Business context and reporting period
This summary covers Gardner Denver Holdings, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The supplied filing is for Gardner Denver Holdings, not Ingersoll Rand Inc.; verify the issuer before relying on this summary. Gardner Denver makes flow-control and compression equipment and aftermarket products and services through its Industrials, Energy and Medical segments.
Financial performance
All amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $668.2 | $579.1 | $1,287.7 | $1,060.8 |
| Gross profit / margin | $249.3 / 37.3% | $215.9 / 37.3% | $481.1 / 37.4% | $390.5 / 36.8% |
| Operating income (loss) | $101.4 | $(101.6) | $191.2 | $(64.9) |
| Net income (loss) | $60.3 | $(146.3) | $102.7 | $(153.2) |
| Diluted earnings (loss) per share | $0.29 | $(0.83) | $0.49 | $(0.94) |
| Adjusted EBITDA / margin | $161.6 / 24.2% | $132.1 / 22.8% | $309.8 / 24.1% | $224.2 / 21.1% |
| Operating cash flow | $134.3 | $22.6 | $194.5 | $20.0 |
| Free cash flow | $123.5 | $12.2 | $173.6 | $(6.8) |
Q2 revenue rose 15.4% year over year; six-month revenue rose 21.4%. Management attributed growth to stronger upstream-energy demand, higher volumes including acquisitions, favorable currency effects and pricing. Adjusted EBITDA increased 22.3% in Q2 and 38.2% for the six months. Q2 gross margin was flat; six-month gross margin improved 0.6 percentage points.
Q2 segment results: Industrials revenue was $328.7 and Segment Adjusted EBITDA $71.1 (margin 21.6%); Energy revenue was $273.1 and EBITDA $79.7 (29.2%); Medical revenue was $66.4 and EBITDA $18.0 (27.1%). Energy showed the strongest EBITDA growth, supported by upstream activity. Industrials’ Q2 margin declined from 22.4% a year earlier as original-equipment sales increased relative to aftermarket sales.
Liquidity, debt and cash flows
At June 30, 2018, cash was $337.8; total debt was $1,911.4, down from $2,040.2 at year-end 2017. Net debt was approximately $1,573.6. Current assets were $1,445.6 and current liabilities $571.4. The company repaid $100.0 of U.S. term-loan principal in June using excess cash. It reported $353.0 of unused revolving-facility availability (with $7.0 of letters of credit outstanding) and $82.2 of unused receivables-facility capacity. The revolving facility’s borrowing capacity was scheduled to decline to $269.9 on July 30, 2018 following certain lender maturities.
Six-month operating cash flow improved substantially year over year, while investing outflows included $113.6 for acquisitions and $20.9 of capital expenditures. Financing outflows included $110.5 of principal payments. Management said cash, operating cash generation and available facilities should fund foreseeable needs, while cautioning that cash generation and future borrowing availability are not assured. The company reported compliance with debt covenants and no defaults.
Material changes, outlook and notable items
- All three segments reported higher Q2 orders year over year: Industrials $336.2 (+19.5%), Energy $303.7 (+14.0%) and Medical $72.5 (+27.2%); constant-currency increases were 14.8%, 11.8% and 22.5%, respectively.
- Management described a favorable industrial-production outlook and expected continued benefits from improving energy-market activity, but did not provide formal full-year revenue or earnings guidance. It forecast 2018 capital expenditures of approximately $60–$70.
- Acquisitions included Runtech Systems Oy, acquired in February for $94.9 net of cash acquired, and PMI Pump Parts, acquired in May for stated consideration of $21.0. Together, acquisitions contributed $22.6 of Q2 revenue and $0.7 of operating income after acquisition dates.
- ASC 606 was adopted January 1, 2018. It reduced reported Q2 revenue by $5.5 and net income by $1.7 versus presentation without adoption; six-month revenue was lower by $9.4 and net income by $2.6. Prior-year results were not restated.
- Comparisons with 2017 earnings are affected by unusual items: Q2 2017 included $156.2 of other operating expense, principally IPO-related stock compensation, and $50.4 of debt-extinguishment loss. These items substantially depressed the prior-year comparison.
- On August 1, 2018, after quarter-end, the board authorized up to $250 million of share repurchases over two years; the program is discretionary and may be suspended or terminated.
- Risks include exposure to volatile energy markets, foreign exchange and interest rates, substantial debt, international operations, raw-material costs, and execution of acquisitions and engineered-to-order contracts. The company recorded $100.8 of asbestos litigation reserves and a related $96.2 insurance recovery receivable; recovery depends in part on ongoing insurer litigation. Environmental liabilities were $7.1.
- The Tax Act accounting remained partly provisional. The company recorded a cumulative $71.3 transition-tax impact, including a $7.9 adjustment in Q1 2018; further changes were possible as its analysis continued.
Important facts for investors to verify
- Confirm the issuer: this filing names Gardner Denver Holdings, Inc., despite the request metadata naming Ingersoll Rand Inc.
- Review the definitions and exclusions in Adjusted EBITDA, Adjusted Net Income and free cash flow; these are non-GAAP measures.
- Assess whether growth persists after separating energy-market recovery, acquisitions and foreign-exchange effects, and monitor the lower aftermarket share in Industrials.
- Check subsequent filings for the scheduled revolving-facility capacity reduction, the status of debt repayment and any share repurchases under the post-quarter authorization.
- Track final acquisition purchase-price allocations, Tax Act estimates, ASC 606 contract estimates, and asbestos insurance recoveries and litigation outcomes.