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 2023 Annual Report. 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 19 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a description of our reportable segments.

Recent Development

On March 25, 2024, the Company entered into an agreement to acquire ILC Dover from New Mountain Capital, LLC for an upfront all-cash purchase price of approximately $2.325 billion and contingent consideration of up to $75.0 million. ILC Dover’s offerings include solutions for biopharmaceutical, pharmaceutical, and medical device markets as well as products for the space industry and will be reported in the Precision and Science Technologies segment. This transaction is expected to close in the second quarter of 2024, subject to customary regulatory approvals and closing conditions.

Items Affecting our Business, Industry and End Markets

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.

Foreign Currency Fluctuations

A significant portion of our revenues, approximately 53% for the three month period ended March 31, 2024, 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. While acquisitions, as discussed further in Note 2, are not individually significant or significant in the aggregate, they may be relevant when comparing our results from period to period.

See Note 2 “Acquisitions” 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.

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 Operations

Consolidated results should be read in conjunction with the segment results section herein and Note 19 “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, 2024 and 2023.

			For the Three Month Period Ended March 31,
			2024						2023
Condensed Consolidated Statement of Operations:
Revenues			$	1,670.1					$	1,629.3
Cost of sales			923.8						965.1
Gross profit			746.3						664.2
Selling and administrative expenses			336.3						311.1
Amortization of intangible assets			91.6						92.4
Other operating expense, net			25.2						20.4
Operating income			293.2						240.3
Interest expense			36.8						38.9
Other income, net			(13.2)						(9.6)
Income before income taxes			269.6						211.0
Provision for income taxes			54.4						48.1
Income (loss) on equity method investments			(10.7)						0.3
Net income			204.5						163.2
Less: Net income attributable to noncontrolling interests			2.3						2.1
Net income attributable to Ingersoll Rand Inc.			$	202.2					$	161.1
Percentage of Revenues:
Gross profit			44.7		%				40.8		%
Selling and administrative expenses			20.1		%				19.1		%
Operating income			17.6		%				14.7		%
Net income			12.2		%				10.0		%
Adjusted EBITDA			27.5		%				24.6		%
Other Financial Data:
Adjusted EBITDA (1)			$	458.5					$	400.1
Adjusted Net Income (1)			319.9						267.0
Cash flows - operating activities			161.6						170.3
Cash flows - investing activities			(205.6)						(581.5)
Cash flows - financing activities			(79.6)						(89.3)
Free Cash Flow (1)			99.3						147.9

(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, 2024 were $1,670.1 million, an increase of $40.8 million, or 2.5%, compared to $1,629.3 million for the same three month period in 2023. The increase in revenues was primarily due to acquisitions of $55.7 million and higher pricing of $48.3 million, partially offset by lower organic volumes of $60.9 million and unfavorable impact of foreign currencies of $2.3 million. The percentage of consolidated revenues derived from aftermarket parts and services was 37.0% in the three month period ended March 31, 2024 compared to 36.5% in the same three month period in 2023.

Gross Profit

Gross profit for the three month period ended March 31, 2024 was $746.3 million, an increase of $82.1 million, or 12.4%, compared to $664.2 million for the same three month period in 2023, and as a percentage of revenues was 44.7% for the three month period ended March 31, 2024 and 40.8% for the same three month period in 2023. The increase in gross profit is primarily

due to higher pricing and acquisitions discussed above. The increase in gross profit as a percentage of revenues is primarily due to increased price and input cost productivity improvements.

Selling and Administrative Expenses

Selling and administrative expenses were $336.3 million for the three month period ended March 31, 2024, an increase of $25.2 million, or 8.1%, compared to $311.1 million for the same three month period in 2023. The increase in selling and administrative expenses was primarily attributable to businesses acquired in 2023 and first quarter of 2024. Selling and administrative expenses as a percentage of revenues increased to 20.1% for the three month period ended March 31, 2024 from 19.1% in the same three month period in 2023.

Amortization of Intangible Assets

Amortization of intangible assets was $91.6 million for the three month period ended March 31, 2024, a decrease of $0.8 million, compared to $92.4 million in the same three month period in 2023. The decrease was primarily due to certain intangible assets becoming fully amortized during the period, partially offset by businesses acquired in 2023 and first quarter of 2024 discussed in Note 2 “Acquisitions” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

Other Operating Expense, Net

Other operating expense, net was $25.2 million for the three month period ended March 31, 2024, an increase of $4.8 million, compared to $20.4 million in the same three month period in 2023. The increase in expense was primarily due to higher restructuring charges of $6.8 million and higher acquisition and other transaction related expenses and non-cash charges of $0.1 million, partially offset by higher foreign currency transaction gains, net of $1.7 million.

Interest Expense

Interest expense was $36.8 million for the three month period ended March 31, 2024, a decrease of $2.1 million, compared to $38.9 million in the same three month period in 2023. The decrease was primarily due to the interest rate derivative contracts discussed in Note 13 “Hedging Activities and Derivative Instruments” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q. The weighted average interest rate, including the impact of the interest rate derivative contracts, was approximately 5.3% for the three month period ended March 31, 2024 and 5.2% in the same three month period in 2023.

Other Income, Net

Other income, net was $13.2 million and $9.6 million in the three month periods ended March 31, 2024 and 2023, respectively. The increase was primarily due to an increase in interest income from holdings of cash and cash equivalents.

Provision for Income Taxes

The provision for income taxes was $54.4 million, resulting in a 20.2% effective income tax provision rate for the three month period ended March 31, 2024, compared to a provision for income taxes of $48.1 million, resulting in a 22.8% effective income tax provision rate in the same three month period in 2023. The increase in the tax provision for the three month period ended March 31, 2024 is primarily due to an increase in the pretax book income. The decrease in the effective income tax provision rate is primarily due to the additional benefit of a windfall tax deduction during the first quarter of 2024, partially offset by an increase in the pretax book income in jurisdictions with higher effective tax rates.

Net Income

Net income was $204.5 million for the three month period ended March 31, 2024 compared to net income of $163.2 million in the same three month period in 2023. The increase in net income was primarily due to higher gross profit on increased revenues, partially offset by higher selling and administrative expenses, higher loss on equity method investments, and higher provision for income taxes.

Adjusted EBITDA

Adjusted EBITDA increased $58.4 million to $458.5 million for the three month period ended March 31, 2024 compared to $400.1 million in the same three month period in 2023. Adjusted EBITDA as a percentage of revenues increased 290 basis points to 27.5% for the three month period ended March 31, 2024 from 24.6% for the same three month period in 2023. The increase in Adjusted EBITDA was primarily due to higher pricing of $48.3 million, favorable cost productivity and product mix of $32.9

million, and acquisitions of $11.5 million, partially offset by lower organic sales volume of $26.2 million, higher selling and administrative costs of $9.6 million, and unfavorable impact of foreign currencies of $1.2 million. The increase in Adjusted EBITDA as a percentage of revenues is primarily attributable to higher pricing, input cost productivity improvements, and product mix.

Adjusted Net Income

Adjusted Net Income increased $52.9 million to $319.9 million for the three month period ended March 31, 2024 compared to $267.0 million in the same three month period in 2023. The increase was primarily due to higher Adjusted EBITDA, partially offset by a higher income tax provision, as adjusted.

Non-GAAP Financial Measures

Set forth below are the reconciliations of Net Income 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,
			2024						2023
Net Income			$	204.5					$	163.2
Plus:
Interest expense			36.8						38.9
Provision for income taxes			54.4						48.1
Depreciation expense (a)			24.7						20.7
Amortization expense (b)			91.6						92.4
Restructuring and related business transformation costs (c)			10.7						4.3
Acquisition and other transaction related expenses and non-cash charges (d)			15.3						18.0
Stock-based compensation			14.1						12.1
Foreign currency transaction losses (gains), net			(0.7)						1.0
Loss (income) on equity method investments			10.7						(0.3)
Adjustments to LIFO inventories			6.8						7.8
Cybersecurity incident costs (e)			0.6						—
Interest income on cash and cash equivalents			(11.4)						(4.7)
Other adjustments (f)			0.4						(1.4)
Adjusted EBITDA			$	458.5					$	400.1
Minus:
Interest expense			$	36.8					$	38.9
Income tax provision, as adjusted (g)			86.4						75.6
Depreciation expense			24.7						20.7
Amortization of non-acquisition related intangible assets			2.1						2.6
Interest income on cash and cash equivalents			(11.4)						(4.7)
Adjusted Net Income			$	319.9					$	267.0
Free Cash Flow
Cash flows from operating activities			$	161.6					$	170.3
Minus:
Capital expenditures			62.3						22.4
Free Cash Flow			$	99.3					$	147.9

(a)Depreciation expense excludes $0.9 million and $0.9 million of depreciation of rental equipment for the three month periods ended March 31, 2024 and 2023, respectively.

(b)Represents $89.5 million and $89.8 million of amortization of intangible assets arising from acquisitions (customer relationships, technology, tradenames and backlog) and $2.1 million and $2.6 million of amortization of non-acquisition related intangible assets, in each case, for the three month periods ended March 31, 2024 and 2023, respectively.

(c)Restructuring and related business transformation costs consisted of the following.

			For the Three Month Period Ended March 31,
			2024						2023
Restructuring charges			$	9.7					$	2.9
Facility reorganization, relocation and other costs			1.0						1.4
Total restructuring and related business transformation costs			$	10.7					$	4.3

(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)Represents non-recoverable costs associated with a cybersecurity event.

(f)Includes (i) pension and other postemployment plan costs other than service costs and (ii) other miscellaneous adjustments.

(g)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,
			2024						2023
Provision for income taxes			$	54.4					$	48.1
Tax impact of pre-tax income adjustments			29.3						28.1
Discrete tax items			2.7						(0.6)
Income tax provision, as adjusted			$	86.4					$	75.6

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 19 “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, 2024 and 2023

The following tables display Segment Orders, 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
			2024						2023						2024 vs. 2023
Segment Orders			$	1,398.4					$	1,450.3					(3.6)		%
Segment Revenues			$	1,373.4					$	1,317.2					4.3		%
Segment Adjusted EBITDA			$	411.1					$	345.6					19.0		%
Segment Margin			29.9		%				26.2		%				370		bps

Segment Orders for the three month period ended March 31, 2024 were $1,398.4 million, a decrease of $51.9 million, or 3.6%, compared to $1,450.3 million in the same three month period in 2023. The decrease in Segment Orders was due to lower organic orders of $104.9 million or 7.2% and the unfavorable impact of foreign currencies of $2.6 million or 0.2%, partially offset by acquisitions of $55.6 million or 3.8%.

Segment Revenues for the three month period ended March 31, 2024 were $1,373.4 million, an increase of $56.2 million, or 4.3%, compared to $1,317.2 million in the same three month period in 2023. The increase in Segment Revenues was due to acquisitions of $55.7 million or 4.2% and higher pricing of $39.2 million or 3.0%, partially offset by lower organic volumes of $36.3 million or 2.8% and unfavorable impact of foreign currencies of $2.4 million or 0.2%. The percentage of Segment Revenues derived from aftermarket parts and service was 39.8% in the three month period ended March 31, 2024 compared to 40.0% in the same three month period in 2023.

Segment Adjusted EBITDA for the three month period ended March 31, 2024 was $411.1 million, an increase of $65.5 million, or 19.0%, from $345.6 million in the same three month period in 2023. Segment Adjusted EBITDA Margin increased 370 basis points to 29.9% from 26.2% in 2023. The increase in Segment Adjusted EBITDA was primarily due to higher pricing of $39.2 million or 11.3%, favorable cost productivity and product mix of $36.3 million or 10.5%, and acquisitions of $11.7 million or 3.4%, partially offset by lower organic sales volume of $14.6 million or 4.2%, higher selling and administrative costs of $6.7 million or 1.9%, and unfavorable impact of foreign currencies of $0.8 million or 0.2%.

Precision and Science Technologies Segment Results

			For the Three Month Period Ended March 31,												Percent Change
			2024						2023						2024 vs. 2023
Segment Orders			$	309.0					$	326.5					(5.4)		%
Segment Revenues			$	296.7					$	312.1					(4.9)		%
Segment Adjusted EBITDA			$	91.4					$	94.5					(3.3)		%
Segment Margin			30.8		%				30.3		%				50		bps

Segment Orders for the three month period ended March 31, 2024 were $309.0 million, a decrease of $17.5 million, or 5.4%, compared to $326.5 million in the same three month period in 2023. The decrease in Segment Orders was due to lower organic orders of $17.6 million or 5.4%, partially offset by foreign currencies of $0.1 million or 0.0%.

Segment Revenues for the three month period ended March 31, 2024 were $296.7 million, a decrease of $15.4 million, or 4.9%, compared to $312.1 million in the same three month period in 2023. The decrease in Segment Revenues was primarily due to lower organic volumes of $24.6 million or 7.9%, partially offset by higher pricing of $9.1 million or 2.9% and favorable impact of foreign currencies of $0.1 million or 0.0%. The percentage of Segment Revenues derived from aftermarket parts and service was 24.2% in the three month period ended March 31, 2024 compared to 21.4% in the same three month period in 2023.

Segment Adjusted EBITDA for the three month period ended March 31, 2024 was $91.4 million, a decrease of $3.1 million, or 3.3%, from $94.5 million in the same three month period in 2023. Segment Adjusted EBITDA Margin increased 50 basis points to 30.8% from 30.3% in 2023. The decrease in Segment Adjusted EBITDA was primarily due to lower organic sales volume of $11.6 million or 12.3%, higher selling and administrative costs of $0.4 million or 0.4%, and unfavorable impact of foreign currencies of $0.3 million or 0.3%, partially offset by higher pricing of $9.1 million or 9.6% and product mix of $0.2 million or 0.2%.

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, 2024, we had $2,000.0 million of unused availability under the Revolving Credit Facility.

See the description of these line-of-credit resources in Note 11 “Debt” to the consolidated financial statements in our 2023 Annual Report and Note 10 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

As of March 31, 2024, 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, 2024						December 31, 2023
Cash and cash equivalents			$	1,452.3					$	1,595.5
Short-term borrowings and current maturities of long-term debt			$	31.3					$	30.6
Long-term debt			2,687.0						2,693.0
Total debt			$	2,718.3					$	2,723.6

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. Our liquidity requirements are significant primarily due to debt service requirements. See Note 11 “Debt” to the consolidated financial statements in our 2023 Annual Report and Note 10 “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 Notes and 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 Notes and 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 Notes and 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 Rule 10b5-1 plans), 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 of 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, 2024 was $55.2 million which primarily consisted of withholding taxes.

Working Capital

			March 31, 2024						December 31, 2023
Net Working Capital:
Current assets			$	4,006.8					$	4,050.4
Less: Current liabilities			1,724.6						1,827.3
Net working capital			$	2,282.2					$	2,223.1
Operating Working Capital:
Accounts receivable			$	1,245.2					$	1,234.2
Plus: Inventories (excluding LIFO reserve)			1,131.0						1,073.6
Plus: Contract assets			90.7						85.6
Less: Accounts payable			694.0						801.2
Less: Contract liabilities (current)			345.4						331.2
Operating working capital			$	1,427.5					$	1,261.0

Net working capital increased $59.1 million to $2,282.2 million as of March 31, 2024 from $2,223.1 million as of December 31, 2023. Operating working capital increased $166.5 million to $1,427.5 million as of March 31, 2024 from $1,261.0 million as of December 31, 2023. The increase in operating working capital is primarily due to lower accounts payable, higher inventories, higher accounts receivable, and higher contract assets, partially offset by higher contract liabilities.

The increase in accounts receivable was primarily due to the timing of revenues in the quarter and seasonal changes in collection timing. The increase in inventories was primarily due to acquisitions. The increase in contract assets was primarily due to the timing of revenue recognition and billing on our overtime contracts. The decrease 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, 2024 and 2023, respectively.

			For the Three Month Period Ended March 31,
			2024						2023
Cash flows provided by operating activities			$	161.6					$	170.3
Cash flows used in investing activities			(205.6)						(581.5)
Cash flows used in financing activities			(79.6)						(89.3)
Free cash flow(1)			99.3						147.9

(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 $8.7 million to $161.6 million for the three month period ended March 31, 2024 from $170.3 million in the same three month period in 2023. This decrease is primarily attributable to cash used as a result of a larger increase in operating working capital and an increase in tax payments in 2024, compared to 2023, as well as the timing of interest payments for our senior notes, partially offset by higher net income.

Investing Activities

Cash used in investing activities included capital expenditures of $62.3 million and $22.4 million for the three month periods ended March 31, 2024 and 2023, respectively. Net cash paid in acquisitions was $143.3 million and $566.4 million in the three month periods ended March 31, 2024 and 2023, respectively. The three month period ended March 31, 2023 also included proceeds of $7.3 million related to the sale of a closed facility.

Financing Activities

Cash used in financing activities of $79.6 million for the three month period ended March 31, 2024 primarily reflected purchases of treasury stock of $72.9 million, cash dividends on common stock of $8.1 million, repayments of long-term debt of $7.1 million, and payments of deferred and contingent acquisition consideration of $2.2 million, partially offset by proceeds from stock option exercises of $11.2 million.

Cash used in financing activities of $89.3 million for the three month period ended March 31, 2023 primarily reflected purchases of treasury stock of $77.0 million, repayments of long-term debt of $11.0 million and cash dividends on common stock of $8.1 million, partially offset by proceeds from stock option exercises of $9.2 million.

Free Cash Flow

Free cash flow decreased $48.6 million to $99.3 million in the three month period ended March 31, 2024 from $147.9 million in the same three month period in 2023 due to higher capital expenditures and lower cash provided by operating activities.

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 2023 Annual Report.

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 18 “Contingencies” to the condensed consolidated financial statements included elsewhere in this Form 10-Q. We believe that as of March 31, 2024, there have been no material changes to the environmental matters disclosed in our 2023 Annual Report.

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.