IDEX Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023. IDEX manufactures specialized fluid and metering, health and science, and fire and safety/diversified products. Amounts below are in millions of dollars, except per-share data.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $793.4 | $824.0 | $2,485.0 | $2,371.2 |
| Operating income | $179.6 | $202.2 | $572.0 | $576.4 |
| Net income attributable to IDEX | $209.1 | $178.7 | $487.5 | $456.9 |
| Diluted EPS | $2.75 | $2.36 | $6.42 | $6.00 |
| Adjusted EBITDA | $225.5 | $231.4 | $696.0 | $665.3 |
| GAAP gross margin | 44.1% | 46.3% | 44.7% | 45.6% |
Q3 adjusted net income attributable to IDEX was $160.6 million versus $161.9 million, and adjusted diluted EPS was $2.12 versus $2.14. Adjusted EBITDA margin was 28.4% versus 28.7%. These are non-GAAP measures.
Q3 operating cash flow was $226.6 million, up 14%; free cash flow was $206.5 million, also up 14%. For the first nine months, operating cash flow was $515.7 million versus $390.1 million, and free cash flow was $447.4 million versus $342.1 million. The filing attributes the improvement chiefly to reduced working-capital investment, including lower inventories.
At September 30, cash and cash equivalents were $562.7 million; current assets were $1,518.2 million and current liabilities $487.5 million, with a reported current ratio of 3.1 to 1. Total borrowings were $1,329.4 million, compared with $1,477.8 million at year-end 2022. The company had $715.9 million available under its revolving credit facility and reported compliance with debt covenants.
Changes and segment trends
- Q3 sales declined 4% reported and 6% organically. Management cited lower volumes, especially in HST, amid customer inventory recalibration; price capture, acquisitions net of divestitures, and currency partly offset the decline. Nine-month sales rose 5% reported and 1% organically.
- Q3 FMT sales fell 2% and Adjusted EBITDA fell 1% to $103.6 million; margin improved 50 basis points to 34.4%. HST sales fell 9% and Adjusted EBITDA fell 17% to $84.4 million; margin declined 410 basis points to 26.9%. FSDP sales rose 5% and Adjusted EBITDA rose 10% to $52.8 million; margin improved 150 basis points to 29.3%.
- Q3 GAAP net income includes a $93.8 million pretax gain on the August sale of Micropump ($71.1 million after tax). The prior-year quarter included a $34.8 million gain on the sale of Knight. Consequently, reported profit and EPS growth do not reflect underlying operating growth; adjusted net income and EPS were slightly lower year over year.
- During the first nine months, IDEX acquired Iridian for $110.3 million, funded with cash, and sold Micropump for net proceeds of $110.3 million. It also repaid $150 million of its Term Facility. Capital expenditures were $68.3 million versus $48.0 million, and dividends paid were $142.3 million versus $132.2 million.
Outlook, commentary and risks
Management said customer destocking was largely complete and expected orders to begin stabilizing and lead times to return toward more normalized levels in Q4 2023. The filing provides no numerical earnings or revenue guidance. Management said available cash, operating cash flow and revolver capacity should meet operating needs, planned capital spending, debt service, dividends and other stated requirements for the foreseeable future.
Management described strong price/cost and operational productivity, offset by lower volume leverage, unfavorable mix and higher employee-related costs. Other notable items include a $7.7 million reserve for a collaborative-partner note deemed potentially unrecoverable and $8.2 million of restructuring and asset impairment expense for the first nine months, largely tied to cost mitigation efforts. The 2022 comparable period included COVID-19 testing-related deferred revenue recognition and an impairment charge, which did not recur.
Principal stated uncertainties include industrial and end-market demand, customer inventory levels, inflation and interest rates, pricing and competition, labor and supply-chain conditions, foreign currency, geopolitical and trade developments, and the ability to integrate acquisitions. IDEX reported ordinary-course legal proceedings and asbestos-related claims; it said it does not currently expect these matters to have a material adverse effect. It reported no material changes to previously disclosed risk factors or market risks.
Important facts for investors to verify
- How much of future results depends on stabilization after customer destocking, particularly in HST and its analytical, life-science and semiconductor-related markets.
- The effect of the Micropump divestiture, Iridian acquisition and prior Muon acquisition on continuing revenue, margins, amortization and debt.
- Underlying earnings and cash generation excluding the divestiture gain and other adjustments; review the company’s non-GAAP reconciliations alongside GAAP results.
- Debt repayment, interest costs, revolver availability and covenant headroom; management reported a 1.42-to-1 leverage ratio and 18.62-to-1 interest coverage ratio for covenant purposes.
- Recoverability of the collaborative-partner investment and exposure to litigation, including whether insurance continues to cover asbestos-related claims.