IDEX Reports Strong Fourth Quarter and Record Full Year 2022 Results

IDEX Corporation (NYSE: IEX) today announced its financial results for the quarter and year ended December 31, 2022.

“IDEX achieved another record year in 2022, and our teams continue to deliver on multiple fronts,” said Eric D. Ashleman, IDEX Corporation Chief Executive Officer and President. “We expanded capacity and throughput to better meet customer expectations. We applied focused innovation to solve tough problems for our best customers, driving above-market performance and continued strong price capture while deploying record capital to bring three high quality growth businesses into the portfolio to support our future goals.”

“We anticipate 2023 will be an uncertain period of transition as we calibrate with customers to adjust to compression within the end-to-end order fulfillment cycle as well as broader global macroeconomic shifts. IDEX faces all of that within a short cycle framework which limits visibility, but supports quick adaptation and business alignment. We continue to monitor conditions across our diverse portfolio of businesses and expect to course-correct quickly as conditions warrant. Regardless of market conditions, we believe IDEX teams are prepared to navigate the challenges and opportunities ahead.”

2023 Outlook

Full year 2023 organic sales growth is projected to be 1 to 5 percent, with GAAP EPS of $7.55 to $7.85 (adjusted EPS of $8.50 to $8.80). We will continue to monitor market signals and provide updates as we progress through the year.

First quarter 2023 organic sales growth is projected to be 3 to 5 percent, with GAAP EPS of $1.74 to $1.79 (adjusted EPS of $1.98 to $2.03). The first quarter guide reflects specific short-term pressure on results driven by OEM shipment delays and timing of the recognition of share-based compensation.

Consolidated Results

Net Sales

Fourth quarter 2022 sales of $810.7 million reflected a 13 percent increase compared with the prior year period (+12 percent organic, +5 percent acquisitions/divestitures and -4 percent foreign currency translation).

Full year 2022 sales of $3,181.9 million reflected a 15 percent increase compared with 2021 (+13 percent organic, +5 percent acquisitions/divestitures, +1 percent impact from the exit of a COVID-19 testing application and -4 percent foreign currency translation).

Gross Margin

Fourth quarter 2022 gross margin of 42.6 percent decreased 140 basis points compared with the prior year period and included the unfavorable impact of the fair value inventory step-up charge related to the acquisition of Muon B.V. and its subsidiaries ("Muon Group"). The decrease was primarily due to the dilutive impact of acquisitions, increases in employee-related costs and unfavorable mix, partially offset by favorable price/cost and higher volume leverage. Adjusted gross margin, which excludes the fair value inventory step-up charge, decreased 40 basis points compared with the prior year period.

Full year 2022 gross margin of 44.8 percent increased 50 basis points compared with 2021 primarily due to higher volume leverage, favorable price/cost and productivity and the acceleration of previously deferred revenue related to the exit of a COVID-19 testing application, partially offset by increases in employee-related costs. Adjusted gross margin, which excludes the acceleration of previously deferred revenue and fair value inventory step-up charges, increased 10 basis points compared with 2021.

Net Income and Earnings per Share Attributable to IDEX

Fourth quarter 2022 net income attributable to IDEX increased $11.2 million to $130.0 million, which resulted in EPS attributable to IDEX of $1.71 per share. The fourth quarter 2022 effective tax rate of 20.5 percent decreased compared with the fourth quarter 2021 effective tax rate of 22.5 percent primarily due to foreign currency impacts realized in connection with the funding of the acquisition of Muon Group. Adjusted EPS attributable to IDEX, which reflects the impact of non-GAAP adjustments, net of related taxes, was $2.01 per share, an increase of $0.30 per share, or 17.5 percent, from the prior year period.

Full year 2022 net income attributable to IDEX increased $137.5 million to $586.9 million, which resulted in EPS attributable to IDEX of $7.71 per share. The 2022 effective tax rate of 21.7 percent decreased compared with the 2021 effective tax rate of 22.5 percent primarily due to tax benefits realized from the divestiture of Knight LLC ("Knight") as well as from realizing foreign currency impacts in connection with the funding of the acquisition of Muon Group. Adjusted EPS attributable to IDEX, which reflects the impact of non-GAAP adjustments, net of related taxes, was $8.12 per share, an increase of $1.25 per share, or 18.2 percent, from 2021.

Net Income Margin and Adjusted EBITDA Margin

Fourth quarter 2022 net income margin of 16.0 percent decreased 60 basis points compared with the prior year period. The decrease was driven by higher fair value inventory step-up charges and amortization on new acquisitions. Additionally, favorable price/cost and higher volume leverage were partially offset by increases in employee-related costs, discretionary spending and resource investments and unfavorable mix. Fourth quarter 2022 Adjusted EBITDA margin of 27.0 percent, which reflects the impact of non-GAAP adjustments, increased 10 basis points compared with the prior year period.

Full year 2022 net income margin of 18.4 percent increased 210 basis points compared with 2021. The increase was driven by the gain on sale of a business, higher amortization on new acquisitions and the prior year losses related to early debt redemption and U.S. pension plan termination activities, both of which did not reoccur in 2022. Additionally, higher volume leverage and favorable price/cost were partially offset by increases in employee-related costs, discretionary spending and resource investments. Full year 2022 Adjusted EBITDA margin of 27.9 percent, which reflects the impact of non-GAAP adjustments, increased 20 basis points compared with 2021.

Cash Flow

Fourth quarter 2022 cash from operations of $167.3 million was up compared with the prior year period primarily due to favorable cash contributions from working capital changes as compared to the prior year period. Full year 2022 cash from operations of $557.4 million was down compared with 2021 as higher earnings were offset by an increased investment in working capital. Fourth quarter 2022 free cash flow of $147.3 million was 96 percent of adjusted net income attributable to IDEX, while full year 2022 free cash flow of $489.4 million was 79 percent of adjusted net income attributable to IDEX.

Segment Highlights

Segment Measure

During the fourth quarter of 2022, IDEX changed the segment measure of profit and loss used by the Chief Operating Decision Maker ("CODM") in accordance with Accounting Standards Codification ("ASC") 280, Segment Reporting, from operating income to adjusted earnings before interest, income taxes, depreciation and amortization ("Adjusted EBITDA"). Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, or EBITDA, before fair value inventory step-up charges, restructuring expenses and asset impairments, the impact from the exit of a COVID-19 testing application, the gain on sale of a business, the gains on sales of assets, the impact of the settlement of a corporate transaction indemnity, the loss on early debt redemption and the noncash loss related to the termination of the U.S. pension plan, net of curtailment. The change in segment measure of profit and loss aligns with how the CODM allocates resources and evaluates the performance of the business. It also allows the Company to better assess operating results over time since it excludes items that are not reflective of ongoing operations.

Fluid & Metering Technologies ("FMT")

• Fourth quarter 2022 sales of $287.8 million reflected a 14 percent increase compared with the prior year period (+9 percent organic, +8 percent acquisitions/divestitures and -3 percent foreign currency translation).
• Fourth quarter 2022 Adjusted EBITDA margin was 30.0 percent, up 180 basis points compared with the prior year period primarily due to strong price/cost and favorable productivity, partially offset by increases in employee-related costs, discretionary spending and resource investments as well as the dilutive impact of acquisitions.

Health & Science Technologies ("HST")

• Fourth quarter 2022 sales of $353.0 million reflected a 20 percent increase compared with the prior year period (+19 percent organic, +5 percent acquisitions/divestitures and -4 percent foreign currency translation).
• Fourth quarter 2022 Adjusted EBITDA margin was 30.3 percent, down 150 basis points compared with the prior year period primarily due to lower productivity and unfavorable mix as well as increases in employee-related costs, discretionary spending and resource investments, partially offset by higher volume leverage and favorable price/cost.

Fire & Safety/Diversified Products("FSDP")

• Fourth quarter 2022 sales of $170.9 million reflected a 1 percent increase compared with the prior year period (+6 percent organic and -5 percent foreign currency translation).
• Fourth quarter 2022 Adjusted EBITDA margin was 27.3 percent, down 90 basis points compared with the prior year period primarily due to increases in employee-related costs and unfavorable mix due to lower Dispensing sales, partially offset by positive price/cost.

Corporate Costs

Corporate costs included in consolidated Adjusted EBITDA were $21.1 million and $85.7 million in the fourth quarter and full year 2022, respectively, an increase of $1.3 million and $12.5 million compared with the same prior year periods. The increases were primarily driven by higher employee-related and discretionary costs.

Acquisition

On November 18, 2022, the Company acquired Muon Group. Muon Group manufactures highly precise flow paths in a variety of materials that enable the movement of various liquids and gases in critical applications for medical, semiconductor, food processing, digital printing and filtration technologies. Headquartered in the Netherlands, Muon Group operates in the Company’s Scientific Fluidics & Optics reporting unit within the HST segment. Muon Group was acquired for cash consideration of $713.0 million, net of cash acquired. The purchase price was funded using a combination of cash on hand, borrowings under the Company's Revolving Facility and a $200.0 million term loan. At December 31, 2022, there was $77.7 million outstanding under the Revolving Facility.

Divestiture

On September 9, 2022, the Company completed the sale of Knight for proceeds of $49.4 million, net of cash remitted, resulting in a pre-tax gain on the sale of $34.8 million. The results of Knight were reported within the FMT segment.

Exit of a COVID-19 Testing Application

In the second quarter of 2020, the Company engaged in the development of a COVID-19 testing application with a customer at one of its businesses in the HST segment. As part of this contract, the customer fully funded the $28.7 million investment needed to complete the development and production of microfluidic cartridges during 2020 and 2021. The costs incurred by the Company were primarily recorded as Property, plant & equipment and were being depreciated over the expected life of the assets, while the reimbursement was recorded as Deferred revenue and was being recognized as units were shipped.

In the third quarter of 2022, the Company was informed by the customer of its decision to discontinue further investment in commercializing its COVID-19 testing application, resulting in an impairment charge of $16.8 million and an acceleration of previously deferred revenue of $17.9 million related to units that are no longer expected to be shipped for a net operating income impact of $1.1 million.

Conference Call to be Broadcast over the Internet

IDEX will broadcast its fourth quarter earnings conference call over the Internet on Wednesday, February 1, 2023 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 #13734461.

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 first quarter 2023 and full year 2023 outlook including expected organic sales growth, expected earnings per share and adjusted earnings per share, and the assumptions underlying these expectations, anticipated future acquisition behavior and capital deployment, availability of cash and financing alternatives and the anticipated benefits of the Company’s acquisitions, including the acquisitions of ABEL Pumps, L.P. and certain of its affiliates, Airtech Group, Inc., US Valve Corporation and related entities ("Airtech"), Nexsight, LLC and its businesses Envirosight, WinCan, MyTana and Pipeline Renewal Technologies (“Nexsight”), KZ CO. ("KZValve") and Muon Group, 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 impact of health epidemics and pandemics, including the COVID-19 pandemic, and the impact of related governmental actions, on the Company’s ability to operate its business and facilities, on its customers, on supply chains and on the U.S. and global economy generally; economic and political consequences resulting from terrorist attacks and wars, including Russia's invasion of Ukraine and the global response to this invasion, which, along with the ongoing effects of the COVID-19 pandemic, could have an adverse impact on the Company's business by creating disruptions in the global supply chain and by potentially having an adverse impact on the global economy; levels of industrial activity and economic conditions in the U.S. and other countries around the world, including uncertainties in the financial markets; pricing pressures, including inflation and rising interest rates, and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company’s results; the 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; supply chain backlogs, including risks affecting component availability, labor inefficiencies and freight logistical challenges; market conditions and material costs; risks related to environmental, social and corporate governance issues, including those related to climate change and sustainability; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports filed with the Securities and Exchange Commission (“SEC”) and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this 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) makes thousands of products and mission-critical components that improve everyday life all around you. If you enjoy chocolate, it quite possibly passed through a Viking® internal gear pump at the candy factory. If you were ever in a car accident, emergency workers may have used the Hurst Jaws of Life® rescue tool to save your life. If your doctor ordered a DNA test to predict your risk of disease or determine a course of treatment, the lab may have used equipment containing components made by IDEX Health & Science. Founded in 1988 with three small, entrepreneurial manufacturing companies, we’re proud to say that we now call over 50 diverse businesses around the world part of the IDEX family. With more than 8,500 employees and manufacturing operations in more than 20 countries, IDEX is a high-performing, global company with over $3.1 billion in annual sales, 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.

(Financial reports follow)

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, the impact from the exit of a COVID-19 testing application, the gain on sale of a business, gains on sales of assets, the loss on early debt redemption, the noncash loss related to the termination of the U.S. pension plan, net of curtailment, the impact of the settlement for a corporate transaction indemnity and acquisition-related intangible asset amortization. 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. Due to rounding, numbers presented throughout this and other documents may not add up or recalculate precisely. 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, the impact of foreign currency translation and the impact from the exit of a COVID-19 testing application.
• Adjusted net sales is calculated as net sales less the acceleration of previously deferred revenue related to the exit of a COVID-19 testing application.
• Adjusted gross profit is calculated as gross profit less the impact from the exit of a COVID-19 testing application plus fair value inventory step-up charges.
• Adjusted gross margin is calculated as adjusted gross profit divided by net sales, except for full year 2022 which is divided by adjusted net sales.
• Adjusted operating income is calculated as operating income plus fair value inventory step-up charges plus restructuring expenses and asset impairments less the net impact from the exit of a COVID-19 testing application plus the impact of the settlement for a corporate transaction indemnity.
• Adjusted operating margin is calculated as adjusted operating income divided by net sales, except for full year 2022 which is divided by adjusted net sales.
• Adjusted net income attributable to IDEX is calculated as net income attributable to IDEX plus fair value inventory step-up charges plus restructuring expenses and asset impairments less the net impact from the exit of a COVID-19 testing application less the gain on sale of a business less gains on sales of assets plus the impact of the settlement 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 curtailment plus acquisition-related intangible asset amortization, all net of the statutory tax expense or benefit.
• Adjusted diluted EPS attributable to IDEX is calculated as adjusted net income attributable to IDEX divided by the diluted weighted average shares outstanding.
• Consolidated Adjusted EBITDA is calculated as consolidated earnings before interest, taxes, depreciation and amortization, or consolidated EBITDA, plus fair value inventory step-up charges plus restructuring expenses and asset impairments less the net impact from the exit of a COVID-19 testing application plus the impact of the settlement for a corporate transaction indemnity less the gain on sale of a business less gains on sales of assets plus the loss on early debt redemption plus the noncash loss related to the termination of the U.S. pension plan, net of curtailment.
• Consolidated Adjusted EBITDA margin is calculated as Consolidated Adjusted EBITDA divided by net sales, except for full year 2022 which is divided by adjusted net sales.
• 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

⁽¹⁾ Represents the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application. Refer to the Exit of a COVID-19 Testing Application section above for further detail.

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

⁽¹⁾ Represents the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application. Refer to the Exit of a COVID-19 Testing Application section above for further detail.

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

⁽¹⁾ Represents the net impact of the acceleration of previously deferred revenue of $17.9 million and an impairment charge of $16.8 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application. Refer to the Exit of a COVID-19 Testing Application section above for further detail.

Table 4: Reconciliations of Net Income to Adjusted EBITDA and Net Sales to Adjusted Net Sales(dollars in millions)