Ingersoll Rand Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The company is a global provider of industrial flow, compression, vacuum, fluid-management and related technologies. Results are continuing operations unless noted.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,686.5 million | $1,439.9 million | $3,315.8 million | $2,776.9 million |
| Gross profit / margin | $697.5 million / 41.4% | $569.8 million / 39.6% | $1,361.7 million / 41.1% | $1,095.9 million / 39.5% |
| Operating income / margin | $272.4 million / 16.2% | $197.4 million / 13.7% | $512.7 million / 15.5% | $354.4 million / 12.8% |
| Net income attributable to Ingersoll Rand | $179.5 million | $138.5 million | $340.6 million | $242.2 million |
| Diluted EPS | $0.44 | $0.34 | $0.83 | $0.59 |
| Adjusted EBITDA (non-GAAP) / margin | $424.7 million / 25.2% | $334.9 million / 23.3% | $824.8 million / 24.9% | $638.5 million / 23.0% |
| Operating cash flow / free cash flow (non-GAAP) | $228.4 million / $203.6 million | $186.1 million / $164.7 million | $398.7 million / $351.5 million | $236.2 million / $196.9 million |
Liquidity, debt and capital allocation
- At June 30, cash and equivalents were $1,178.1 million; total debt was $2,729.8 million, implying net debt of approximately $1,551.7 million. Total debt was $2,752.6 million at year-end 2022.
- The company had no revolving-credit borrowings and $2.0 billion of unused revolver availability. The revolver was expanded from $1.1 billion and extended to April 2028 in an April 2023 amendment. The company reported compliance with debt covenants.
- Six-month cash used in investing was $655.4 million, including $615.8 million for acquisitions and $47.2 million of capital expenditures. Cash used in financing was $165.7 million, including $132.8 million of share repurchases, $20.6 million of debt repayments and $16.2 million of dividends.
- Cash declined $434.9 million from year-end 2022, primarily reflecting acquisition spending. Operating working capital increased $241.8 million to $1,436.0 million, with higher receivables and inventory and lower accounts payable among the drivers.
Material changes and operating performance
- Q2 revenue rose 17.1% year over year; the six-month increase was 19.4%. Management attributed growth to pricing, organic volume and acquisitions, partly offset by unfavorable currency movements. Q2 revenue contributions included $108.5 million from pricing, $70.5 million from organic volume and $85.3 million from acquisitions.
- Gross and operating margins improved year over year. Management cited pricing benefits exceeding material and labor inflation. Adjusted EBITDA margin increased 190 basis points for both Q2 and the first half.
- Industrial Technologies and Services Q2 revenue increased 19.8% to $1,378.4 million; segment adjusted EBITDA rose 29.3% to $377.5 million and margin expanded to 27.4%. Precision and Science Technologies revenue increased 6.5% to $308.1 million; segment adjusted EBITDA rose 15.8% to $90.0 million and margin expanded to 29.2%.
- Precision and Science Technologies orders declined 7.9% in Q2 and 5.4% for the first half, primarily reflecting lower organic orders. Industrial Technologies and Services orders increased 12.8% in Q2.
- Interest expense increased to $40.8 million in Q2 from $23.2 million, and to $79.7 million for the first half from $42.2 million, largely due to higher average interest rates. The six-month weighted-average rate was approximately 5.3%.
Outlook, risks and unusual items
- The filing provides no numerical full-year revenue or earnings guidance. Management said current cash, operating cash flow and revolver availability are expected to fund obligations, working capital, debt service and capital spending for the foreseeable future, while noting that cash generation and future borrowing access are not assured.
- On June 12, the company agreed to acquire Howden Roots LLC for approximately $300 million in cash; closing was expected in Q3 2023, subject to regulatory approvals and customary conditions. Earlier in 2023, the company acquired SPX FLOW’s Air Treatment business, Paragon Tank Truck Equipment, EcoPlant and other businesses for aggregate consideration of $624.9 million.
- A cybersecurity incident detected April 27 disrupted several IT systems. The company reported $2.2 million of non-recoverable costs, said it was not aware of customer confidential information being exfiltrated, and did not expect a material impact; the investigation was ongoing.
- Other items affecting comparability included higher acquisition and transaction costs, $14.3 million of six-month LIFO inventory adjustments, and restructuring activity. Management continued to assess cost-structure actions and expected the 2020 restructuring plan to be completed by year-end 2023, with no material remaining expense expected under that plan.
- Asbestos-related litigation reserves were $133.0 million, with a related insurance recovery receivable of approximately $154.0 million. Environmental liabilities accrued were $14.9 million. The company said it did not expect these matters to have a material adverse effect based on currently available information, while acknowledging outcomes could differ.
- Key disclosed risks include global economic and geopolitical conditions, foreign-exchange exposure, raw-material availability and costs, acquisition integration, cybersecurity, product liability, litigation, and debt and interest-rate risks. Approximately 56% of first-half revenue was denominated in currencies other than the U.S. dollar.
Important facts for investors to verify
- Whether the strong pricing and margin gains persist as inflation, product mix and organic demand change; monitor the order declines in Precision and Science Technologies.
- How acquisition integration and the expected Roots transaction affect debt, cash flow, goodwill and margins.
- Whether working-capital investment moderates and operating cash flow continues to support capital spending, debt service, dividends and repurchases.
- Changes in borrowing costs and the effectiveness of interest-rate hedges; verify the company’s variable-rate debt exposure and covenant headroom.
- Updates on the cybersecurity investigation and any changes to the company’s assessment of litigation reserves, insurance recoveries or other contingencies.
- Interpret non-GAAP Adjusted EBITDA and free cash flow alongside GAAP results; the filing cautions these measures are supplemental and not substitutes for GAAP measures.