IDEX 10-Q 2022-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

OR

Commission file number 1-10235

IDEX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (847) 498-7070

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares of common stock of IDEX Corporation outstanding as of October 21, 2022: 75,421,109.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

IDEX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

(unaudited)

See Notes to Condensed Consolidated Financial Statements

IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(unaudited)

See Notes to Condensed Consolidated Financial Statements

IDEX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(unaudited)

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The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related notes in this quarterly report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Company’s actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors” in the Company’s most recent annual report on Form 10-K and under the heading “Cautionary Statement Under the Private Securities Litigation Reform Act” discussed elsewhere in this quarterly report.

This discussion also includes certain non-GAAP financial measures that have been defined and reconciled to their most directly comparable U.S. GAAP measures later in this Item under the headings “Non-GAAP Disclosures” and “Free Cash Flow.” This discussion also includes Operating working capital, which has been defined later in this Item under the heading “Cash Flow Summary.” The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

Overview

IDEX is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets across a wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business and by the relationship of the U.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for IDEX’s products.

During the nine months ended September 30, 2022, the Company achieved record sales driven by robust demand. Teams continued to navigate the difficult economic environment arising from material availability and logistical challenges in order to deliver for customers. The Company expanded operating margin as its highly differentiated product portfolio enabled strong price capture amid inflation pressures and the Company’s focus on execution drove record EPS. Finally, the Company deployed additional capital, both within its existing portfolio and with the acquisitions of Nexsight and KZValve to the IDEX family of businesses as well as through share repurchases.

Select key financial results for the three months ended September 30, 2022 when compared to the same period in the prior year are as follows:

• Sales of $824.0 million increased 16%; organic sales (which excludes acquisitions/divestitures, the impact from the exit of a COVID-19 testing application and foreign currency translation) were up 15%.

• Operating income of $202.2 million increased 25%. Adjusted operating income increased 16% to $201.1 million.

• Operating margin of 24.5% was up 190 basis points. Adjusted operating margin increased 60 basis points to 24.9%.

• Net income attributable to IDEX of $178.7 million increased 54%. Adjusted net income attributable to IDEX increased 18% to $161.9 million.

• Adjusted EBITDA of $231.4 million increased 16% and was 28.7% of adjusted net sales, up 70 basis points.

• Diluted EPS attributable to IDEX of $2.36 increased $0.85, or 56%. Adjusted diluted EPS attributable to IDEX of $2.14 increased $0.35, or 20%.

Select key financial results for the nine months ended September 30, 2022 when compared to the same period in the prior year are as follows:

• Sales of $2.4 billion increased 16%; organic sales (which excludes acquisitions/divestitures, the impact from the exit of a COVID-19 testing application and foreign currency translation) were up 13%.

• Operating income of $576.4 million increased 21%. Adjusted operating income increased 16% to $578.5 million.

• Operating margin of 24.3% was up 110 basis points. Adjusted operating margin increased 30 basis points to 24.6%.

• Net income attributable to IDEX of $456.9 million increased 38%. Adjusted net income attributable to IDEX increased 18% to $465.3 million.

• Adjusted EBITDA of $665.3 million increased 16% and was 28.3% of adjusted net sales, up 40 basis points.

• Diluted EPS attributable to IDEX of $6.00 increased $1.67, or 39%. Adjusted diluted EPS attributable to IDEX of $6.12 increased $0.96, or 19%.

• Cash flows provided by operating activities of $390.1 million were down due to increases in working capital, partially offset by higher earnings. Free cash flow of $342.1 million was 74% of adjusted net income attributable to IDEX.

Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the three and nine months ended September 30, 2022 compared with the three and nine months ended September 30, 2021.

Performance for the Three and Nine Months Ended September 30, 2022 Compared with the Same Periods in 2021

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The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates as well as inflationary factors. The Company may, from time to time, enter into foreign currency forward contracts and interest rate swaps on its debt when it believes there is a financial advantage in doing so. A treasury risk management policy, adopted by the Board of Directors, describes the procedures and controls over derivative financial and commodity instruments, including foreign currency forward contracts and interest rate swaps. Under the policy, the Company does not use financial or commodity derivative instruments for trading purposes and the use of these instruments is subject to strict approvals by senior officers. Typically, the use of derivative instruments is limited to foreign currency forward contracts and interest rate swaps on the Company’s outstanding long-term debt. As of September 30, 2022, the Company did not have any derivative instruments outstanding.

Foreign Currency Exchange Rates

The Company’s foreign currency exchange rate risk is limited principally to the Euro, Swiss Franc, British Pound, Canadian Dollar, Indian Rupee, Chinese Renminbi and Swedish Krona. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as the source of products. Foreign currency transaction gains and losses are reported within Other (income) expense - net in the Condensed Consolidated Statements of Income.

Interest Rate Fluctuations

The Company does not have significant interest rate exposure due to all of the $1,200.1 million of debt outstanding as of September 30, 2022 being fixed rate debt. The Company’s Revolving Facility bears interest at either an alternate base rate or adjusted LIBOR plus, in each case, an applicable margin. At September 30, 2022, there was no balance outstanding under the Revolving Facility; however, as discussed above in the “Liquidity and Capital Resources” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company expects to fund the recently announced acquisition of the Muon Group with $150.0 million from the Company’s Revolving Facility and $200.0 million of proceeds from a new debt issuance, which would be subject to interest rate fluctuations.

Inflation Risk

We source a wide variety of materials and components from a network of global suppliers. While such materials are typically available from numerous suppliers, they are subject to price fluctuations, which could have a negative impact on our results. We seek to minimize the effects of inflation and changing prices through price increases to maintain reasonable gross margins.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are party to legal proceedings arising in the ordinary course of business as described in Note 18 in Part I, Item 1, “Legal Proceedings,” and such disclosure is incorporated by reference into this Item 1, “Legal Proceedings.”

The Company’s threshold for disclosing material environmental legal proceedings involving a government authority where potential monetary sanctions are involved is $1.0 million.

In addition, the Company and seven of its subsidiaries are presently named as defendants in a number of lawsuits claiming various asbestos-related personal injuries, allegedly as a result of exposure to products manufactured with components that contained asbestos. These components were acquired from third party suppliers and were not manufactured by the Company or any of the defendant subsidiaries. To date, the majority of the Company’s settlements and legal costs, except for costs of coordination, administration, insurance investigation and a portion of defense costs, have been covered in full by insurance, subject to applicable deductibles. However, the Company cannot predict whether and to what extent insurance will be available to continue to cover these settlements and legal costs, or how insurers may respond to claims that are tendered to them. Asbestos-related claims have been filed in jurisdictions throughout the United States and the United Kingdom. Most of the claims resolved to date have been dismissed without payment. The balance of the claims have been settled for various immaterial amounts. Only one case has been tried, resulting in a verdict for the Company’s business unit. No provision has been made in the financial statements of the Company, other than for insurance deductibles in the ordinary course, and the Company does not currently believe the asbestos-related claims will have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

There have been no material changes with respect to risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about the Company’s purchases of its common stock during the quarter ended September 30, 2022:

(1)On March 17, 2020, the Company’s Board of Directors approved an increase of $500.0 million in the authorized level of repurchases of common stock. This approval is in addition to the prior repurchase authorization of the Board of Directors of $300.0 million on December 1, 2015. These authorizations have no expiration date.

On and effective October 24, 2022, the Company’s Board of Directors (the “Board”) adopted amendments to the Company’s Amended and Restated Bylaws (the “Restated Bylaws”) as follows:

a.Specify that meetings of stockholders may be adjourned for technical failures associated with virtual meetings and enhance procedures for reconvening an adjourned meeting;

b.Enhance procedures with respect to stockholder nominations of directors and submissions of stockholder proposals (other than proposals to be included in the Company’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended) at meetings of stockholders;

c.Specify additional types of information and representations that a nominating stockholder or its proposed director nominee must provide to the Company in connection with a director nomination;

d.Clarify the procedures for excluding business (including a director nomination) that is not properly brought before a meeting of stockholders; and

e.Eliminate the requirement that a complete list of the stockholders entitled to vote at a meeting of stockholders be kept available at such meeting, as such action is no longer mandated by Delaware law.

The foregoing summary of the Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Restated Bylaws, a copy of which is attached as Exhibit 3.1 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 26, 2022