IDEX Reports Second Quarter Results; Raises Full Year Guidance

IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended June 30, 2021.

Second Quarter 2021 Highlights

• Record orders of $751.0 million up 44 percent overall and 39 percent organically compared to Q2 2020
• Record sales of $685.9 million up 22 percent overall and 17 percent organically compared to Q2 2020
• Reported operating margin was 23.1 percent with adjusted operating margin of 24.4 percent
• Reported EPS was $1.34 with adjusted EPS of $1.61
• Full year adjusted EPS guidance raised to $6.26 to $6.36 compared to prior guidance of $6.05 to $6.20
• Finalized the termination of the U.S. pension plan and refinanced the 4.2% Senior Notes to 2.625%
• Completed the acquisition of Airtech Group, Inc., US Valve Corporation and related entities (Airtech)

Second Quarter 2021

Orders of $751.0 million were up 44 percent compared with the prior year period (+39 percent organic, +1 percent acquisitions/divestitures and +4 percent foreign currency translation).

Sales of $685.9 million were up 22 percent compared with the prior year period (+17 percent organic, +1 percent acquisitions/divestitures and +4 percent foreign currency translation).

Gross margin of 44.6 percent was up 280 basis points compared with the prior year period primarily as a result of higher volume and price capture, partially offset by inflation and supply chain constraints. Excluding the $1.8 million pre-tax fair value inventory step-up charge related to our first quarter acquisition of ABEL Pumps, L.P. and certain of its affiliates (ABEL Pumps), adjusted gross margin of 44.9 percent was up 230 basis points compared with the adjusted prior year period.

Operating income of $158.3 million resulted in an operating margin of 23.1 percent, which was up 340 basis points compared with the prior year period primarily as a result of higher volume and price capture, partially offset by inflation, supply chain constraints, a recovery in discretionary spending and a charge related to recording a contingent reserve for a Corporate transaction indemnity. Excluding the $1.8 million pre-tax fair value inventory step-up charge, $3.1 million of restructuring expenses and asset impairments and the $3.9 million charge related to recording a contingent reserve for a Corporate transaction indemnity, adjusted operating income was $167.1 million with an adjusted operating margin of 24.4 percent, up 330 basis points compared with the adjusted prior year period.

Provision for income taxes of $27.7 million in the second quarter of 2021 resulted in an effective tax rate (ETR) of 21.3 percent, which was lower than the prior year period ETR of 22.7 percent primarily due to benefits from foreign sourced income in the second quarter of 2021.

Net income attributable to IDEX was $102.2 million, which resulted in EPS attributable to IDEX of $1.34. Excluding the fair value inventory step-up charge, restructuring expenses and asset impairments, the charge related to recording a contingent reserve for a Corporate transaction indemnity, loss on early debt redemption and the noncash loss related to the termination of the U.S. pension plan, adjusted EPS attributable to IDEX was $1.61, an increase of 51 cents, or 46.4 percent, from the prior year period. EBITDA of $165.5 million was 24.1 percent of sales and covered interest expense by almost 15 times. Adjusted EBITDA of $192.6 million was 28.1 percent of sales and covered interest expense by over 17 times.

Cash from operations of $136.3 million was down 20 percent from the prior year period primarily due to volume driven increases in working capital and timing of tax payments, partially offset by higher earnings, and was 133 percent of net income attributable to IDEX. Cash from operations led to free cash flow of $120.3 million, which was down 25 percent from the prior year period and was 98 percent of adjusted net income attributable to IDEX.

Second Quarter 2021 Segment Highlights

Fluid & Metering Technologies

• Sales of $251.3 million reflected a 15 percent increase compared to the second quarter of 2020 (+8 percent organic, +4 percent acquisition and +3 percent foreign currency translation).
• Operating income of $63.5 million resulted in an operating margin of 25.3 percent, which was up 210 basis points compared with the prior year period primarily due to higher volume, price capture and favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Excluding the $1.8 million pre-tax fair value inventory step-up charge and $1.9 million of restructuring expenses and asset impairments, adjusted operating income was $67.2 million with an adjusted operating margin of 26.7 percent, a 70 basis point increase compared to the prior year period.
• EBITDA of $65.8 million resulted in an EBITDA margin of 26.2 percent. Excluding the $1.8 million pre-tax fair value inventory step-up charge, $1.9 million of restructuring expenses and asset impairments and a $6.3 million noncash loss related to the termination of the U.S. pension plan, adjusted EBITDA of $75.9 million resulted in an adjusted EBITDA margin of 30.2 percent, a 110 basis point increase compared to the prior year period.

Health & Science Technologies

• Sales of $275.0 million reflected a 28 percent increase compared to the second quarter of 2020 (+25 percent organic, -1 percent divestiture and +4 percent foreign currency translation).
• Operating income of $76.0 million resulted in an operating margin of 27.6 percent, which was up 530 basis points compared with the prior year period primarily due to higher volume, price capture and favorable mix, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Excluding $0.4 million of restructuring expenses and asset impairments, adjusted operating income was $76.4 million with an adjusted operating margin of 27.8 percent, a 500 basis point increase compared to the prior year period.
• EBITDA of $88.2 million resulted in an EBITDA margin of 32.1 percent. Excluding $0.4 million of restructuring expenses and asset impairments, adjusted EBITDA of $88.6 million resulted in an adjusted EBITDA margin of 32.2 percent, a 500 basis point increase compared to the prior year period.

Fire & Safety/Diversified Products

• Sales of $160.8 million reflected a 27 percent increase compared to the second quarter of 2020 (+22 percent organic and +5 percent foreign currency translation).
• Operating income of $42.8 million resulted in an operating margin of 26.6 percent, which was up 390 basis points compared with the prior year period primarily as a result of higher volume and price capture, partially offset by inflation, supply chain constraints and a recovery in discretionary spending. Excluding $0.1 million of restructuring expenses and asset impairments, adjusted operating income was $42.9 million with an adjusted operating margin of 26.7 percent, a 350 basis point increase compared to the prior year period.
• EBITDA of $44.6 million resulted in an EBITDA margin of 27.7 percent. Excluding $0.1 million of restructuring expenses and asset impairments and a $1.8 million noncash loss related to the termination of the U.S. pension plan, adjusted EBITDA of $46.5 million resulted in an adjusted EBITDA margin of 28.9 percent, a 280 basis point increase compared to the prior year period.

Corporate Costs

Corporate costs increased to $24.0 million in the second quarter of 2021 from $17.2 million in the second quarter of 2020 primarily as a result of the charge related to recording a contingent reserve for a Corporate transaction indemnity as well as higher professional fees related to acquisitions and a strategy project.

Debt Offering and Redemption

On May 17, 2021, the Company completed a public offering of $500.0 million 2.625% Senior Notes due June 15, 2031. The net proceeds from the offering were $494.8 million. The net proceeds were used to redeem and repay the $350.0 million 4.2% Senior Notes due December 15, 2021 and the related “make-whole” redemption premium of $6.7 million, with the remaining balance used for general corporate purposes. The Company also recognized $1.9 million of deferred costs related to the 4.2% Senior Notes for a total loss on early debt redemption of $8.6 million, which was recorded within Other (income) expense - net.

Acquisition

On June 14, 2021, the Company acquired Airtech. Airtech designs and manufactures a wide range of highly-engineered pressure technology products, including vacuum pumps, regenerative blowers, compressor systems and valves for a variety of end markets, including alternative energy, food processing, medical, packaging and transportation. Headquartered in Rutherford, New Jersey, with manufacturing operations in Werneck, Germany and Shenzhen, China, Airtech operates in our Performance Pneumatic Technologies reporting unit within the Health & Science Technologies segment. Airtech was acquired for cash consideration of $469.3 million. The entire purchase price was funded with cash on hand.

Termination of U.S. Pension Plan

On June 17, 2021, the Company settled its remaining obligations under the U.S. pension plan through a combination of lump-sum payments to eligible participants who elected them, and through the purchase of annuities from Legal and General, an A rated third-party insurer. The Company recognized a net loss of $9.7 million which was recorded within Other (income) expense - net. The net loss consisted of $10.7 million related to previously deferred pension related costs, partially offset by $1.0 million related to an increase in plan assets remaining after the settlement.

Non-GAAP Measures of Financial Performance

The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). The Company supplements certain GAAP financial performance metrics with non-GAAP financial performance metrics. Management believes these non-GAAP financial performance metrics provide investors with greater insight, transparency and a more comprehensive understanding of the financial information used by management in its financial and operational decision-making because certain of these adjusted metrics exclude items not reflective of ongoing operations, such as fair value inventory step-up charges, restructuring expenses and asset impairments, loss on early debt redemption, noncash loss related to the termination of the U.S. pension plan and a charge related to recording a contingent reserve for a Corporate transaction indemnity. Reconciliations of non-GAAP financial performance metrics to their most comparable GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with GAAP. The Company does not provide forward-looking guidance for EPS on a GAAP basis because it is unable to predict certain items contained in the GAAP measure without unreasonable efforts. These items may include restructuring expenses and asset impairments, special tax items, acquisition-related transaction costs and certain other unusual adjustments. There were no adjustments to GAAP financial performance metrics other than the items noted below.

• Organic orders and sales are calculated excluding amounts from acquired or divested businesses during the first twelve months of ownership or prior to divestiture and the impact of foreign currency translation.
• Adjusted gross profit is calculated as gross profit plus fair value inventory step-up charges.
• Adjusted gross margin is calculated as adjusted gross profit divided by net sales.
• Adjusted operating income is calculated as operating income plus fair value inventory step-up charges plus restructuring expenses and asset impairments plus a charge related to recording a contingent reserve for a Corporate transaction indemnity.
• Adjusted operating margin is calculated as adjusted operating income divided by net sales.
• Adjusted net income is calculated as net income plus fair value inventory step-up charges plus restructuring expenses and asset impairments plus a charge related to recording a contingent reserve for a Corporate transaction indemnity plus the loss on early debt redemption plus the noncash loss related to the termination of the U.S. pension plan, net of the statutory tax expense or benefit.
• Adjusted EPS is calculated as adjusted net income divided by the diluted weighted average shares outstanding.
• EBITDA is calculated as net income plus interest expense plus provision for income taxes plus depreciation and amortization. We reconcile EBITDA to net income on a consolidated basis as we do not allocate consolidated interest expense or consolidated provision for income taxes to our segments.
• EBITDA interest coverage is calculated as EBITDA divided by consolidated interest expense.
• Adjusted EBITDA is calculated as EBITDA plus fair value inventory step-up charges plus restructuring expenses and asset impairments plus a charge related to recording a contingent reserve for a Corporate transaction indemnity plus the loss on early debt redemption plus the noncash loss related to the termination of the U.S. pension plan.
• Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales.
• Adjusted EBITDA interest coverage is calculated as Adjusted EBITDA divided by consolidated interest expense.
• Free cash flow is calculated as cash flow from operating activities less capital expenditures.

Table 1: Reconciliations of the Change in Net Sales to Organic Net Sales

Table 2: Reconciliations of Reported-to-Adjusted Gross Profit and Margin (dollars in thousands)

Table 3: Reconciliations of Reported-to-Adjusted Operating Income and Margin (dollars in thousands)

Table 4: Reconciliations of Reported-to-Adjusted Net Income and EPS (in thousands, except EPS)

Table 5: Reconciliations of EBITDA to Net Income (dollars in thousands)

Table 6 : Reconciliations of EBITDA to Adjusted EBITDA (dollars in thousands)

(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most directly comparable GAAP financial measure, immediately above in Table 5.

Table 7: Reconciliations of Cash Flows from Operating Activities to Free Cash Flow (in thousands)

Conference Call to be Broadcast over the Internet

IDEX will broadcast its second quarter earnings conference call over the Internet on Wednesday, July 28, 2021 at 9:30 a.m. CT. Chief Executive Officer and President Eric Ashleman and Senior Vice President and Chief Financial Officer William Grogan will discuss the Company’s recent financial performance and respond to questions from the financial analyst community. IDEX invites interested investors to listen to the call and view the accompanying slide presentation, which will be carried live on its website at www.idexcorp.com. Those who wish to participate should log on several minutes before the discussion begins. After clicking on the presentation icon, investors should follow the instructions to ensure their systems are set up to hear the event and view the presentation slides, or download the correct applications at no charge. Investors will also be able to hear a replay of the call by dialing 877.660.6853 (or 201.612.7415 for international participants) using the ID #13712090.

Forward-Looking Statements

This news release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, the Company’s expected organic sales growth and the anticipated benefits of the Company’s acquisitions of both ABEL Pumps and Airtech, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “guidance,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this news release. The risks and uncertainties include, but are not limited to, the following: the duration of the COVID-19 pandemic and the continuing effects of the COVID-19 pandemic (including the emergence of variant strains) on our ability to operate our business and facilities, on our customers, on supply chains and on the U.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company's results, particularly in light of the low levels of order backlogs it typically maintains; the Company's ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company's subsequent quarterly reports filed with the SEC as well as the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this news release, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

About IDEX

IDEX (NYSE: IEX) is a company that has undoubtedly touched your life in some way. In fact, IDEX businesses make thousands of products that are mission-critical components in everyday activities. Chances are the car you’re driving has a BAND-IT® clamp holding your side airbag safely in place. If you were ever in a car accident, a Hurst Jaws of Life® rescue tool may have saved your life. If you or a family member is battling cancer, your doctor may have tested your DNA in a quest to find the best targeted medicine for you. It’s likely your DNA test was run on equipment that contains components made by our growing IDEX Health & Science team. Founded in 1988 with three small, entrepreneurial manufacturing companies, we’re proud to say that we now call over 40 diverse businesses around the world part of the IDEX family. With more than 7,000 employees and manufacturing operations in more than 20 countries, IDEX is a high-performing, global nearly $2.5 billion company committed to making trusted solutions that improve lives. IDEX shares are traded on the New York Stock Exchange under the symbol “IEX”.

For further information on IDEX Corporation and its business units, visit the company’s website at www.idexcorp.com.

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