Ingersoll Rand Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company manufactures flow-control equipment and provides related aftermarket parts and services. Continuing operations comprised Industrial Technologies and Services and Precision and Science Technologies; Specialty Vehicle Technologies (Club Car) and High Pressure Solutions were reported as discontinued operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,325.0 million | $1,112.5 million | $3,733.6 million | $2,754.7 million |
| Gross profit / margin | $514.3 million / 38.8% | $430.0 million / 38.7% | $1,479.1 million / 39.6% | $941.9 million / 34.2% |
| Operating income (loss) | $163.9 million | $69.0 million | $425.3 million | $(55.3) million |
| Income from continuing operations | $131.0 million | $30.0 million | $359.4 million | $(163.2) million |
| Net income (loss) attributable to Ingersoll Rand | $126.0 million | $29.5 million | $269.5 million | $(184.9) million |
| Diluted EPS, continuing operations | $0.31 | $0.07 | $0.84 | $(0.44) |
| Adjusted EBITDA / margin | $313.7 million / 23.7% | $251.7 million / 22.6% | $849.8 million / 22.8% | $581.4 million / 21.1% |
| Operating cash flow from continuing operations | $146.1 million | $193.9 million | $380.9 million | $390.2 million |
| Free cash flow from continuing operations (non-GAAP) | $130.8 million | $187.5 million | $339.7 million | $361.1 million |
Q3 revenue rose 19.1% year over year, reflecting organic volume, pricing, acquisitions and favorable currency. Nine-month revenue rose 35.5%; growth included acquisitions, notably the 2020 Ingersoll Rand Industrial combination, and the comparison reflects different ownership periods. Q3 gross margin was broadly stable; the nine-month margin improvement also reflected the nonrecurrence of acquired-inventory fair-value costs recorded in 2020.
Both segments grew revenue and Adjusted EBITDA year over year in Q3. Industrial Technologies and Services revenue was $1,070.7 million and segment Adjusted EBITDA was $272.9 million, with a 25.5% margin (up 150 basis points). Precision and Science Technologies revenue was $254.3 million and segment Adjusted EBITDA was $75.5 million; margin was 29.7% (down 100 basis points).
Balance sheet, liquidity and capital allocation
- At September 30, cash and equivalents were $2,033.0 million and total debt was $3,462.3 million, implying net debt of approximately $1,429.3 million. Total debt was down from $3,899.5 million at December 31, 2020.
- The $1.1 billion revolving credit facility had no borrowings, $50.8 million of letters of credit and $1,049.2 million of unused availability. The company reported compliance with all debt covenants.
- Q3 cash flow from continuing operations was below the prior-year quarter; nine-month free cash flow was $339.7 million versus $361.1 million. Working capital increased, including from higher inventory and receivables.
- During the nine months, the company spent $736.5 million on treasury-stock purchases and repaid $425.7 million of long-term debt. It prepaid $396.0 million of Dollar Term Loan Series A principal on September 30, recording a $9.0 million debt-extinguishment loss.
Material transactions, outlook and risks
- Club Car was substantially sold in June for $1.68 billion cash; the company recorded a $252.8 million pretax gain. HPS was substantially sold in April for $278.3 million net cash proceeds for its 55% interest; the company retained 45% and recorded a $211.7 million pretax loss. Together, discontinued operations produced a nine-month net loss of $88.1 million, including significant tax effects.
- 2021 acquisitions included M-D Pneumatics and Kinney Vacuum Pumps, Maximus Solutions and Seepex; Seepex consideration was $481.5 million net of cash acquired. Air Dimensions was acquired after quarter-end for a base price of $70.5 million. An agreement to acquire Tuthill Pumps for $84.6 million was announced in November, subject to closing conditions.
- Management said Q3 orders increased 36.5% in Industrial Technologies and Services and 37.0% in Precision and Science Technologies year over year. It reported strong demand but expected near-term supply-chain disruption, component shortages, logistics pressure and inflation in materials and labor to continue. Pricing actions and supplier coordination were mitigation measures. No specific consolidated revenue or earnings guidance was provided.
- The company expects approximately $350 million of 2020–2022 restructuring and transformation expenses and approximately $300 million of annualized cost synergies by the end of 2022. It had recorded $93.5 million of plan expenses through September 30, 2021.
- Other notable items include a 2.0% Q3 effective tax rate, primarily reflecting windfall tax deductions and foreign tax credits; a $30.1 million gain on settlement of post-acquisition matters; and a $125.0 million asbestos litigation reserve, partly offset by a $132.1 million insurance recovery receivable. Management said these matters were not expected to have a material adverse effect, while acknowledging outcomes could differ from estimates.
Investor verification points
- Separate organic growth, pricing, currency and acquisition contributions; assess how much growth and margin improvement is recurring.
- Track cash conversion and working-capital needs, particularly inventory and receivables, against reported earnings and non-GAAP free cash flow.
- Verify final sale adjustments and tax consequences for Club Car and HPS, and the value and accounting treatment of the retained HPS interest.
- Monitor acquisition purchase-price allocations, integration results, restructuring spending and delivery of the stated synergy target.
- Assess continued supply-chain, inflation, currency and COVID-19 exposure, as well as asbestos and environmental contingencies and debt-service capacity.