and India, and pursuing acquisitions. Management anticipated higher capital spending in 2022 and continued acquisition activity.
Key risks include pandemic-related disruption, component and labor availability, freight and logistics constraints, inflation and pricing pressures, economic or end-market slowdowns, foreign exchange, interest rates, cybersecurity, climate-related regulation and physical risks, and acquisition integration and goodwill impairment. The company reported that ordinary-course legal proceedings were not expected to have a material adverse effect. It stated that asbestos claims had generally been dismissed or settled for immaterial amounts and did not record a provision beyond ordinary insurance deductibles.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The auditor identified revenue disaggregation as a critical audit matter. The audit of internal controls excluded ABEL and Airtech, acquired during 2021.
Important facts for investors to verify
- Whether elevated backlog and supply-chain constraints convert into shipments and sales, and how pricing keeps pace with input-cost inflation.
- Whether working capital normalizes and cash conversion improves after the 2021 inventory build and acquisition spending.
- Integration, returns and margin contribution from ABEL and Airtech, and completion and purchase terms of the Nexsight acquisition.
- Debt maturity and refinancing exposure, covenant headroom, and the company’s planned balance among acquisitions, capital spending, dividends and repurchases.
- Reported GAAP performance versus management’s adjusted measures, including the nature and recurrence of excluded costs.