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Text: This is Allison Lausas, vice president and chief accounting officer for IDEX Corporation.
The format for our call today is as follows: we will begin with Eric providing an overview of the state of IDEX' business, including a recap of our recent performance and our 2022 outlook.
Bill will then discuss our fourth quarter and full year 2021 financial results, and we'll conclude with our outlook for the first quarter and full year 2022.
Lastly, Eric will close with comments around our focus areas for 2022.
Before we begin, a brief reminder.
I'm on Slide 6.
2021 was another record year for IDEX.
We hit all-time highs on most of our key metrics.
Demand for our differentiated technology remains strong.
This underlying momentum, combined with our targeted growth initiatives and ability to capture price, drove a strong rebound from 2020.
Across most of our portfolio, we saw an expansion beyond pre-pandemic revenue levels.
In the fourth quarter, we achieved a record for orders and sales, and our backlog position is very strong as we enter 2022.
We expanded our margins in a highly inflationary environment.
We levered well on the previous investments we made to optimize our cost position and executed on our productivity funnel.
We maintained positive price costs, albeit at a compressed level versus historic performance.
We remain diligent in controlling our discretionary spend and used our 80/20 principles to allocate resources to our most promising opportunities.
Our strategic focus, purposeful resourcing, and strong operating cash flow enabled us to deploy record capital.
We acquired ABEL Pumps and Airtech and made a collaborative investment in a technology company driving advancements in connected products.
We also invested across the portfolio to support growth and productivity.
We optimized our cost position within our fluid and metering technology segment through a consolidation of our Italy facilities and our energy businesses and delivered on operational productivity projects across the segment.
All of this drove a record year in order sales, margins, earnings, and capital deployment.
We've said in the past that we built IDEX to outperform through a cycle, and we continue to find ourselves in a very challenging one, characterized by supply chain disruptions and labor scarcity exacerbated throughout the year by the emergence of new COVID-19 variants.
Our view continues to be that we don't see gradients of bad.
Rather, the supply chain environment is very tough and numerous challenges persist.
As pockets of issues improve, they tend to be replaced by new obstacles.
The agility of our teams adjusting to new issues almost every day has been and continues to be outstanding.
As we look forward to 2022, we do not see any near-term signs of diminishing supply chain-related headwinds, and the impact of COVID-19 remains highly variable.
In the short term, these conditions have and will impact our ability to efficiently ramp production and have created significant pockets of disruption for our customers and suppliers as well.
We expect that these challenges will remain at a high level at least through the first half of 2022.
Regardless of the near-term challenges, our overall IDEX strategy remains focused on the horizon.
The core of what makes IDEX strong, highly engineered specialized products used in mission-critical applications, remains a solid driver for long-term success.
We'll continue to deploy capital and invest in the resources necessary to drive organic growth in order to capitalize on a robust demand environment.
Our balance sheet has ample capacity, and we will leverage its strength to continue to play offense in M&A.
To that end, we expect to close on the acquisition of Nexsight later this quarter.
With that, I'll turn to our outlook for our segments on Page 7.
In our fluid and metering technology segment, we anticipate growth in our industrial day-rate businesses in 2022 with a return of larger projects toward the latter half of the year.
In the short term, large projects continue to lag as our customers have limited capacity to execute larger upgrades or expansions.
Agriculture is expected to perform well due to high crop prices, strong farmer sentiment, and limited availability of new equipment driving aftermarket demand.
Our municipal water business is stable.
We see improved optimism in the market and project planning activities increasing.
We are expecting an uptick in the energy and chemical markets.
The North American mobile truck market is improving due to a strong construction market in home-heating oil prices, and North American pipelines are reporting modest increased capital budgets for 2022.
We see international oil and gas quote activity outpacing domestic demand, an opportunity we are well-positioned to capitalize on.
FMT continues to be in a strong position to realize price, and we expect this to drive improved margins in 2022.
Likewise, the projects we completed last year to optimize our cost position, as well as new operational productivity projects, will yield strong flow-through in 2022, tempered by a discretionary spending rebound and continued resource investment in this segment.
Moving to the health and science technologies segment.
We expect the strongest growth in HST of all our three segments, and we plan to make the largest resource investments in HST to support that growth.
We anticipate margin improvement driven by volume leverage, partly offset by these resource additions.
HST continues to have robust demand across all their major end markets.
Semiconductor, food and pharma, analytical instrumentation, and life sciences are all expected to perform well.
Next-gen sequencing instrument demand is growing with research and clinical applications outpacing COVID detection and surveillance.
Our ability to execute in the current environment continues to distinguish us from our competition and improve our share position.
On the semiconductor side, we continue to capitalize on tailwinds generated from global broadband and satellite communication trends.
In auto, supply chain issues at our customers, especially around semiconductors, mute our growth.
Underlying market demand remains favorable, and we expect our results to improve as supply chain issues ease.
The industrial businesses within the segment faced similar trends to FMT. Finally, we expect that our fire and safety/diversified products segment will be our most challenged next year.
In fire and safety, North American OEMs are experiencing significant supply chain constraints around chassis and component availability, which limit their production.
On the rescue side, we anticipate that larger tenders will lag, compounded by China localization policies that are driving delays.
We do not anticipate near-term easing of these conditions and see the potential for recovery toward the latter part of 2022.
In our BAND-IT business, like in HST, we see auto supply chain issues dampening current demand.
Despite this pressure, our business continues to outperform the broader market due to our content on key vehicle models.
Lastly, in the near term, we expect continued momentum within our dispensing business as customer capital investments are deployed in early 2022.
However, for the year, we will see a non-repeat of North America projects as we reach the end of the replenishment cycle this year as composed to last year.
We anticipate that the unfavorable price cost position we experienced last year will rebound this year as annual contracts are renewed at current pricing.
We see this improvement tempered a bit by some mix pressure as dispensing volumes reduce and we make some targeted investments.
we see favorable conditions across the majority of our end markets.
However, the degree to which our customers and our facilities will be impacted by rolling supply chain and COVID-related disruptions remains highly variable.
We'll continue to monitor conditions and be as prepared as we can be for potential interruptions.
Despite these short-term headwinds, we are optimistic about our growth potential and the trajectory of our end markets.
I'll start with our consolidated financial results on Slide 9.
fourth quarter orders of $795 million were up 17% overall and up 13% organically.
Organic orders increased across each of our segments.
For the year, orders were up 26% overall and up 21% organically.
We experienced a strong rebound in demand for our products across all our segments and steadily built our backlog in each quarter of 2021 totaling $266 million for the year.
Relative to full year 2019, organic orders were up 15%.
Q4 sales of $715 million were up 16% overall and up 11% organically.
We experienced a strong demand rebound from 2020, but our results were tempered by supply chain and COVID production limitations.
full year sales of $2.8 billion were up 18% overall and up 12% organically.
We saw favorable results across all our segments and again, strong performance relative to full year 2019 with organic sales up 4%.
fourth quarter gross margins expanded 20 basis points to 44%.
For the full year, gross margins expanded 60 basis points, and adjusted gross margins expanded 80 basis points to 44.7%, primarily driven by strong volume leverage.
Q4 operating margin was 22.7%, up 10 basis points compared to prior year.
Adjusted operating margin declined 60 basis points, driven by a rebound in discretionary spending, targeted resource investments, and the dilutive impact of acquisition-related intangible amortization, partially offset by volume leverage.
full year operating margin was 23%, up 90 basis points compared to the prior year.
Adjusted operating margin was 23.9%, up 110 basis points compared to prior year.
I'll discuss the drivers of adjusted operating income on the next slide.
Our fourth quarter effective tax rate was 22.5%, relatively flat compared to the prior-year ETR of 22.2%.
Our full year effective tax rate was 22.5% compared to 19.7% in the prior year due to lower tax benefits associated with executive compensation and the nonrepeat of benefits associated with the finalization of the global intangible low-income tax regulations in 2020.
Q4 net income was $119 million, which resulted in earnings per share of $1.55.
Adjusted net income was also $119 million with adjusted earnings per share of $1.55, which was up $0.18 or 13% over prior-year adjusted EPS.
full year net income was $449 million, which resulted in earnings per share of $5.88.
Adjusted net income was $482 million, resulting in an adjusted earnings per share of $6.30, up $1.11 or 21% over prior-year adjusted EPS.
The tax rate movement I mentioned drives a $0.23 differential in earnings per share as compared to the prior year.
Said differently, our earnings per share would have expanded by $1.34 or 26%, had 2021 been taxed at the 2020 rate.
Finally, free cash flow for the quarter was $136 million, 115% of adjusted net income.
For the year, free cash flow was $493 million, down 5% versus last year, and was 102% of adjusted net income.
This result was impacted by a volume-driven working capital build and higher capex, partially offset by our higher earnings.
We spent over $70 million on capital projects this year, an increase of over $20 million versus 2020.
Moving on to Slide 10, which details the drivers of our adjusted operating income.
Adjusted operating income increased $125 million for the year compared to 2020.
Our 12% organic growth contributed approximately $106 million flowing through at our prior year gross margin rate.
We levered well in this volume increase, and our teams drove operational productivity to help mitigate the profit headwinds we experienced from increased supply chain costs and the associated inefficiencies.
Although we have maintained positive price/cost for the year, inflation continues to ramp, and we saw compressed price/cost spread versus historic levels, which pressured our op margin rate and flow-through percentages.
The positive mix is primarily a result of the portfolio and business mix normalizing to pre-pandemic levels that had a negative impact on our results last year.
We reinvested $35 million back into the businesses, taking the form of a partial rebound in discretionary spending to pre-pandemic levels, higher variable compensation expenses, and targeted reinvestment and resources to drive growth.
Despite this incremental spend and a challenging supply chain environment, we achieved a solid 38% organic flow-through for the year.
Flow-through is then negatively impacted by the dilutive impact of acquisitions and FX, getting us to a reported flow-through of 30%.
With that, I'd like to provide an update on our outlook for the first quarter and full year 2022.
I'm on Slide 11.
As a reminder, going forward, we will be adjusting earnings per share for acquisition-related intangible amortization in both our guidance and results.
Our fourth quarter adjusted earnings per share under this definition would have been $1.71 per share, while our full year 2021 adjusted earnings per share would have been $6.87 per share.
Under this new definition, for the first quarter of 2022, we are projecting GAAP earnings per share of $1.57 to $1.60 and adjusted earnings per share to range from $1.73 to $1.76.
We expect organic revenue growth of 6% to 7% for the first quarter and operating margin of approximately 23%.
Q1 expected results incorporate headwinds arising from COVID-driven apps and theism and supply chain production constraints.
The first quarter effective tax rate is expected to be approximately 22.5%.
We expect FX to be unfavorable to our topline by 1% and acquisitions to provide a 4% benefit.
Corporate costs in the first quarter are expected to be around $19 million.
Turning to the full year 2022.
We project GAAP earnings per share of $6.70 to $7 and adjusted earnings per share to range from $7.33 to $7.63.
We expect full year organic revenue growth of 5% to 8% and operating margins to be around 24%.
We expect FX to be unfavorable to our topline by 1% and acquisitions to provide a 2% benefit.
The full year effective tax rate is expected to be around 22.5%.
Capital expenditures are anticipated to be around $90 million, an increase over 2021 as we continue to identify opportunities to reinvest in our core businesses.
Free cash flow is expected to be approximately 105% of adjusted net income, and corporate costs are expected to be approximately $80 million for the year.
Our earnings guidance excludes impacts from future acquisitions and any future restructuring charges.
Nexsight is excluded from the figures above as the transaction has yet to close.
Next, I will provide some additional details regarding our 2022 guidance for the full year.
I'm on Slide 12.
On an operational basis, we expect supply chain constraints to mitigate our output for the first half of the year, muting an otherwise strong demand environment.
Therefore, we are projecting organic revenue for the year to be up 5% to 8%, which translates to an earnings per share impact of $0.60 to $0.95 depending on the topline results.
This range also assumes improving price/cost.
We continue to drive operational productivity across the portfolio and expect to see benefits from our 2021 restructuring actions.
This will drive $0.20 to $0.25 of favorability next year.
We also continue to invest in the resources required to grow in the current year end and beyond.
These investments will reduce earnings per share by $0.20 to $0.25 and are funded by the productivity gains I mentioned previously.
Our discretionary spend partially recovered to pre-pandemic levels in 2021, and we expect this spending to be fully recovered by the end of 2022.
The unfavorability impacts earnings per share by $0.20 to $0.25.
I'll note that we are ramping spend to pre-pandemic levels, but with 20% higher revenues.
ABEL has one partial quarter and Airtech has two-quarters inorganic results included in our guidance.
We expect the acquisitions to contribute $54 million of revenue and $0.08 of EPS.
The incremental amortization that we see in 2022 versus 2021 is largely related to these acquisitions and will provide an additional $0.05 of EPS.
Now let's take a look at a couple of nonoperational items.
First, our guide assumes no impact from tax as our guided rate is flat year over year.
Second, we expect a 1% headwind from FX, providing $0.07 of earnings per share pressure.
So in summary, we are projecting organic revenue growth of 5% to 8% for the year, adjusted earnings per share expectations in the range of $7.33 to $7.63, a 7% to 11% growth over 2021.
Implied in our guidance is mid- to high 20s year-over-year flow-through on the low end and 30% on the high end.
With that, I'll throw it back to Eric for some final thoughts.
I'm on the final slide, Slide 13.
In an environment characterized by uncertainty and disruption, it's important not to lose sight of who we are as a company.
First and foremost, we are a portfolio of great businesses that leverage 80/20 with an obsessive focus to serve our customers.
We refer to that simple model as the IDEX difference.
We're committed to navigating the challenges of the short-term landscape, but remain focused on the longer term.
We must continue to utilize our 80/20 toolkit to create efficient, innovative, value-creating businesses.
In a world with this level of variability, the simpler you are, the more successful you'll be.
We remain committed to investing in the resources needed, so our businesses are poised to take advantage of the growth potential in front of us.
We're a company committed to its core values, and we'll continue to develop top-performing teams as part of an inspiring company culture.
Diversity, equity, and inclusion continues to be an area of focus, creating environments where people feel they belong and are comfortable bringing their true selves to work every day.
Our strong operating cash flow and balance sheet put us in a great position to continue to put capital to work, and we've already identified several high-return organic investment opportunities across the company that will push us past our 2021 capex record levels.
We have invested in new industrial automation that will improve efficiency and expand capacity for growth.
We're supporting focused digitalization efforts across our installed base to solidify our superior positions and expand share of wallet.
Our facility expansions in China and India are well underway, effectively doubling future capacity to support growth across Asia.
Lastly, our M&A opportunity pipeline continues to be strong, and we look forward to deploying additional capital in 2022, welcoming new businesses to the IDEX family.

user
idex q4 sales up 16% to $714.8 mln.
q4 sales rose 16 percent to $714.8 million.
sees fy adjusted earnings per share $7.33 to $7.63.
sees q1 adjusted earnings per share $1.73 to $1.76.
sees fy gaap earnings per share $6.70 to $7.00.
sees q1 gaap earnings per share $1.57 to $1.60.
q4 adjusted non-gaap earnings per share $1.55.

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