Ingersoll Rand Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Ingersoll Rand is a global provider of industrial flow-creation products and solutions, reporting through Industrial Technologies and Services and Precision and Science Technologies. Results are presented with Club Car and High Pressure Solutions as discontinued operations.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,337.0 | $1,129.5 |
| Gross profit / margin | $526.1 / 39.3% | $452.1 / 40.0% |
| Operating income | $157.0 | $121.3 |
| Income from continuing operations | $105.9 | $90.1 |
| Net income (loss) | $104.5 | $(90.1) |
| Net income (loss) attributable to Ingersoll Rand | $103.7 | $(90.4) |
| Diluted EPS | $0.25 | $(0.21) |
| Adjusted EBITDA / margin | $303.6 / 22.7% | $244.0 / 21.6% |
| Operating cash flow from continuing operations | $50.1 | $87.5 |
| Free cash flow from continuing operations | $32.2 | $73.2 |
- Revenue increased 18.4%: organic volume contributed $90.1 million, acquisitions $77.3 million and pricing $66.4 million; foreign exchange reduced revenue by $26.3 million.
- Adjusted EBITDA rose $59.6 million. Management cited pricing and organic volume gains, partly offset by $52.7 million of unfavorable cost inflation and product mix.
- Gross margin declined 70 basis points, while selling and administrative expense fell to 19.9% of revenue from 22.3%. Operating margin increased to 11.7% from 10.7%.
- Industrial Technologies and Services revenue grew 13.8% to $1,039.6 million; segment adjusted EBITDA margin improved to 23.8% from 23.1%. Precision and Science Technologies revenue grew 37.9% to $297.4 million, largely due to acquisitions; its margin declined to 28.6% from 31.2%.
- Operating cash flow and free cash flow decreased year over year, mainly due to higher inventory and receivables; capital expenditures were $17.9 million, versus $14.3 million.
- At March 31, cash was $1,990.2 million and total debt was $3,415.7 million, including current maturities and short-term borrowings. Net debt was approximately $1,425.5 million. Revolver availability was $1,094.3 million, with no revolver borrowings; the company reported compliance with debt covenants.
Material changes and notable items
- Q1 2021 net loss reflected a $203.3 million loss on disposal of the HPS business, reported in discontinued operations. The company substantially completed the Club Car and HPS sales in 2021; remaining activities generated a $1.4 million discontinued-operations loss in Q1 2022.
- The effective tax rate increased to 22.7% from 10.5%. The filing attributes the increase to earnings mix across tax jurisdictions and a prior-year release of a significant unrecognized tax reserve.
- Other operating expense was $17.4 million versus $5.7 million of net income in Q1 2021, reflecting lower foreign-currency transaction gains and higher restructuring charges.
- The company repurchased $101.1 million of shares and paid $8.2 million in dividends during the quarter. Its board-authorized repurchase program permits up to $750 million in repurchases.
- Q1 2022 orders increased 24.0% in Industrial Technologies and Services and 30.6% in Precision and Science Technologies compared with Q1 2021.
Outlook, risks and contingencies
- No specific revenue, earnings or cash-flow guidance was provided in the supplied filing text. Management stated that existing cash, operating cash flow and revolver availability were expected to meet current obligations, working-capital needs, debt service and capital spending for the foreseeable future.
- Management reported supply constraints and production interruptions, including at several China manufacturing sites affected by COVID-19 restrictions, which could limit order fulfillment and extend lead times. The continuing effects of the pandemic remain uncertain.
- The filing cited geopolitical and economic uncertainty from the Russia-Ukraine conflict, currency exposure, inflation and component availability as risks. The company said its Russia and Ukraine operations were limited and had not materially affected results to date. Approximately 56% of Q1 revenue was denominated in currencies other than the U.S. dollar.
- Restructuring charges were $12.5 million in Q1 2022. Cumulative expense under the 2020 restructuring plan was $108.9 million; expected total program expense was approximately $110 million to $125 million.
- Asbestos-related litigation reserves totaled $135.1 million, with a related insurance recovery receivable of approximately $143.9 million. Environmental liabilities accrued were $14.1 million. Management did not expect these matters to have a material adverse effect, but noted outcomes could differ from estimates.
- Variable-rate borrowings expose the company to interest-rate risk. An April 1, 2022 credit agreement amendment replaced LIBOR with SOFR for applicable borrowings.
Important facts for investors to verify
- Whether pricing continues to offset cost inflation and unfavorable product mix, particularly given the decline in gross margin and Precision and Science Technologies segment margin.
- Whether working-capital investment, especially inventory and receivables, converts to cash and reverses the year-over-year decline in operating and free cash flow.
- How acquisition contributions, integration costs and purchase-accounting amortization affect reported growth and segment profitability.
- Progress and final costs of the restructuring program, and completion of the remaining Club Car transfer subject to local regulatory requirements.
- Debt servicing capacity and interest-rate exposure, along with developments in asbestos litigation and associated insurance recoveries.