filings.toolsIngersoll Rand 10-Q 2022-03-31
Filed 2022-05-06. 8 sections, 212K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38095
____________________________
Ingersoll Rand Inc.
(Exact Name of Registrant as Specified in Its Charter)
____________________________
| Delaware | 46-2393770 | ||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
525 Harbour Place Drive, Suite 600
Davidson, North Carolina 28036
(Address of Principal Executive Offices) (Zip Code)
(704) 655-4000
(Registrant’s Telephone Number, Including Area Code)
800-A Beaty Street
Davidson, North Carolina 28036
(Former name or former address, if changed since last report)
____________________________
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, $0.01 Par Value per share | IR | New York Stock Exchange |
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 ý 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý 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.
| Large accelerated filer | ý | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ý
The registrant had outstanding 405,929,871 shares of Common Stock, par value $0.01 per share, as of April 29, 2022.
INGERSOLL RAND INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and “Part II. Item 1A Risk Factors” in this Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:
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The COVID-19 pandemic, including business disruptions caused by government restrictions, could have a material and adverse effect on our business, results of operations and financial condition in the future.
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We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.
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More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
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Shareholder and customer emphasis on environmental, social, and governance responsibility may impose additional costs on us or expose us to new risks.
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Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.
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We face competition in the markets we serve, which could materially and adversely affect our operating results.
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Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.
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Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.
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If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.
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Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.
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Credit and counterparty risks could harm our business.
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We may not realize all of the expected benefits of the acquisition of and merger with Ingersoll Rand Industrial.
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Dispositions create certain risks and may affect our operating results.
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Information systems failure or disruption, due to cyber terrorism or other actions, may adversely impact our business and result in financial loss to the Company or liability to our customers.
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Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.
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The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.
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A natural disaster, catastrophe, pandemic, geopolitical tensions or other event could adversely affect our operations.
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Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.
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Our success depends on our executive management and other key personnel and our ability to attract and retain top talent throughout the Company.
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Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.
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The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.
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Changes in tax or other laws, regulations, or adverse determinations by taxing or other governmental authorities could increase our effective tax rate and cash taxes paid or otherwise affect our financial condition or operating results.
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Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.
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We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.
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The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
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A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.
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Environmental compliance costs and liabilities could adversely affect our financial condition.
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We face risks associated with our pension and other postretirement benefit obligations.
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Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.
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We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
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Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition.
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The terms of the credit agreement governing the Senior Secured Credit Facilities may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
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Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
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When we utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.
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If the financial institutions that are part of the syndicate of our Revolving Credit Facility fail to extend credit under our Revolving Credit Facility, our liquidity and results of operations may be adversely affected.
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The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
All references to “we,” “us,” “our,” the “Company” or “Ingersoll Rand” in this Quarterly Report on Form 10-Q mean Ingersoll Rand Inc. and its subsidiaries, unless the context otherwise requires.
Website Disclosure
We use our website www.irco.com as a channel of distribution of Company information. Financial and other important information regarding us is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Ingersoll Rand Inc. when you enroll your email address by visiting the “Investor Alerts” section of our website at investors.irco.com. The contents of our website are not, however, a part of this Quarterly Report on Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues | $ | 1,337.0 | $ | 1,129.5 | |||||||||||||||||||
| Cost of sales | 810.9 | 677.4 | |||||||||||||||||||||
| Gross Profit | 526.1 | 452.1 | |||||||||||||||||||||
| Selling and administrative expenses | 265.5 | 252.3 | |||||||||||||||||||||
| Amortization of intangible assets | 86.2 | 84.2 | |||||||||||||||||||||
| Other operating expense (income), net | 17.4 | (5.7) | |||||||||||||||||||||
| Operating Income | 157.0 | 121.3 | |||||||||||||||||||||
| Interest expense | 19.0 | 23.1 | |||||||||||||||||||||
| Other income, net | (4.6) | (2.5) | |||||||||||||||||||||
| Income from Continuing Operations Before Income Taxes | 142.6 | 100.7 | |||||||||||||||||||||
| Provision for income taxes | 32.4 | 10.6 | |||||||||||||||||||||
| Loss on equity method investments | (4.3) | — | |||||||||||||||||||||
| Income from Continuing Operations | 105.9 | 90.1 | |||||||||||||||||||||
| Loss from discontinued operations, net of tax | (1.4) | (180.2) | |||||||||||||||||||||
| Net Income (Loss) | 104.5 | (90.1) | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 0.8 | 0.3 | |||||||||||||||||||||
| Net Income (Loss) Attributable to Ingersoll Rand Inc. | $ | 103.7 | $ | (90.4) | |||||||||||||||||||
| Amounts attributable to Ingersoll Rand Inc. common stockholders: | |||||||||||||||||||||||
| Income from continuing operations, net of tax | $ | 105.1 | $ | 89.8 | |||||||||||||||||||
| Loss from discontinued operations, net of tax | (1.4) | (180.2) | |||||||||||||||||||||
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | 103.7 | $ | (90.4) | |||||||||||||||||||
| Basic earnings (loss) per share of common stock: | |||||||||||||||||||||||
| Earnings from continuing operations | $ | 0.26 | $ | 0.21 | |||||||||||||||||||
| Loss from discontinued operations | — | (0.43) | |||||||||||||||||||||
| Net earnings (loss) | 0.25 | (0.22) | |||||||||||||||||||||
| Diluted earnings (loss) per share of common stock: | |||||||||||||||||||||||
| Earnings from continuing operations | $ | 0.25 | $ | 0.21 | |||||||||||||||||||
| Loss from discontinued operations | — | (0.42) | |||||||||||||||||||||
| Net earnings (loss) | 0.25 | (0.21) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Comprehensive Income (Loss) Attributable to Ingersoll Rand Inc. | |||||||||||||||||||||||
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | 103.7 | $ | (90.4) | |||||||||||||||||||
| Other comprehensive loss, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net | (28.8) | (99.8) | |||||||||||||||||||||
| Pension and other postretirement prior service cost and gain (loss), net | (1.1) | 1.2 | |||||||||||||||||||||
| Total other comprehensive loss, net of tax | (29.9) | (98.6) | |||||||||||||||||||||
| Comprehensive income (loss) Attributable to Ingersoll Rand Inc. | $ | 73.8 | $ | (189.0) | |||||||||||||||||||
| Comprehensive Income (Loss) Attributable to Noncontrolling Interests | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests | $ | 0.8 | $ | 0.3 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net | 0.6 | (1.1) | |||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 0.6 | (1.1) | |||||||||||||||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 1.4 | (0.8) | |||||||||||||||||||||
| Total Comprehensive Income (Loss) | $ | 75.2 | $ | (189.8) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share amounts)
| March 31, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,990.2 | $ | 2,109.6 | |||||||
| Accounts receivable, net of allowance for credit losses of $43.7 and $42.3, respectively | 1,013.9 | 948.6 | |||||||||
| Inventories | 954.9 | 854.2 | |||||||||
| Other current assets | 217.5 | 186.9 | |||||||||
| Assets of discontinued op |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and this Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Overview
Our Company
Ingersoll Rand is a global market leader with a broad range of innovative and mission-critical air, fluid, energy and medical technologies, providing services and solutions to increase industrial productivity and efficiency. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, Nash, CompAir, Thomas, Milton Roy, Seepex, Elmo Rietschle, ARO, Robuschi, Emco Wheaton and Runtech Systems, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.
We operate with two reportable segments: Industrial Technologies and Services and Precision and Science Technologies. See Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a description of our reportable segments.
Items Affecting our Business, Industry and End Markets
The COVID-19 Pandemic and Related Supply Chain Disruptions
We continue to assess and actively manage the impact of the COVID-19 pandemic on our global operations and also the operations of our suppliers and customers. In order to position ourselves to fulfill demand, we continue to monitor the supply chain closely and are taking proactive steps to ensure continuity of supply. We are adhering to all state and country mandates and guidelines wherever we operate. We have taken certain actions to reduce costs and preserve cash given the uncertain environment. The substantial majority of our production sites have remained fully operational this year. Certain facilities, including several manufacturing sites in China, have recently experienced interruptions in production due to outbreaks of COVID-19 infections and subsequent government restrictions. These interruptions have contributed to component shortages and other supply chain constraints that may limit our ability to fulfill customer orders within desired lead times, both directly in the Asia Pacific region and indirectly in other regions. The degree to which the pandemic will continue to impact our operations, and the operations of our customers and suppliers remains uncertain. See “The COVID-19 pandemic could have a material and adverse effect on our business, results of operations and financial condition in the future” in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and this Form 10-Q.
General Economic Conditions
Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost.
The ongoing conflict between Russia and Ukraine and the related sanctions and export controls have adversely impacted economic conditions in Eastern Europe and in certain global industry sectors dependent on those countries. We have limited operations in Russia and Ukraine and, to date, have not experienced a material adverse impact on our results of operations or financial condition. Further escalation or prolonged conflict may amplify several of the risks identified in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Foreign Currency Fluctuations
A significant portion of our revenues, approximately 56% for the three month period ended March 31, 2022, was denominated in currencies other than the U.S. dollar. Because much of our manufacturing facilities and labor force costs are outside of the United
States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.
Factors Affecting the Comparability of our Results of Operations
Key factors affecting the comparability of our results of operations are summarized below.
Acquisitions
Part of our strategy for growth is to acquire complementary businesses that provide access to new technologies or geographies or expand our offerings. We acquired several businesses during the year ended December 31, 2021. While these acquisitions are not individually significant or significant in the aggregate, they may be relevant when comparing our results from period to period.
See Note 3 “Business Combinations” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further discussion of these acquisitions.
Restructuring and Other Business Transformation Initiatives
We continue to execute business transformation initiatives. A key element of those initiatives are restructuring programs within our Industrial Technologies and Services and Precision and Science Technologies segments, as well as at the Corporate level. Restructuring charges, program related facility reorganization, relocation and other costs, and related capital expenditures were impacted most significantly.
Subsequent to the acquisition of Ingersoll Rand Industrial, we announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. For the three month period ended March 31, 2022 and 2021, $12.5 million and $2.4 million, respectively, were charged to expense related to this restructuring program. Through March 31, 2022, we recognized expense related to the 2020 Plan of $82.3 million, $14.5 million and $12.1 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively.
How We Assess the Performance of Our Business
We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow.
We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.
We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.
Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.
Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a
measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
See “Non-GAAP Financial Measures” below for reconciliation information.
Results of Continuing Operations
Consolidated results should be read in conjunction with the segment results section herein and Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, which provides more detailed discussions concerning certain components of our Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated within the consolidated results.
The following table presents selected Condensed Consolidated Results of Operations of our business for the three month periods ended March 31, 2022 and 2021.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Condensed Consolidated Statement of Operations: | |||||||||||||||||||||||
| Revenues | $ | 1,337.0 | $ | 1,129.5 | |||||||||||||||||||
| Cost of sales | 810.9 | 677.4 | |||||||||||||||||||||
| Gross profit | 526.1 | 452.1 | |||||||||||||||||||||
| Selling and administrative expenses | 265.5 | 252.3 | |||||||||||||||||||||
| Amortization of intangible assets | 86.2 | 84.2 | |||||||||||||||||||||
| Other operating expense (income), net | 17.4 | (5.7) | |||||||||||||||||||||
| Operating income | 157.0 | 121.3 | |||||||||||||||||||||
| Interest expense | 19.0 | 23.1 | |||||||||||||||||||||
| Other income, net | (4.6) | (2.5) | |||||||||||||||||||||
| Income before income taxes | 142.6 | 100.7 | |||||||||||||||||||||
| Provision for income taxes | 32.4 | 10.6 | |||||||||||||||||||||
| Loss on equity method investments | (4.3) | — | |||||||||||||||||||||
| Income from Continuing Operations | 105.9 | 90.1 | |||||||||||||||||||||
| Loss from discontinued operations, net of tax | (1.4) | (180.2) | |||||||||||||||||||||
| Net income (loss) | 104.5 | (90.1) | |||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 0.8 | 0.3 | |||||||||||||||||||||
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | 103.7 | $ | (90.4) | |||||||||||||||||||
| Percentage of Revenues: | |||||||||||||||||||||||
| Gross profit | 39.3 | % | 40.0 | % | |||||||||||||||||||
| Selling and administrative expenses | 19.9 | % | 22.3 | % | |||||||||||||||||||
| Operating income | 11.7 | % | 10.7 | % | |||||||||||||||||||
| Income (loss) from continuing operations | 7.9 | % | 8.0 | % | |||||||||||||||||||
| Adjusted EBITDA | 22.7 | % | 21.6 | % | |||||||||||||||||||
| Other Financial Data: | |||||||||||||||||||||||
| Adjusted EBITDA (1) | $ | 303.6 | $ | 244.0 | |||||||||||||||||||
| Adjusted Net Income (1) | 201.2 | 168.0 | |||||||||||||||||||||
| Cash flows - operating activities | 50.1 | 87.5 | |||||||||||||||||||||
| Cash flows - investing activities | (48.2) | (207.2) | |||||||||||||||||||||
| Cash flows - financing activities | (116.1) | (7.8) | |||||||||||||||||||||
| Free Cash Flow (1) | 32.2 | 73.2 |
(1)See the “Non-GAAP Financial Measures” section for a reconciliation to comparable GAAP measure.
Revenues
Revenues for the three month period ended March 31, 2022 were $1,337.0 million, an increase of $207.5 million, or 18.4%, compared to $1,129.5 million for the same three month period in 2021. The increase in revenues was primarily due to higher organic volumes of $90.1 million, acquisitions of $77.3 million, and higher pricing of $66.4 million, partially offset by unfavorable impact of foreign currencies of $26.3 million. The percentage of consolidated revenues derived from aftermarket parts and services was 36.2% in the three month period ended March 31, 2022 compared to 37.4% in the same three month period in 2021.
Gross Profit
Gross profit for the three month period ended March 31, 2022 was $526.1 million, an increase of $74.0 million, or 16.4%, compared to $452.1 million for the same three month period in 2021, and as a percentage of revenues was 39.3% for the three month period ended March 31, 2022 and 40.0% for the same three month period in 2021. The increase in gross profit is primarily due to higher organic volumes, acquisitions, and higher pricing discussed above.
Selling and Administrative Expenses
Selling and administrative expenses were $265.5 million for the three month period ended March 31, 2022, an increase of $13.2 million, or 5.2%, compared to $252.3 million for the same three month period in 2021. The increase in selling and administrative expenses was mainly from businesses acquired in the second half of 2021, partially offset by lower stock-based compensation expense. Selling and administrative expenses as a percentage of revenues decreased to 19.9% for the three month period ended March 31, 2022 from 22.3% in the same three month period in 2021.
Amortization of Intangible Assets
Amortization of intangible assets was $86.2 million for the three month period ended March 31, 2022, an increase of $2.0 million, compared to $84.2 million in the same three month period in 2021. The increase was primarily due to acquisitions completed in the second half of 2021.
Other Operating Expense (Income), Net
Other operating expense (income), net was $17.4 million for the three month period ended March 31, 2022, an increase of $23.1 million, compared to $(5.7) million in the same three month period in 2021. The increase in expense was primarily due to lower foreign currency transaction gains, net of $14.3 million and higher restructuring charges of $10.1 million, partially offset by lower acquisition and other transaction related expenses and non-cash charges of $0.8 million.
Interest Expense
Interest expense was $19.0 million for the three month period ended March 31, 2022, a decrease of $4.1 million, compared to $23.1 million in the same three month period in 2021. The decrease was primarily due to the prepayment of the Dollar Term Loan Series A on September 30, 2021. The weighted average interest rate was approximately 1.9% for the three month period ended March 31, 2022 and 2.0% in the same three month period in 2021.
Other Income, Net
Other income, net was $4.6 million and $2.5 million in the three month periods ended March 31, 2022 and 2021, respectively. The increase was primarily due to benefit plan costs other than service costs, including a gain on benefit plan settlement, and interest income from short term investments and bank deposits.
Provision for Income Taxes
The provision for income taxes was $32.4 million resulting in a 22.7% effective income tax provision rate for the three month period ended March 31, 2022, compared to a provision for income taxes of $10.6 million resulting in a 10.5% effective income tax provision rate in the same three month period in 2021. The increase in the tax provision for the three month period ended March 31, 2022 is primarily due to an increase in the pretax book income in jurisdictions with higher effective tax rates combined with decreased earnings in jurisdictions with lower tax rates. In addition, in the three month period ending March 31, 2021, there was a reduction of a significant unrecognized tax reserve related to a non-recurring item as a result of the lapse of the limitation on statutes.
Net Income (Loss)
Net income was $104.5 million for the three month period ended March 31, 2022 compared to a net loss of $90.1 million in the same three month period in 2021. The increase in net income was primarily due to lower loss from discontinued operations and, to a lesser extent, higher gross profit on increased revenues.
Adjusted EBITDA
Adjusted EBITDA increased $59.6 million to $303.6 million for the three month period ended March 31, 2022 compared to $244.0 million in the same three month period in 2021. Adjusted EBITDA as a percentage of revenues increased 110 basis points to 22.7% for the three month period ended March 31, 2022 from 21.6% for the same three month period in 2021. The increase in
Adjusted EBITDA was primarily due to higher pricing of $66.4 million and higher organic sales volume of $36.5 million, partially offset by unfavorable cost inflation and product mix of $52.7 million and the unfavorable impact of foreign currencies of $6.3 million. The increase in Adjusted EBITDA as a percentage of revenues is primarily attributable to higher pricing and volume, partially offset by unfavorable cost inflation and product mix.
Adjusted Net Income
Adjusted Net Income increased $33.2 million to $201.2 million for the three month period ended March 31, 2022 compared to $168.0 million in the same three month period in 2021. The increase was primarily due to increased Adjusted EBITDA and lower interest expense, partially offset by a higher income tax provision, as adjusted.
Non-GAAP Financial Measures
Set forth below are the reconciliations of Net Income (Loss) to Adjusted EBITDA and Adjusted Net Income and Cash Flows from Operating Activities to Free Cash Flow.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net Income (Loss) | $ | 104.5 | $ | (90.1) | |||||||||||||||||||
| Less: Loss from discontinued operations | (1.8) | (177.8) | |||||||||||||||||||||
| Less: Income tax benefit (provision) from discontinued operations | 0.4 | (2.4) | |||||||||||||||||||||
| Income from continuing operations, net of tax | 105.9 | 90.1 | |||||||||||||||||||||
| Plus: | |||||||||||||||||||||||
| Interest expense | 19.0 | 23.1 | |||||||||||||||||||||
| Provision for income taxes | 32.4 | 10.6 | |||||||||||||||||||||
| Depreciation expense (a) | 21.3 | 20.3 | |||||||||||||||||||||
| Amortization expense (b) | 86.2 | 84.2 | |||||||||||||||||||||
| Restructuring and related business transformation costs (c) | 14.2 | 2.7 | |||||||||||||||||||||
| Acquisition related expenses and non-cash charges (d) | 9.5 | 10.5 | |||||||||||||||||||||
| Stock-based compensation | 19.8 | 21.6 | |||||||||||||||||||||
| Foreign currency transaction gains, net | (3.8) | (18.1) | |||||||||||||||||||||
| Loss on equity method investments | 4.3 | — | |||||||||||||||||||||
| Other adjustments (e) | (5.2) | (1.0) | |||||||||||||||||||||
| Adjusted EBITDA | $ | 303.6 | $ | 244.0 | |||||||||||||||||||
| Minus: | |||||||||||||||||||||||
| Interest expense | $ | 19.0 | $ | 23.1 | |||||||||||||||||||
| Income tax provision, as adjusted (f) | 58.5 | 28.0 | |||||||||||||||||||||
| Depreciation expense | 21.3 | 20.3 | |||||||||||||||||||||
| Amortization of non-acquisition related intangible assets | 3.6 | 4.6 | |||||||||||||||||||||
| Adjusted Income from Continuing Operations, Net of Tax | $ | 201.2 | $ | 168.0 | |||||||||||||||||||
| Free Cash Flow from Continuing Operations: | |||||||||||||||||||||||
| Cash flows from operating activities from continuing operations | $ | 50.1 | $ | 87.5 | |||||||||||||||||||
| Minus: | |||||||||||||||||||||||
| Capital expenditures | 17.9 | 14.3 | |||||||||||||||||||||
| Free Cash Flow from Continuing Operations | $ | 32.2 | $ | 73.2 |
(a)Depreciation expense excludes $1.0 million of depreciation of rental equipment for both of the three month periods ended March 31, 2022 and 2021.
(b)Represents $82.6 million and $79.6 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology, tradenames and backlog) and $3.6 million and $4.6 million of amortization of non-acquisition related intangible assets, in each case for the three month periods ended March 31, 2022 and 2021, respectively.
(c)Restructuring and related business transformation costs consisted of the following.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Restructuring charges | $ | 12.5 | $ | 2.4 | |||||||||||||||||||
| Facility reorganization, relocation and other costs | 1.7 | — | |||||||||||||||||||||
| Other, net | — | 0.3 | |||||||||||||||||||||
| Total restructuring and related business transformation costs | $ | 14.2 | $ | 2.7 |
(d)Represents costs associated with successful and/or abandoned acquisitions and divestitures, including third-party expenses, post-closure integration costs, and non-cash charges and credits arising from fair value purchase accounting adjustments.
(e)Includes (i) pension and other postemployment (“OPEB”) plan costs other than service cost, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
(f)Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. The adjusted amounts are then used to calculate an adjusted provision for the quarter.
The income tax provision, as adjusted for each of the periods presented below consisted of the following.
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Provision for income taxes | $ | 32.4 | $ | 10.6 | |||||||||||||||||||
| Tax impact of pre-tax income adjustments | 24.8 | 8.2 | |||||||||||||||||||||
| Discrete tax items | 1.3 | 9.2 | |||||||||||||||||||||
| Income tax provision, as adjusted | $ | 58.5 | $ | 28.0 |
Segment Results
We classify our business into two segments: Industrial Technologies and Services and Precision and Science Technologies. Our Corporate operations are not discussed separately as any results that had a significant impact on operating results are included in the “Results of Operations” discussion above.
We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.
The segment measurements provided to and evaluated by the chief operating decision maker are described in Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.
Segment Results for the Three Month Periods Ended March 31, 2022 and 2021
The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments.
Industrial Technologies and Services Segment Results
| For the Three Month Period Ended March 31, | Percent Change | ||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Segment Revenues | $ | 1,039.6 | $ | 913.8 | 13.8 | % | |||||||||||
| Segment Adjusted EBITDA | $ | 247.4 | $ | 211.5 | 17.0 | % | |||||||||||
| Segment Margin | 23.8 | % | 23.1 | % | 70 | bps |
Segment Revenues for the three month period ended March 31, 2022 were $1,039.6 million, an increase of $125.8 million, or 13.8%, compared to $913.8 million in the same three month period in 2021. The increase in Segment Revenues was due to higher organic volumes of $75.3 million or 8.2%, higher pricing of $56.4 million or 6.2%, and acquisitions of $13.3 million or 1.5%,
partially offset by unfavorable impact of foreign currencies of $19.2 million or 2.1%. The percentage of Segment Revenues derived from aftermarket parts and service was 40.9% in the three month period ended March 31, 2022 compared to 42.1% in the same three month period in 2021.
Segment Adjusted EBITDA for the three month period ended March 31, 2022 was $247.4 million, an increase of $35.9 million, or 17.0%, from $211.5 million in the same three month period in 2021. Segment Adjusted EBITDA Margin increased 70 basis points to 23.8% from 23.1% in 2021. The increase in Segment Adjusted EBITDA was primarily due to higher pricing of $56.4 million or 26.7%, higher organic sales volume of $29.7 million or 14.0%, and acquisitions of $2.8 million or 1.3%, partially offset by unfavorable cost inflation and product mix of $42.0 million or 19.9%, higher selling and administrative costs of $6.1 million or 2.9% and unfavorable impact of foreign currencies of $4.5 million or 2.1%.
Precision and Science Technologies Segment Results
| For the Three Month Period Ended March 31, | Percent Change | ||||||||||||||||
| 2022 | 2021 | 2022 vs. 2021 | |||||||||||||||
| Segment Revenues | $ | 297.4 | $ | 215.7 | 37.9 | % | |||||||||||
| Segment Adjusted EBITDA | $ | 85.1 | $ | 67.2 | 26.6 | % | |||||||||||
| Segment Margin | 28.6 | % | 31.2 | % | (260) | bps |
Segment Revenues for the three month period ended March 31, 2022 were $297.4 million, an increase of $81.7 million, or 37.9%, compared to $215.7 million in the same three month period in 2021. The increase in Segment Revenues was primarily due to acquisitions of $64.0 million or 29.7%, higher organic volume of $14.8 million or 6.9%, higher pricing of $10.0 million or 4.6%, partially offset by unfavorable impact of foreign currencies of $7.1 million or 3.3%. The percentage of Segment Revenues derived from aftermarket parts and service was 19.6% in the three month period ended March 31, 2022 compared to 17.2% in the same three month period in 2021.
Segment Adjusted EBITDA for the three month period ended March 31, 2022 was $85.1 million, an increase of $17.9 million, or 26.6%, from $67.2 million in the same three month period in 2021. Segment Adjusted EBITDA Margin decreased 260 basis points to 28.6% from 31.2% in 2021. The increase in Segment Adjusted EBITDA was primarily due to acquisitions of $15.4 million or 22.9%, higher pricing of $10.0 million or 14.9%, and higher organic sales volume of $6.8 million or 10.1%, partially offset by unfavorable cost inflation and product mix of $10.2 million or 15.2%, unfavorable impact of foreign currencies of $2.1 million or 3.1% and higher selling and administrative costs of $1.4 million or 2.1%.
Orders
Industrial Technologies and Services Segment
The mission-critical nature of our Industrial Technologies and Services segment products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth. In the first quarter of 2022, we had $1,292.8 million of orders in our Industrial Technologies and Services segment, an increase of 24.0% over the first quarter of 2021.
Precision and Science Technologies Segment
During 2021 and into 2022, the Precision and Science Technologies segment has seen increased demand for our products, particularly related to life science and specialty applications. In the first quarter of 2022, we had $337.1 million of orders in our Precision and Science Technologies segment, an increase of 30.6% over the first quarter of 2021.
Results of Discontinued Operations
Results of Discontinued Operations - SVT
The components of Income (Loss) from Discontinued Operations attributable to SVT are summarized below:
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues | $ | 4.0 | $ | 240.3 | |||||||||||||||||||
| Cost of sales | 3.9 | 177.0 | |||||||||||||||||||||
| Gross profit | 0.1 | 63.3 | |||||||||||||||||||||
| Selling and administrative expenses | 0.1 | 18.4 | |||||||||||||||||||||
| Amortization of intangible assets | — | 9.5 | |||||||||||||||||||||
| Other operating expense, net | 0.2 | 7.0 | |||||||||||||||||||||
| Income (loss) before income taxes | (0.2) | 28.4 | |||||||||||||||||||||
| Provision for income taxes | — | 6.9 | |||||||||||||||||||||
| Income (Loss) from Discontinued Operations | $ | (0.2) | $ | 21.5 |
The change in income (loss) from discontinued operations for the three month period ended March 31, 2022 compared to the same three month period in 2021 is primarily due to the substantial completion of the sale of SVT on June 1, 2021. The remaining activities predominantly relate to SVT operations in one non-U.S. subsidiary. The sale of these SVT assets was subject to delayed closing terms due to local regulatory and administrative requirements. This sale is expected to be completed in the second quarter of 2022.
Results of Discontinued Operations - HPS
The components of Loss from Discontinued Operations attributable to HPS are summarized below:
| For the Three Month Period Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenues | $ | — | $ | 62.4 | |||||||||||||||||||
| Cost of sales | — | 50.5 | |||||||||||||||||||||
| Gross profit | — | 11.9 | |||||||||||||||||||||
| Selling and administrative expenses | — | 4.3 | |||||||||||||||||||||
| Amortization of intangible assets | — | 2.4 | |||||||||||||||||||||
| Loss on disposal group | — | 203.3 | |||||||||||||||||||||
| Other operating expense, net | 1.6 | 8.1 | |||||||||||||||||||||
| Loss before income taxes | (1.6) | (206.2) | |||||||||||||||||||||
| Benefit for income taxes | (0.4) | (4.5) | |||||||||||||||||||||
| Loss from Discontinued Operations | $ | (1.2) | $ | (201.7) |
The change in results from discontinued operations for the three month period ended March 31, 2022 compared to the same three month period in 2021 is primarily due to the substantial completion of the sale of HPS on April 1, 2021. The remaining activities mainly represent expenses incurred to finalize separation and fulfill transition services.
Liquidity and Capital Resources
Our investment resources include cash on hand, cash generated from operations and borrowings under our Revolving Credit Facility. We also have the ability to seek additional secured and unsecured borrowings, subject to Credit Agreement restrictions.
As of March 31, 2022, we had $5.7 million of outstanding letters of credit written against the Revolving Credit Facility and $1,094.3 million of unused availability.
See the description of these line-of-credit resources in Note 11 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2021 and Note 9 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.
As of March 31, 2022, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.
Liquidity
A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.
| March 31, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | 1,990.2 | $ | 2,109.6 | |||||||
| Short-term borrowings and current maturities of long-term debt | $ | 40.1 | $ | 38.8 | |||||||
| Long-term debt | 3,375.6 | 3,401.8 | |||||||||
| Total debt | $ | 3,415.7 | $ | 3,440.6 |
We can increase the borrowing availability under the Senior Secured Credit Facilities by up to $1,600.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the term loan facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. See Note 11 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2021 and Note 9 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.
Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Secured Credit Facilities. Our principal uses of cash will be to provide working capital, meet debt service requirements, fund capital expenditures, dividend payments, and finance strategic plans, including possible acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings. As market conditions warrant, we may from time to time, seek to repay loans that we have borrowed, including the borrowings under the Senior Secured Credit Facilities. Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the foreseeable future. Our business may not generate sufficient cash flows from operations or future borrowings may not be available to us under our Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Senior Secured Credit Facilities, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.
We may from time to time repurchase shares of our common stock in the open market at prevailing market prices (including through a Rule 10b5-1 plan), in privately negotiated transactions, a combination thereof or through other transactions. The actual timing, number, manner and value of any shares repurchased will depend on several factors, including the market price of our stock, general market and economic conditions, our liquidity requirements, applicable legal requirement and other business considerations.
A substantial portion of our cash is in jurisdictions outside the United States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of March 31, 2022 was $65.6 million which primarily consisted of withholding taxes.
Working Capital
| March 31, 2022 | December 31, 2021 | ||||||||||
| Net Working Capital: | |||||||||||
| Current assets of continuing operations: | |||||||||||
| Current assets | $ | 4,186.0 | $ | 4,114.9 | |||||||
| Less: Assets of discontinued operations | 9.5 | 15.6 | |||||||||
| Current assets of continuing operations | 4,176.5 | 4,099.3 | |||||||||
| Current liabilities of continuing operations: | |||||||||||
| Current liabilities | 1,453.6 | 1,467.7 | |||||||||
| Less: Liabilities of discontinued operations | 10.0 | 17.1 | |||||||||
| Current liabilities of continuing operations | 1,443.6 | 1,450.6 | |||||||||
| Net working capital of continuing operations | $ | 2,732.9 | $ | 2,648.7 | |||||||
| Operating Working Capital: | |||||||||||
| Accounts receivable and contract assets | $ | 1,080.8 | $ | 1,009.4 | |||||||
| Plus: Inventories (excluding LIFO) | 979.3 | 878.6 | |||||||||
| Less: Accounts payable | 701.4 | 670.5 | |||||||||
| Less: Contract liabilities (current) | 265.2 | 242.1 | |||||||||
| Operating working capital | $ | 1,093.5 | $ | 975.4 |
Net working capital of continuing operations increased $84.2 million to $2,732.9 million as of March 31, 2022 from $2,648.7 million as of December 31, 2021. Operating working capital increased $118.1 million to $1,093.5 million as of March 31, 2022 from $975.4 million as of December 31, 2021. The increase in operating working capital is primarily due to higher inventories, accounts receivable and contract assets, partially offset by higher contract liabilities and accounts payable.
The increase in accounts receivable was primarily due to seasonal changes in collection timing. The increase in contract assets was primarily due to the timing of revenue recognition and billing on our overtime contracts. The increase in inventories was primarily due to additions to inventory in anticipation of increased demand for certain products. The increase in accounts payable was primarily due to the timing of vendor cash disbursements. The increase in contract liabilities was primarily due to the timing of customer milestone payments for in-process engineered to order contracts.
Cash Flows
The following table reflects the major categories of cash flows for the three month periods ended March 31, 2022 and 2021, respectively.
| For the Three Month Period Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows provided by (used in) continuing operations: | |||||||||||
| Cash flows provided by operating activities | $ | 50.1 | $ | 87.5 | |||||||
| Cash flows used in investing activities | (48.2) | (207.2) | |||||||||
| Cash flows used in financing activities | (116.1) | (7.8) | |||||||||
| Net cash provided by (used in) discontinued operations | (4.1) | 33.8 | |||||||||
| Free cash flow(1) | 32.2 | 73.2 |
(1)See the “Non-GAAP Financial Measures” section included in this Quarterly Report for a reconciliation to the nearest GAAP measure.
Operating Activities
Cash provided by operating activities decreased $37.4 million to $50.1 million for the three month period ended March 31, 2022 from $87.5 million in the same three month period in 2021. This decrease is attributable to an increase in inventories and accounts receivable, partially offset by an increase in accounts payable and an increase in income from continuing operations.
Investing Activities
Cash used in investing activities included capital expenditures of $17.9 million and $14.3 million for the three month periods ended March 31, 2022 and 2021, respectively. Net cash paid in a business combination was $30.3 million and $202.5 million in the three month periods ended March 31, 2022 and 2021, respectively.
Financing Activities
Cash used in financing activities of $116.1 million for the three month period ended March 31, 2022 primarily reflected purchases of treasury stock of $101.1 million, repayments of long term debt of $9.6 million, and cash dividends on common stock of $8.2 million, partially offset by proceeds from stock option exercises of $4.6 million.
Cash used in financing activities of $7.8 million for the three month period ended March 31, 2021 primarily reflected repayments of long-term debt of $9.9 million and purchases of treasury stock of $3.0 million, partially offset by proceeds from stock option exercises of $5.1 million.
Discontinued Operations
Cash provided by (used in) discontinued operations decreased $37.9 million to $(4.1) million for the three month period ended March 31, 2022 from $33.8 million in the same three month period in 2021, primarily due to the sales being substantially completed in the second quarter of 2021. Cash used in discontinued operations for the three month period ended March 31, 2022 related primarily to separation related expenses.
Free Cash Flow
Free cash flow decreased $41.0 million to $32.2 million in the three month period ended March 31, 2022 from $73.2 million in the same three month period in 2021 due to decreased cash provided by operating activities and higher capital expenditures.
Critical Accounting Estimates
Management has evaluated the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the section “Critical Accounting Estimates” of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 1 “Summary of Significant Accounting Policies” of “Item 8. Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the fiscal year ended December 31, 2021.
Environmental Matters
Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 16 “Contingencies” to the condensed consolidated financial statements included elsewhere in this Form 10-Q. We believe that as of March 31, 2022, there have been no material changes to the environmental matters disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2021.
Recent Accounting Pronouncements
The information set forth in Note 1 “Basis of Presentation and Recent Accounting Pronouncements” to our condensed consolidated financial statements under Part 1, Item 1 “Financial Statements” under the heading “Recently Issued Accounting Pronouncements” is incorporated herein by reference.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk as a result of our variable-rate borrowings. We manage our exposure to interest rate risk by using pay-fixed interest rate swaps, from time to time, as cash flow hedges of our variable rate debt in order to adjust the relative fixed and variable portions.
In addition, we are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar further strengthens.
We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and debt denominated in currencies other than the U.S. dollar. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances at least quarterly.
As of March 31, 2022, there have been no material changes to our market risk assessment previously disclosed in the annual report on Form 10-K for the fiscal year ended December 31, 2021.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) 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 disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 16 “Contingencies” to our Condensed Consolidated Financial Statements under Part I Item 1 “Financial Statements,” is incorporated herein by reference.
Item 1A. RISK FACTORS
Except as set forth below, as of March 31, 2022, there have been no material changes to our risk factors included in our annual report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”).
In light of escalating geopolitical tensions occurring subsequent to the filing of our Annual Report, we are supplementing the risk factors discussed in our Annual Report by expanding the following risk factor to emphasize our material cash balances in China. The update to the risk factor below should be read in conjunction with the other risk factors contained in our Annual Report.
More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
For the year ended December 31, 2021, approximately 61% of our revenues were from customers in countries outside of the United States. We have manufacturing facilities in Germany, the United Kingdom, China, Italy, India and other countries. We intend to continue to expand our international operations to the extent that suitable opportunities become available. Non-U.S. operations and United States export sales could be adversely affected as a result of: political or economic instability in certain countries; differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement of contract rights; credit risks; currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi; exchange controls; changes in and uncertainties with respect to tariffs and import/export trade restrictions (including changes in United States trade policy toward other countries, such as the imposition of tariffs and the resulting consequences), as well as other changes in political policy in the United States, China, the U.K. and certain European countries (including the impacts of the U.K.’s national referendum resulting in the U.K.’s withdrawal from the European Union); royalty and tax increases; nationalization of private enterprises, especially in China where we hold material cash balances; civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; shipping products during times of crisis or war; and other factors inherent in foreign operations.
In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other personnel, which will divert resources from our existing business operations. As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these risks associated with our international operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Company Purchases
The following table contains detail related to the repurchase of our common stock based on the date of trade during the three month period ended March 31, 2022.
| 2022 First Quarter Months | Total Number of Shares Purchased**(1)** | Average Price Paid Per Share**(2)** | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs**(3)** | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs**(3)** | |||||||||||||||||||
| January 1, 2022 - January 31, 2022 | — | $ | — | — | $ | 750,000,000 | |||||||||||||||||
| February 1, 2022 - February 28, 2022 | 82,658 | $ | 51.51 | 52,696 | $ | 747,325,039 | |||||||||||||||||
| March 1, 2022 - March 31, 2022 | 2,025,137 | $ | 47.83 | 1,988,745 | $ | 652,196,713 |
(1)Includes shares of common stock surrendered to us to satisfy tax withholding obligations in connection with the vesting of certain restricted stock units, comprised of 29,962 shares in the period from February 1, 2022 to February 28, 2022 and 36,392 shares in the period from March 1, 2022 to March 31, 2022.
(2)The average price paid per share includes brokerage commissions.
(3)On August 24, 2021, our Board of Directors approved a share repurchase program which authorized the repurchase of up to $750.0 million of the Company's outstanding common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
The following is a list of all exhibits filed or furnished as part of this report.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosures other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual statement of affairs as of the date they were made or at any other time.
| Exhibit No. | Description | |||||||
| 2.1 | Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Gardner Denver Holdings, Inc., Ingersoll-Rand U.S. HoldCo, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019). | |||||||
| 2.2 | Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019). | |||||||
| 2.3 | Securities Purchase Agreement, dated as of April 9, 2021, by and among Ingersoll Rand Inc., Club Car, LLC and MajorDrive Holdings IV, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on April 12, 2021). | |||||||
| 10.1 | Amendment No. 8 to Credit Agreement, dated as of April 1, 2022, by and among Gardner Denver, Inc., as U.S. Borrower, and Citibank, N.A. as Administrative Agent and Collateral Agent. | |||||||
| 31.1 | Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 31.2 | Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Scheme Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
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: May 6, 2022 | INGERSOLL RAND INC. | |||||||
| By: | /s/ Michael J. Scheske | |||||||
| Name: Michael J. Scheske | ||||||||
| Vice President and Corporate Controller (Principal Accounting Officer) |