Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 measures that are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 “Liquidity and Capital Resources.” 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.

Select key financial results for the three months ended June 30, 2023 when compared to the same period in the prior year are as follows:


	Three Months Ended June 30,
(Dollars in millions, except per share amounts)	2023		2022		% / bps Change
Net sales	$	846.2	$	796.1	6%
Organic net sales growth*					3%




Net income attributable to IDEX	138.6		138.2		—
Adjusted net income attributable to IDEX*	165.4		153.6		8%
Adjusted EBITDA*	240.7		219.2		10%
Diluted EPS attributable to IDEX	1.82		1.81		1%
Adjusted diluted EPS attributable to IDEX*	2.18		2.02		8%
Cash flows from operating activities	141.2		112.3		26%
Free cash flow*	119.6		96.7		24%
Net income margin	16.4%		17.3%		(90) bps
Adjusted EBITDA margin*	28.4%		27.5%		90 bps

*These are non-GAAP measures. See the definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures later in this Item under the headings “Non-GAAP Disclosures” and “Free Cash Flow”.

During the three months ended June 30, 2023, the Company achieved record sales of $846.2 million, up 6% overall and 3% organically, led by strong performance by its FMT and FSDP segments compared with the same period in 2022. The HST segment revenues and profitability was challenged due to customers’ inventory recalibration within the Analytical Instrumentation, Life Science and Biopharma markets. The Company also achieved diluted earnings per share of $1.82, up 1%, and record adjusted earnings per share of $2.18, up 8%. The Company drove strong operating cash flow of $141.2 million, up 26% versus the comparable prior year period, and free cash flow of $119.6 million, up 24%, primarily due to lower investments in working capital. Lastly, the Company also completed the acquisition of Iridian, which will be reported as part of the Scientific Fluidic and Optics reporting unit in the HST segment.

In the second half of 2023, the Company currently expects revenues and earnings will be lower as compared to the first half of 2023 driven by market-based declines within both its FMT and HST segments.

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Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the three and six months ended June 30, 2023 compared with the three and six months ended June 30, 2022.


	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in millions, except per share amounts)	2023			2022			% / bps Change		2023			2022			% / bps Change
Net sales	$	846.2		$	796.1		6	%	$	1,691.6		$	1,547.2		9	%
Cost of sales	468.2			439.2			7	%	931.1			847.8			10	%
Gross profit	378.0			356.9			6	%	760.5			699.4			9	%
Gross margin	44.7		%	44.8		%	(10) bps		45.0		%	45.2		%	(20) bps
Selling, general and administrative expenses	174.3			167.5			4	%	364.0			321.8			13	%
Restructuring expenses and asset impairments	3.6			2.8			29	%	4.1			3.4			21	%
Operating income	200.1			186.6			7	%	392.4			374.2			5	%
Other expense (income) - net	8.3			—			100	%	7.7			(2.3)			(435	%)
Interest expense	13.3			9.5			40	%	26.4			19.0			39	%
Income before income taxes	178.5			177.1			1	%	358.3			357.5			—
Provision for income taxes	40.0			39.0			3	%	80.0			79.5			1	%
Effective tax rate	22.4		%	22.1		%	30 bps		22.3		%	22.2		%	10 bps
Net income attributable to IDEX	$	138.6		$	138.2		—		$	278.4		$	278.2		—
Diluted earnings per common share attributable to IDEX	$	1.82		$	1.81		1	%	$	3.66		$	3.65		—

Net Sales

Net sales for the three and six months ended June 30, 2023 increased 6% and 9%, respectively, as compared to the same prior year periods. Organic sales for the same periods increased 3% and 4%, respectively, as a result of price capture across each of our segments, partially offset by the impact of current market conditions on volumes in our Health & Science Technologies businesses. Acquisition-related growth, net of divestitures, was 4% and 6% during the three and six months ended June 30, 2023, respectively, driven by the acquisitions of Iridian in May 2023, Muon Group in November 2022, KZValve in May 2022 and Nexsight in February 2022, net of the divestiture of Knight LLC and its related affiliates (“Knight”) in September 2022. Organic and acquisition-related sales growth were slightly offset by the unfavorable impact of foreign currency translation during both the three and six months ended June 30, 2023.

In the three months ended June 30, 2023, net sales increased 3% domestically and 10% internationally, and sales to customers outside the U.S. were approximately 50% of total sales in the second quarter of 2023 compared with 48% during the same period in 2022. In the six months ended June 30, 2023, net sales increased 6% domestically and 13% internationally, and sales to customers outside the U.S. were approximately 50% of total sales in the first half of 2023 compared with 49% during the same period in 2022.

Cost of Sales

Cost of sales for both the three and six months ended June 30, 2023 increased due to acquisitions, net of divestitures, inflation and higher employee-related costs, partially offset by lower sales volume.

Gross Profit and Gross Margin

Gross profit and Gross margin for both the three and six months ended June 30, 2023 were positively impacted by strong price/cost and favorable operational productivity, partially offset by lower volume leverage, higher employee-related costs and unfavorable mix. While acquisitions, net of divestitures, also positively impacted Gross profit, they resulted in a dilutive impact to overall Gross margin.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses in the three months ended June 30, 2023 increased primarily due to the $11.3 million impact from acquisitions, including amortization, net of divestitures. Excluding this impact, selling, general and administrative expenses decreased by $4.5 million, reflecting $3.3 million of lower stock compensation costs due to timing of retirement eligibility of participants, lower variable compensation costs and lower discretionary spending, partially offset by higher employee-related costs as compared with the same period in 2022.

Selling, general and administrative expenses in the six months ended June 30, 2023, increased primarily due to the $28.8 million impact from acquisitions, including amortization, net of divestitures, as well as increases in employee-related costs, which includes an additional $2.7 million of accelerated stock compensation costs for retiree eligible participants, and higher discretionary spending, partially offset by lower variable compensation costs compared with the same period in 2022.

Restructuring Expenses and Asset Impairments

Restructuring expenses and asset impairments increased in both the three and six months ended June 30, 2023 primarily due higher severance costs, which were incurred in conjunction with cost mitigation efforts as a result of the current market environment previously discussed in this section, compared with the same periods in 2022. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

Other Expense (Income) - Net

Other expense (income) - net increased in both the three and six months ended June 30, 2023 compared with the same periods in 2022. The increase in expense was primarily due to a $7.7 million credit loss reserve on a note receivable from a collaborative partner (See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail). Additionally, the six months ended June 30, 2022 included $2.7 million of gains on the sale of assets that did not reoccur in 2023.

Interest Expense

Interest expense for the three and six months ended June 30, 2023 increased compared to the same period in 2022 due to the borrowings incurred under the Revolving Credit Facility and the Term Facility in connection with the Muon Group acquisition in November 2022.

Income Taxes

The effective tax rates of 22.4% and 22.3% for the three and six months ended June 30, 2023, respectively, were relatively consistent with the effective tax rates of 22.1% and 22.2% during the same periods in 2022.

Results of Reportable Business Segments

The Company has three reportable segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”). For a detailed description of the operations within each segment, refer to Note 4 in the Notes to Condensed Consolidated Financial Statements.

Within its three reportable segments, the Company maintains 13 reporting units where the Company focuses on organic growth and strategic acquisitions. Management’s primary measurements of segment performance are sales, adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and Adjusted EBITDA margin.


FMT	HST	FSDP

Pumps	Scientific Fluidics & Optics	Fire & Safety
Water	Sealing Solutions	Dispensing
Energy	Performance Pneumatic Technologies	BAND-IT
Valves	Material Processing Technologies
Agriculture	Micropump

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The table below illustrates the percentages of the share of Net sales and Adjusted EBITDA contributed by each segment on the basis of total segments (not total Company) for the three and six months ended June 30, 2023.


	Three Months Ended June 30, 2023								Six Months Ended June 30, 2023
	FMT		HST		FSDP		IDEX		FMT		HST		FSDP		IDEX
Net sales	38	%	40	%	22	%	100	%	38	%	41	%	21	%	100	%
Adjusted EBITDA(1)	43	%	36	%	21	%	100	%	43	%	37	%	20	%	100	%

(1) Segment Adjusted EBITDA excludes the impact of unallocated corporate costs of $21.6 million and $48.4 million for the three and six months ended June 30, 2023, respectively.

Fluid & Metering Technologies Segment


	Three Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div(1)	Foreign Currency	Total
Net sales	$	325.1		$	299.9		8%	10%	(1%)	(1%)	8%
Adjusted EBITDA	114.1			95.0			20%	20%	—	—	20%
Adjusted EBITDA margin	35.1		%	31.7		%	340 bps	310 bps	30 bps	—	340 bps


	Six Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div(1)(2)	Foreign Currency	Total
Net sales	$	646.9		$	571.9		13%	10%	4%	(1%)	13%
Adjusted EBITDA	220.3			183.4			20%	17%	4%	(1%)	20%
Adjusted EBITDA margin	34.1		%	32.1		%	200 bps	240 bps	(30) bps	(10) bps	200 bps

(1) Acquisitions included KZValve in May 2022. Divestitures included Knight in September 2022.

(2) Based on the timing of its acquisition, Nexsight results for the first three months of 2023 are reflected in the acquisitions/divestitures column while the remaining year-over-year impact is included in the organic column.

Net sales in the second quarter of 2023 increased 6% domestically and 11% internationally. Net sales to customers outside the U.S. were approximately 44% of total segment sales in the second quarter of 2023 compared with 43% during the same period in 2022.
Net sales in the first six months of 2023 increased 12% domestically and 15% internationally. Net sales to customers outside the U.S. were approximately 45% of total segment sales in the first six months of 2023 compared with 44% during the same period in 2022.
The change in organic net sales for both the three and six months ended June 30, 2023 was attributed to increases in the following:

◦Energy reporting unit driven by operational execution related to improved supply chain conditions and price capture;

◦Water reporting unit driven by price capture, favorability in the municipal water market and operational execution;

◦Pumps reporting unit driven by strong price capture and operational execution, partially offset by softness in the industrial market; and

◦Valves reporting unit driven by strong price capture and demand in Asia.

These increases were partially offset by a decrease in the Agriculture reporting unit driven by distribution inventory recalibration, partially offset by positive OEM demand.

Adjusted EBITDA margin of 35.1% for the second quarter of 2023 increased 340 basis points compared with 31.7% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

◦Organic Adjusted EBITDA margin increased 310 basis points due to strong price/cost, higher volume leverage, lower discretionary spending and favorable operational productivity, partially offset by higher employee-related costs and unfavorable mix; and

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◦Acquisitions/divestitures positively impacted Adjusted EBITDA margin by 30 basis points due to the accretive impact of acquisitions, net of divestitures, on overall FMT Adjusted EBITDA margin.

Adjusted EBITDA margin of 34.1% for the first six months of 2023 increased 200 basis points compared with 32.1% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

◦Organic Adjusted EBITDA margin increased 240 basis points due to strong price/cost, operational productivity and volume leverage, partially offset by higher employee-related costs and unfavorable mix;

◦Acquisitions/divestitures negatively impacted Adjusted EBITDA margin by 30 basis points due to the dilutive impact of acquisitions, net of divestitures, on overall FMT Adjusted EBITDA margin; and

◦Foreign currency negatively impacted Adjusted EBITDA margin by 10 basis points.

Health & Science Technologies Segment


	Three Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div(1)	Foreign Currency	Total
Net sales	$	339.5		$	326.0		4%	(6%)	10%	—	4%
Adjusted EBITDA	93.7			103.6			(10%)	(19%)	9%	—	(10%)
Adjusted EBITDA margin	27.6		%	31.8		%	(420) bps	(420) bps	(10) bps	10 bps	(420) bps


	Six Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div(1)	Foreign Currency	Total
Net sales	$	690.5		$	641.2		8%	(2%)	11%	(1%)	8%
Adjusted EBITDA	194.4			203.4			(4%)	(13%)	10%	(1%)	(4%)
Adjusted EBITDA margin	28.2		%	31.7		%	(350) bps	(370) bps	—	20 bps	(350) bps

(1) Acquisitions included Iridian in May 2023 and Muon Group in November 2022.

Net sales in the second quarter of 2023 decreased 6% domestically and increased 13% internationally. Net sales to customers outside the U.S. were approximately 56% of total segment sales in the second quarter of 2023 compared with 52% during the same period in 2022.
Net sales in the first six months of 2023 decreased 4% domestically and increased 18% internationally. Net sales to customers outside the U.S. were approximately 57% of total segment sales in the first six months of 2023 compared with 52% during the same period in 2022.
The change in organic net sales for both the three and six months ended June 30, 2023 was attributed to decreases in the following:

◦Scientific Fluidics & Optics reporting unit driven by lower demand from Analytical Instrumentation and Life Science original equipment manufacturers due to customer inventory recalibration, partially offset by price capture;

◦Sealing Solutions reporting unit driven by softness in the semiconductor market; and

◦Material Processing Technologies reporting unit driven by lower demand in the pharma/biopharma and food/nutrition markets, partially offset by operational execution and price capture.

These decreases were partially offset by an increase in the Performance Pneumatics Technologies reporting unit driven by strong targeted growth performance tied to fuel cells and price capture, partially offset by softness in the industrial market.

Adjusted EBITDA margin of 27.6% for the second quarter of 2023 decreased 420 basis points compared with 31.8% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

◦Organic Adjusted EBITDA margin decreased 420 basis points due to unfavorable volume leverage, higher employee-related costs and unfavorable mix, partially offset by strong price/cost as well as lower discretionary spending and lower variable compensation costs;

◦Acquisitions negatively impacted Adjusted EBITDA margin by 10 basis points due to the dilutive impact of acquisitions on overall HST Adjusted EBITDA margin; and

◦Foreign currency positively impacted Adjusted EBITDA margin by 10 basis points.

Adjusted EBITDA margin of 28.2% for the first six months of 2023 decreased 350 basis points compared with 31.7% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

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◦Organic Adjusted EBITDA margin decreased 370 basis points due to unfavorable volume leverage, higher employee-related costs and unfavorable mix, partially offset by strong price/cost; and

◦Foreign currency positively impacted Adjusted EBITDA margin by 20 basis points.

Fire & Safety/Diversified Products Segment


	Three Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div	Foreign Currency	Total
Net sales	$	184.8		$	171.2		8%	8%	—	—	8%
Adjusted EBITDA	54.5			45.1			21%	21%	—	—	21%
Adjusted EBITDA margin	29.4		%	26.4		%	300 bps	310 bps	—	(10) bps	300 bps


	Six Months Ended June 30,							Components of Change
(Dollars in millions)	2023			2022			Change	Organic	Acq/Div	Foreign Currency	Total
Net sales	$	359.2		$	335.9		7%	9%	—	(2%)	7%
Adjusted EBITDA	104.2			89.5			16%	18%	—	(2%)	16%
Adjusted EBITDA margin	29.0		%	26.6		%	240 bps	240 bps	—	—	240 bps

Net sales in the second quarter of 2023 increased 14% domestically and 2% internationally. Net sales to customers outside the U.S. were approximately 48% of total segment sales in the second quarter of 2023 compared with 50% during the same period in 2022.
Net sales in the first six months of 2023 increased 15% domestically and decreased 1% internationally. Net sales to customers outside the U.S. were approximately 48% of total segment sales in the first six months of 2023 compared with 52% during the same period in 2022.
The change in organic net sales for both the three and six months ended June 30, 2023 was attributed to increases in the following:

◦Fire & Safety reporting unit driven by price capture, share gain with fire original equipment manufacturers, continued demand for rescue tools and operational execution; and

◦BAND-IT reporting unit driven by continued share gain in an otherwise flat automotive market.

In addition, within the Dispensing report unit, timing of North American project sales positively impacted the three and six months ended June 30, 2023 while timing of deliveries within Europe and Asia negatively impacted the three and six months ended June 30, 2023.

Adjusted EBITDA margin of 29.4% for the second quarter of 2023 increased 300 basis points compared with 26.4% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

◦Organic Adjusted EBITDA margin increased 310 basis points due to strong price/cost, favorable mix, lower variable compensation costs, higher volume leverage and favorable operational productivity, net of higher employee-related costs; and

◦Foreign currency negatively impacted Adjusted EBITDA margin by 10 basis points.

Adjusted EBITDA margin of 29.0% for the first six months of 2023 increased 240 basis points compared with 26.6% during the same period in 2022. The change in Adjusted EBITDA margin was attributed to the following:

◦Organic Adjusted EBITDA margin increased 240 basis points due to strong price/cost, higher volume leverage and operational productivity.

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Liquidity and Capital Resources

Liquidity

Based on management’s current expectations and currently available information, the Company believes current cash, cash from operations and cash available under the Revolving Credit Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements, share repurchases and quarterly dividend payments to holders of the Company’s common stock for the foreseeable future. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings.

Select key liquidity metrics at June 30, 2023 are as follows:


(In millions)	June 30, 2023
Working capital	$	1,001.3
Current ratio	3.1 to 1
Cash and cash equivalents	$	457.0
Cash held outside of the United States	377.4
Revolving Credit Facility capacity	$	800.0
Borrowings	79.5
Letters of credit	7.4
Revolving Credit Facility availability	$	713.1

The Company believes that additional borrowings through various financing alternatives remain available, if required.

Operating Working Capital

Operating working capital, calculated as Receivables plus Inventories minus Trade accounts payable, is used by management as a measurement of operational results as well as the short-term liquidity of the Company. The following table details operating working capital as of June 30, 2023 and December 31, 2022:


(In millions)	June 30, 2023		December 31, 2022
Receivables	$	455.2	$	442.8
Inventories	482.5		470.9
Less: Trade accounts payable	189.7		208.9
Operating working capital	$	748.0	$	704.8

Operating working capital increased $43.2 million to $748.0 million during the six months ended June 30, 2023. Acquisitions and foreign currency translation contributed $18.1 million to the increase in operating working capital. The remaining increase in Operating working capital was primarily driven by Trade accounts payable, which decreased $18.5 million, due to lower purchases in anticipation of decreased volume in the second half of the year. While Inventories increased $1.7 million as compared to the prior year end, inventory reduction efforts in the second quarter of 2023 lowered first quarter elevated levels related to planned production. In addition, Receivables increased $4.9 million as a result of strong price capture.

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Cash Flow Summary

The following table is derived from the Condensed Consolidated Statements of Cash Flows:


	Six Months Ended June 30,
(In millions)	2023		2022
Net cash flows provided by (used in):
Operating activities	$	289.1	$	192.0
Investing activities	(176.6)		(260.1)
Financing activities	(92.0)		(197.1)

Operating Activities

Cash flows provided by operating activities increased $97.1 million to $289.1 million in the six months ended June 30, 2023 primarily due to higher earnings and lower investments in working capital in 2023 as compared with 2022 primarily as a result of efforts to recalibrate inventory levels in response to normalizing market conditions.

Investing Activities

Cash flows used in investing activities decreased $83.5 million to $176.6 million in the six months ended June 30, 2023. The change is primarily due to the purchases of Nexsight and KZValve in 2022, partially offset by the purchase of Iridian, the purchase of marketable securities and higher capital expenditures in 2023.

Financing Activities

Cash flows used in financing activities decreased $105.1 million to $92.0 million in the six months ended June 30, 2023 from $197.1 million in the prior year period. The decrease was primarily the result of lower repurchases of common stock, which were $109.4 million higher during the prior year period.

Free Cash Flow

The Company believes free cash flow, a non-GAAP measure, is an important measure of performance because it provides a measurement of cash generated from operations that is available for payment obligations such as operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements and quarterly dividend payments to holders of the Company’s common stock as well as for funding acquisitions and share repurchases. Free cash flow is calculated as cash flows provided by operating activities less capital expenditures.

The following table reconciles free cash flow to cash flows provided by operating activities:


	Six Months Ended June 30,
(Dollars in millions)	2023			2022
Cash flows provided by operating activities	$	289.1		$	192.0
Less: capital expenditures	48.2			31.7
Free cash flow	$	240.9		$	160.3
Free cash flow as a percent of adjusted net income attributable to IDEX	74.4		%	52.8		%

The increase in free cash flow as compared to 2022 is due to lower investments in working capital discussed above in 2023 as compared with 2022, partially offset by higher capital expenditures.

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Cash Requirements

Capital Expenditures

Capital expenditures generally include machinery and equipment that support growth and improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. The Company believes it has sufficient operating cash flows to continue to meet current obligations and invest in planned capital expenditures. Cash flows from operations were more than adequate to fund capital expenditures of $48.2 million and $31.7 million in the first six months of 2023 and 2022, respectively.

Share Repurchases

During the six months ended June 30, 2023, the Company repurchased 5,400 shares at a cost of $1.1 million, of which $0.1 million did not settle until July 2023. As of June 30, 2023, the amount of share repurchase authorization remaining was $562.8 million. For additional information regarding the Company’s share repurchase program, refer to Note 14 in the Notes to Condensed Consolidated Financial Statements.

Dividends

Total dividend payments to common shareholders were $93.9 million during the six months ended June 30, 2023 compared with $86.9 million during the six months ended June 30, 2022.

Covenants

The key financial covenants that the Company is required to maintain in connection with the Revolving Credit Facility, the Term Facility, the 3.37% Senior Notes and the 5.13% Senior Notes, are a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At June 30, 2023, the Company was in compliance with these financial covenants, as the Company’s interest coverage ratio was 21.03 to 1 for covenant calculation purposes and the leverage ratio was 1.52 to 1. There are no financial covenants relating to the 2.625% Senior Notes or the 3.00% Senior Notes; however, both are subject to cross-default provisions.

Credit Ratings

The Company’s credit ratings, which were independently developed by the following credit agencies, are detailed below:

S&P Global Ratings affirmed the Company’s corporate credit rating of BBB (stable outlook) in August 2022.
Moody’s Investors Service affirmed the Company’s corporate credit rating of Baa2 (stable outlook) in December 2021.
Fitch Ratings reaffirmed the Company’s corporate credit rating of BBB+ (stable outlook) in April 2023.

Critical Accounting Estimates

As discussed in the Annual Report on Form 10-K for the year ended December 31, 2022, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. There have been no changes to the Company’s critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2022.

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Non-GAAP Disclosures

Set forth below are reconciliations of each of Organic net sales, Adjusted gross profit, Adjusted gross margin, Adjusted net income attributable to IDEX, Adjusted diluted earnings per share (“EPS”) attributable to IDEX, Consolidated Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and Consolidated Adjusted EBITDA margin to its respective most directly comparable U.S. GAAP measure. Management uses these metrics to measure performance of the Company since they exclude items that are not reflective of ongoing operations, as identified in the reconciliations below. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making.

This report references organic sales, a non-GAAP measure, that excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or prior to divestiture. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping to identify underlying growth trends in the Company’s business and facilitating easier comparisons of the Company’s revenue with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers.

Management believes that Adjusted EBITDA, which is EBITDA adjusted for items that are not reflective of ongoing operations, is useful as a performance indicator of ongoing operations. The Company believes that Adjusted EBITDA is useful to investors as an indicator of the strength and performance of the Company and its segments’ ongoing business operations and a way to evaluate and compare operating performance and value companies within the Company’s industry. Management believes that Adjusted EBITDA margin is useful for the same reason as Adjusted EBITDA. The definition of Adjusted EBITDA used here may differ from that used by other companies.

This report also references free cash flow. This non-GAAP measure is discussed and reconciled to its most directly comparable U.S. GAAP measure in the section above titled “Free Cash Flow.”

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. Due to rounding, numbers presented throughout this and other documents may not add up or recalculate precisely. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.


1. Reconciliations of the Change in Net Sales to Organic Net Sales

	Three Months Ended June 30, 2023
	FMT		HST		FSDP		IDEX
Change in net sales	8	%	4	%	8	%	6	%
- Net impact from acquisitions/divestitures	(1	%)	10	%	—		4	%
- Impact from foreign currency	(1	%)	—		—		(1	%)
Change in organic net sales	10	%	(6	%)	8	%	3	%


	Six Months Ended June 30, 2023
	FMT		HST		FSDP		IDEX
Change in net sales	13	%	8	%	7	%	9	%
- Net impact from acquisitions/divestitures	4	%	11	%	—		6	%
- Impact from foreign currency	(1	%)	(1	%)	(2	%)	(1	%)
Change in organic net sales	10	%	(2	%)	9	%	4	%

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2. Reconciliations of Reported-to-Adjusted Gross Profit and Margin (dollars in millions)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Gross profit	$	378.0		$	356.9		$	760.5		$	699.4
+ Fair value inventory step-up charges	—			0.4			—			0.4
Adjusted gross profit	$	378.0		$	357.3		$	760.5		$	699.8

Net sales	$	846.2		$	796.1		$	1,691.6		$	1,547.2

Gross margin	44.7		%	44.8		%	45.0		%	45.2		%
Adjusted gross margin	44.7		%	44.9		%	45.0		%	45.2		%



3. Reconciliations of Reported-to-Adjusted Net Income and Diluted EPS (in millions, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Reported net income attributable to IDEX	$	138.6	$	138.2	$	278.4	$	278.2
+ Restructuring expenses and asset impairments	3.6		2.8		4.1		2.8
+ Tax impact on restructuring expenses and asset impairments	(0.8)		(0.7)		(0.9)		(0.7)
+ Fair value inventory step-up charges	—		0.4		—		0.4
+ Tax impact on fair value inventory step-up charges	—		(0.1)		—		(0.1)
- Gains on sales of assets	—		—		—		(2.7)
+ Tax impact on gains on sales of assets	—		—		—		0.6
+ Credit loss on note receivable from collaborative partner(1)	7.7		—		7.7		—
+ Tax impact on credit loss on note receivable from collaborative partner	(1.6)		—		(1.6)		—
+ Acquisition-related intangible asset amortization	23.2		16.9		46.8		32.2
+ Tax impact on acquisition-related intangible asset amortization	(5.3)		(3.9)		(10.5)		(7.3)
Adjusted net income attributable to IDEX	$	165.4	$	153.6	$	324.0	$	303.4

(1) Represents a reserve on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

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	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Reported diluted EPS attributable to IDEX	$	1.82	$	1.81	$	3.66	$	3.65
+ Restructuring expenses and asset impairments	0.05		0.04		0.06		0.04
+ Tax impact on restructuring expenses and asset impairments	(0.01)		(0.01)		(0.01)		(0.01)
+ Fair value inventory step-up charges	—		—		—		—
+ Tax impact on fair value inventory step-up charges	—		—		—		—
- Gains on sales of assets	—		—		—		(0.03)
+ Tax impact on gains on sales of assets	—		—		—		0.01
+ Credit loss on note receivable from collaborative partner(1)	0.10		—		0.10		—
+ Tax impact on credit loss on note receivable from collaborative partner	(0.02)		—		(0.02)		—
+ Acquisition-related intangible asset amortization	0.31		0.22		0.62		0.42
+ Tax impact on acquisition-related intangible asset amortization	(0.07)		(0.04)		(0.14)		(0.10)
Adjusted diluted EPS attributable to IDEX	$	2.18	$	2.02	$	4.27	$	3.98

Diluted weighted average shares outstanding	75.9		76.1		75.9		76.2

(1) Represents a reserve on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.


4. Reconciliations of Net Income to Adjusted EBITDA (dollars in millions)

	Three Months Ended June 30,
	2023														2022
	FMT			HST			FSDP			Corporate		IDEX			FMT				HST			FSDP			Corporate		IDEX
Reported net income	$	—		$	—		$	—		$	—	$	138.5		$	—			$	—		$	—		$	—	$	138.1
+ Provision for income taxes	—			—			—			—		40.0			—				—			—			—		39.0
+ Interest expense	—			—			—			—		13.3			—				—			—			—		9.5
- Other income (expense) - net	—			—			—			—		(8.3)			—				—			—			—		—
Operating income (loss)	103.3			67.5			50.6			(21.3)		200.1			82.9			—	86.5			39.9			(22.7)		186.6
+ Other income (expense) - net	0.4			(0.2)			(0.3)			(8.2)		(8.3)			0.2				1.2			0.5			(1.9)		—
+ Depreciation	4.1			7.8			2.3			0.2		14.4			4.2				6.1			2.1			0.1		12.5
+ Amortization	5.7			15.9			1.6			—		23.2			5.6				9.7			1.6			—		16.9
+ Fair value inventory step-up charges	—			—			—			—		—			0.4				—			—			—		0.4
+ Restructuring expenses and asset impairments	0.6			2.7			0.3			—		3.6			1.7				0.1			1.0			—		2.8
+ Credit loss on note receivable from collaborative partner(1)	—			—			—			7.7		7.7			—				—			—			—		—
Adjusted EBITDA	$	114.1		$	93.7		$	54.5		$	(21.6)	$	240.7		$	95.0			$	103.6		$	45.1		$	(24.5)	$	219.2

Net sales (eliminations)	$	325.1		$	339.5		$	184.8		$	(3.2)	$	846.2		$	299.9			$	326.0		$	171.2		$	(1.0)	$	796.1

Net income margin												16.4		%													17.3		%
Adjusted EBITDA margin	35.1		%	27.6		%	29.4		%	n/m		28.4		%	31.7		%		31.8		%	26.4		%	n/m		27.5		%

(1) Represents a reserve on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

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	Six Months Ended June 30,
	2023														2022
	FMT			HST			FSDP			Corporate		IDEX			FMT			HST			FSDP			Corporate		IDEX
Reported net income	$	—		$	—		$	—		$	—	$	278.3		$	—		$	—		$	—		$	—	$	278.0
+ Provision for income taxes	—			—			—			—		80.0			—			—			—			—		79.5
+ Interest expense	—			—			—			—		26.4			—			—			—			—		19.0
- Other income (expense) - net	—			—			—			—		(7.7)			—			—			—			—		2.3
Operating income (loss)	199.8			145.0			96.6			(49.0)		392.4			163.3			170.1			80.4			(39.6)		374.2
+ Other income (expense) - net	0.9			(0.5)			(0.5)			(7.6)		(7.7)			1.8			1.4			2.1			(3.0)		2.3
+ Depreciation	7.2			15.1			4.4			0.5		27.2			8.1			12.2			4.2			0.2		24.7
+ Amortization	11.7			31.8			3.3			—		46.8			9.3			19.6			3.3			—		32.2
+ Fair value inventory step-up charges	—			—			—			—		—			0.4			—			—			—		0.4
+ Restructuring expenses and asset impairments	0.7			3.0			0.4			—		4.1			1.7			0.1			1.0			—		2.8
- Gains on sales of assets	—			—			—			—		—			(1.2)			—			(1.5)			—		(2.7)
+ Credit loss on note receivable from collaborative partner(1)	—			—			—			7.7		7.7			—			—			—			—		—
Adjusted EBITDA	$	220.3		$	194.4		$	104.2		$	(48.4)	$	470.5		$	183.4		$	203.4		$	89.5		$	(42.4)	$	433.9

Net sales (eliminations)	$	646.9		$	690.5		$	359.2		$	(5.0)	$	1,691.6		$	571.9		$	641.2		$	335.9		$	(1.8)	$	1,547.2

Net income margin												16.4		%												18.0		%
Adjusted EBITDA margin	34.1		%	28.2		%	29.0		%	n/m		27.8		%	32.1		%	31.7		%	26.6		%	n/m		28.0		%

(1) Represents a reserve on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

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Cautionary Statement Under the Private Securities Litigation Reform Act

This quarterly report on Form 10-Q, including the “Overview,” “Results of Operations” and “Liquidity and Capital Resources” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, anticipated changes in the second half of 2023, anticipated future acquisition behavior, availability of cash and financing alternatives and the anticipated benefits of the Company’s recent acquisitions, including the acquisitions of Nexsight, KZValve, Muon Group and Iridian, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “guidance,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this report.

The risks and uncertainties include, but are not limited to, the following: levels of industrial activity and economic conditions in the U.S. and other countries around the world, including uncertainties in the financial markets and adverse developments affecting the financial services industry; pricing pressures, including inflation and rising interest rates, and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company’s results; the impact of health epidemics and pandemics and terrorist attacks and wars, which could have an adverse impact on the Company's business by creating disruptions in the global supply chain and by potentially having an adverse impact on the global economy; the Company’s ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; capacity utilization and the effect this has on costs; labor markets; supply chain conditions; market conditions and material costs; risks related to environmental, social and corporate governance issues, including those related to climate change and sustainability; and developments with respect to contingencies, such as litigation and environmental matters.

Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports filed with the Securities and Exchange Commission (“SEC”) and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this report, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

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