Ingersoll Rand Inc. — Q1 2024 Form 10-Q
Business context and period: Global provider of industrial, air, fluid, energy and medical technologies, reporting in Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST). The filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $1,670.1 million | $1,629.3 million |
| Gross profit / margin | $746.3 million / 44.7% | $664.2 million / 40.8% |
| Operating income / margin | $293.2 million / 17.6% | $240.3 million / 14.7% |
| Net income attributable to Ingersoll Rand | $202.2 million | $161.1 million |
| Diluted earnings per share | $0.50 | $0.39 |
| Adjusted EBITDA and margin | $458.5 million / 27.5% | $400.1 million / 24.6% |
| Operating cash flow | $161.6 million | $170.3 million |
| Free cash flow | $99.3 million | $147.9 million |
Revenue and margins: Revenue grew 2.5%; acquisitions contributed $55.7 million and pricing $48.3 million, partly offset by lower organic volume of $60.9 million and unfavorable currency effects of $2.3 million. Gross margin improved on pricing and input-cost productivity. Selling and administrative expenses rose 8.1% to $336.3 million, and increased as a share of revenue to 20.1% from 19.1%.
Segments: ITS revenue rose 4.3% to $1,373.4 million; Segment Adjusted EBITDA increased 19.0% to $411.1 million and margin expanded to 29.9% from 26.2%. ITS orders fell 3.6%. PST revenue declined 4.9% to $296.7 million and Segment Adjusted EBITDA fell 3.3% to $91.4 million; margin increased to 30.8% from 30.3%. PST orders fell 5.4%.
Cash, debt and liquidity: Cash and equivalents were $1,452.3 million at March 31, down from $1,595.5 million at year-end. Total debt was $2,718.3 million, including current maturities and short-term borrowings. The company had $2.0 billion of unused revolving-credit availability and reported compliance with debt covenants. Capital expenditures were $62.3 million, versus $22.4 million a year earlier. Operating working capital increased $166.5 million from year-end to $1,427.5 million, primarily reflecting lower accounts payable and higher inventory and receivables.
Material changes and notable items
- Net income rose, primarily with higher gross profit, while operating cash flow and free cash flow declined. Free cash flow was pressured by increased capital expenditures and working-capital cash use.
- Interest expense decreased to $36.8 million from $38.9 million; the reported weighted-average interest rate, including derivatives, was approximately 5.3% versus 5.2%.
- Foreign-currency translation contributed a $73.5 million after-tax loss in other comprehensive income, compared with a $30.8 million gain in Q1 2023. Total comprehensive income was $128.7 million versus $189.4 million.
- Q1 acquisitions included Friulair, acquired for initial cash consideration of $142.2 million plus contingent consideration of up to approximately $11 million. Acquired businesses contributed $11.3 million of post-acquisition revenue during the quarter.
- The company agreed to acquire ILC Dover for approximately $2.325 billion in cash plus up to $75 million of contingent consideration. Closing was expected in Q2 2024, subject to customary approvals and conditions.
- On April 25, 2024, the board authorized a $1.0 billion increase to the share-repurchase program, incremental to the remaining amount under the existing $750 million authorization. Q1 treasury-stock purchases were $72.9 million.
Outlook, risks and contingencies
The filing provides no specific numerical revenue, earnings or cash-flow guidance. Management said current cash, operating cash generation and revolving-credit availability are expected to meet obligations and projected working-capital, debt-service and capital-spending needs for the foreseeable future, while cautioning that cash generation and future borrowing availability are not assured.
Management cited exposure to economic and end-market conditions, foreign exchange, interest rates, input costs and supplier availability, international operations, cybersecurity, competition, acquisitions and integration, and indebtedness. The company noted that a stronger U.S. dollar could adversely affect results. It reported $0.6 million of non-recoverable cybersecurity incident costs in Q1.
The company reported an asbestos litigation reserve of $124.7 million and a related insurance recovery receivable of approximately $151.4 million at March 31, 2024; actual liabilities or recoveries could differ from estimates. Environmental liabilities accrued were $16.3 million. Management did not expect these matters to have a material adverse effect, but noted unexpected developments could make asbestos matters material.
Restructuring charges were $9.7 million, versus $2.9 million in Q1 2023. Other operating expense also included $15.3 million of acquisition and transaction-related expenses. The effective tax rate declined to 20.2% from 22.8%, mainly due to a windfall tax deduction.
Important facts for investors to verify
- Whether the ILC Dover acquisition closes on expected terms and how it is financed, including its effects on debt, liquidity and PST results.
- Whether lower organic orders and volume, particularly in ITS and PST, persist and how they affect future revenue and margins.
- Whether working capital normalizes and cash conversion improves after the Q1 decline in operating and free cash flow.
- Progress on the expanded buyback authorization and its balance against acquisition funding and debt-service needs.
- Developments in asbestos claims and the collectability and timing of related insurance recoveries.
- The performance of non-GAAP measures alongside GAAP results; Adjusted EBITDA and free cash flow are supplemental measures, not GAAP substitutes.