Ingersoll Rand Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts are in U.S. dollars; financial figures are in millions unless otherwise stated. The company manufactures flow-control equipment and provides related aftermarket parts and services.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $1,369.8 | $703.5 |
| Gross profit / margin | $515.4 / 37.6% | $217.7 / 30.9% |
| Operating income (loss) / margin | $149.7 / 10.9% | $(76.1) / (10.8)% |
| Continuing-operations income (loss), net of tax | $111.6 | $(38.0) |
| Net income (loss) | $(90.1) | $(36.8) |
| Adjusted EBITDA (non-GAAP) / margin | $292.8 / 21.4% | $125.9 / 17.9% |
| Operating cash flow from continuing operations | $122.6 | $38.0 |
| Free cash flow from continuing operations (non-GAAP) | $107.6 | $30.4 |
Revenue rose 94.7%, primarily from the 2020 Ingersoll Rand Industrial acquisition, which contributed $573.2 million to the year-over-year increase, alongside organic volume and currency benefits. The comparison is materially affected because the acquisition closed February 29, 2020; Q1 2020 included only one month of its results. Gross margin also benefited from the prior-year runoff of acquired-inventory fair-value adjustments. Adjusted EBITDA and free cash flow are non-GAAP measures and should be considered alongside GAAP results.
Net loss included a $203.3 million loss on the HPS disposal group. HPS discontinued operations generated $62.4 million revenue versus $96.4 million a year earlier, reflecting weaker upstream energy demand. Continuing-operations income improved, but the disposal charge drove the larger consolidated net loss.
At March 31, 2021, cash and equivalents were $1,639.6 million; total debt was $3,863.8 million, including $40.6 million of current maturities. The company had no revolver borrowings, $105.4 million of letters of credit and $994.6 million of unused revolver availability. It reported compliance with debt covenants. Cash declined $111.3 million during the quarter; investing cash outflow included $202.5 million net cash paid for acquisitions. Continuing-operations net working capital was $2,179.9 million, down from $2,213.5 million at year-end, while operating working capital increased to $993.8 million from $952.8 million.
Material changes and segment results
- Industrial Technologies and Services revenue was $913.8 million, up 81.3%, and Segment Adjusted EBITDA was $211.5 million, up 123.1%; margin increased to 23.1% from 18.8%.
- Precision and Science Technologies revenue was $215.7 million, up 91.1%, and Segment Adjusted EBITDA was $67.2 million, up 104.3%; margin increased to 31.2% from 29.1%.
- Specialty Vehicle Technologies revenue was $240.3 million, up 177.5%, and Segment Adjusted EBITDA was $48.2 million, up 241.8%. The comparison includes three months of 2021 activity versus one month in Q1 2020 because of the acquisition timing.
- The company acquired Tuthill’s Vacuum and Blower Systems division and three sales and service businesses for total cash consideration of $199.1 million during the quarter.
Outlook, management commentary and risks
Management said demand improved and order rates strengthened in Q1, with some orders believed to represent deferred 2020 demand. It highlighted ongoing supply-chain monitoring and described the pandemic’s future effects as uncertain. Segment orders increased, but reported growth includes acquired businesses and should not be read as wholly organic. The filing provides no specific consolidated revenue or earnings guidance.
The company expects approximately $350 million of restructuring and transformation expenses over 2020–2022 and approximately $300 million of annualized cost synergies by the end of 2022. It recorded $2.4 million of restructuring expense in Q1 and had recognized $86.4 million cumulatively through March 31, 2021 across the listed businesses and corporate activities.
The HPS majority-interest sale closed April 1, 2021 for $300 million cash; Ingersoll Rand retained a 45% equity interest. On April 12, the company agreed to sell Club Car for $1.68 billion, with closing expected by Q3 2021 subject to approvals and customary conditions. Club Car remained in continuing operations at quarter-end and was expected to be reported as discontinued operations in Q2.
Key risks cited include COVID-19 and global economic uncertainty, acquisition integration and synergy execution, supply availability and input costs, foreign-exchange exposure, variable-rate debt and substantial indebtedness, and legal, environmental, asbestos and silica contingencies. Asbestos-related litigation reserves were $129.2 million, with a related insurance recovery receivable of $133.4 million; environmental liabilities accrued were $13.4 million. Management stated it did not expect these matters to have a material adverse effect, while noting outcomes could differ from estimates.
Important facts for investors to verify
- Separate acquisition-driven growth from organic performance, especially given the short 2020 comparison period for Ingersoll Rand Industrial and Club Car.
- Track realization of the stated $300 million annualized synergies against the expected restructuring and transformation costs.
- Confirm proceeds, closing conditions and accounting treatment for the HPS and Club Car transactions, including the retained HPS interest.
- Monitor cash conversion, working-capital requirements, debt service and revolver availability as demand and supply conditions evolve.
- Review the non-GAAP reconciliations and the assumptions supporting disposal, litigation and insurance-recovery estimates.