Gardner Denver Holdings, Inc. (GDI) SEC Filing 8-K Material Event for the period ending Monday, October 28, 2019

Gardner Denver Reports Third Quarter 2019 Results

Milwaukee, WI (October 28, 2019) -- Gardner Denver Holdings, Inc. (NYSE: GDI) announced today third quarter 2019 results.

Third quarter revenues of $597 million were down 13% compared to the prior year and down 11% excluding the impact of FX.  Net income in the quarter was $41 million, or $0.20 per share based on diluted share count of 209 million, compared to prior year net income of $72 million, or $0.35 per share based on diluted share count of 209 million.  Adjusted net income decreased 16% to $86 million, or $0.41 per share, compared to $103 million, or $0.49 per share, in the prior year.  Adjusted EBITDA was $142 million, down 20% compared to the prior year.  Adjusted EBITDA as a percentage of revenues decreased 260 basis points to 23.8% as compared to 26.4% in the prior year.

In the third quarter, Gardner Denver generated $114 million of cash flow from operating activities and invested $9 million in capital expenditures, resulting in free cash flow of $105 million, compared to $93 million in the prior year.  Third quarter net debt to Adjusted EBITDA leverage improved to 1.9x from 2.0x in the second quarter of 2019.

Ingersoll Rand Transaction

“Our excitement around the pending transaction with Ingersoll Rand’s Industrial segment continues to grow, as we are combining two premier companies to create a global leader in mission-critical flow creation and industrial technologies,” said Vicente Reynal, Chief Executive Officer.  “The combined company will have a strong base of complementary technologies and solutions, including an expected approximately 40% of sales coming from aftermarket parts and services, and enhanced end market diversification with upstream energy expected to comprise less than 10% of the combined company.”

“In terms of the timeline, the teams continue to make solid progress on the required regulatory milestones to meet the early 2020 closing target as well as integration planning,” stated Reynal.  “As a reminder, we have completed the US antitrust process and all initial international antitrust filings were filed in October.  In addition, we are continuing to build our synergy funnel and we feel increasing confidence in our ability to deliver the $250 million target for cost synergies.”

Business Trends

“The third quarter was a good example of the team’s nimble execution in the midst of challenging market conditions through the use of the Gardner Denver Execution Excellence process (“GDX”),” said Reynal.  “I am pleased with the team’s ability to focus on those areas within their control as we delivered sequential margin expansion versus the second quarter despite lower revenue and executed an incremental restructuring action that is expected to deliver $10 million in annualized savings across the total business with approximately $2 million to be realized in 2019.  In addition, working capital as a percent of sales improved 130 basis points from prior year, leading to strong free cash flow.  A particular highlight was inventory performance, which reduced over $10 million from third quarter of prior year and approximately $40 million when excluding the impact of our upstream energy business.”

“Our Industrials segment delivered positive FX-adjusted revenue and orders growth against strong prior year comps, led by mid single digit growth in the Americas and low single digit growth in Europe.  These results were lower than our original expectations due to continued global market conditions softening, resulting in our expected quarter end ramp not happening and several large Asia Pacific project deferrals.  We expect similar market conditions for the remainder of 2019,” continued Reynal.

“Within our Energy segment, the upstream business performed in line with expectations as orders were comparable to what we delivered in the second quarter and almost exclusively comprised of aftermarket parts and services.  Given an expectation for lower activity levels in the fourth quarter as well as lower customer capital investments, we are expecting upstream energy revenues to be down sequentially.  The mid and downstream businesses experienced low single digit FX-adjusted revenue declines as market conditions were very similar to what we saw in our Industrials segment, leading to several large project deferrals in Asia Pacific.  Orders performance was comparatively stronger with FX-adjusted growth of 10% and while the funnel remains healthy we are seeing delays in the quote-to-order cycle for larger projects,” stated Reynal.

“In the Medical segment, solid performance across both gas and liquid pump markets led to mid single digit FX-adjusted revenue growth and 190 basis points of Adjusted EBITDA margin expansion.  FX-adjusted orders performance was down high single digits due largely to the timing of a prior year order which the customer is now placing in smaller quarterly installments.”

Third quarter 2019 performance:

 

2019 Guidance and Outlook

“Given the softening macro-environment across industrial and upstream energy markets as well as incremental FX headwinds, we are updating our full year 2019 Adjusted EBITDA guidance to a range of $550 million to $570 million from $610 million to $630 million.  The revised guidance reflects an expectation of mid single digit revenue declines across the total company, excluding the impact of FX, and high single digit declines including FX,” stated Reynal.

Reynal continued, “From a year over year perspective, it is important to note that we expect positive Adjusted EBITDA results, excluding FX, in our Industrials, mid and downstream Energy and Medical businesses.  The expected year over year decline is attributed to lower anticipated performance in the upstream Energy business, FX headwinds and anticipated increases in Corporate costs.  In addition, we expect total year free cash flow to reported net income conversion to be above 100%, or approximately $275 million.  The revised forecast includes an expectation for capital expenditures to be at the bottom end of our previous range, or approximately $50 million, as we continue to be prudent given market conditions as well as not making investments that may prove to be duplicative given the operations and footprint we will be merging with from the Ingersoll Rand Industrials segment.”

Gardner Denver will broadcast a conference call to discuss results for the third quarter of 2019 on Tuesday, October 29, 2019 at 8:00 a.m. Eastern time (7:00 a.m. Central time) through a live webcast.  This webcast will be available in listen-only mode and can be accessed, for up to ninety days following the call, through the Investors section on the Gardner Denver website at https://investors.gardnerdenver.com.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934.  These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements, including the statements in the "Business Trends” and “2019 Guidance and Outlook" sections of this press release. You can identify these forward-looking statements by the use of words such as "outlook," “guidance,” "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words.  Such forward-looking statements are subject to various risks and uncertainties, including relating to the pending merger between Ingersoll-Rand plc’s (“Ingersoll-Rand”) Industrial segment (“Ingersoll Rand Industrial”) and Gardner Denver, including that conditions to such merger may not be satisfied, that such pending merger may require significant time and attention of Gardner Denver’s management, and that such pending merger may have a material adverse effect on Gardner Denver whether or not it is completed, macroeconomic factors beyond the Company’s control, risks of doing business outside the United States, the Company’s dependence on the level of activity in the energy industry, potential governmental regulations restricting the use of hydraulic fracturing, raw material costs and availability, the risk of a loss or reduction of business with key customers or consolidation or the vertical integration of the Company’s customer base, loss of or disruption in the Company’s distribution network, the risk that ongoing and expected restructuring plans may not be as effective as the Company anticipates, and the Company’s substantial indebtedness.  Additional factors that could cause Gardner Denver’s results to differ materially from those described in the forward-looking statements can be found under the section entitled "Risk Factors" in our most recent annual report on form 10-K filed with the Securities and Exchange Commission (“SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov.  Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.  These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Gardner Denver (NYSE: GDI) is a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which it sells across multiple attractive end-markets within the industrial, energy and medical industries.  Its broad and complete range of compressor, pump, vacuum and blower products and services, along with its application expertise and over 155 years of engineering heritage, allows Gardner Denver to provide differentiated product and service offerings for its customers' specific uses.  Gardner Denver supports its customers through its global geographic footprint of 40 key manufacturing facilities, more than 30 complementary service and repair centers across six continents, and approximately 6,700 employees world-wide.

Gardner Denver uses its website www.gardnerdenver.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on its website.  Accordingly, investors should monitor Gardner Denver’s website, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts.  In addition, you may automatically receive e-mail alerts and other information about Gardner Denver when you enroll your e-mail address by visiting the “Email Alerts” section of Gardner Denver’s website at

http://investors.gardnerdenver.com.

Gardner Denver Holdings, Inc.

Investor Relations Contact

Vikram Kini

(414) 212-4753

vikram.kini@gardnerdenver.com

In addition to consolidated GAAP financial measures, Gardner Denver reviews various non-GAAP financial measures, including “Adjusted EBITDA,” “Adjusted Net Income,” “Adjusted Diluted EPS” and “Free Cash Flow.”

Gardner Denver believes Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS are helpful supplemental measures to assist management and investors in evaluating the Company’s operating results as they exclude certain items that are unusual in nature or whose fluctuation from period to period do not necessarily correspond to changes in the operations of Gardner Denver’s business.  Adjusted EBITDA represents net income before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items.  Adjusted Net Income is defined as net income 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.  Gardner Denver believes that the adjustments applied in presenting Adjusted EBITDA and Adjusted Net Income are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that the Company does not expect to continue at the same level in the future.  Adjusted Diluted EPS is defined as Adjusted Net Income divided by Adjusted Diluted Average Shares Outstanding.

Gardner Denver uses Free Cash Flow to review the liquidity of its operations.  Gardner Denver measures Free Cash Flow as cash flows from operating activities less capital expenditures.  Gardner Denver believes Free Cash Flow is a useful supplemental financial measure for management and investors in assessing the Company’s ability to pursue business opportunities and investments and to service its 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 Gardner Denver’s board of directors regularly use these measures as tools in evaluating the Company’s 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, Gardner Denver believes that Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS 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, Adjusted Diluted EPS 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, Adjusted Diluted EPS and Free Cash Flow should not be considered as alternatives to net income, diluted earnings per share 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, Adjusted Diluted EPS and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing Gardner Denver’s results as reported under GAAP.

Reconciliations of Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow to their most comparable U.S. GAAP financial metrics for historical periods are presented in the tables below.

Reconciliations of non-GAAP measures related to full year 2019 guidance have not been provided due to the unreasonable efforts it would take to provide such reconciliations.

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

(Unaudited)

1

The classification of stock-based compensation expense reported in previous periods of 2019 was corrected during the three and nine month periods ended September 30, 2019.  As a result, previously reported “Other operating expense, net” was decreased and “Selling and administrative expenses” was increased by $16.4 million for the six month period ended June 30, 2019.  “Selling and administrative expenses” includes $0.5 million in the three month period ended September 30, 2019 and $16.9 million in the nine month period ended September 30, 2019.

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except share and per share amounts)

(Unaudited)

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE TO

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

(Dollars in millions, except per share amounts)

(Unaudited)

1	Adjusted diluted share count and adjusted diluted earnings per share include incremental dilutive shares, using the treasury stock method, which are added to average shares outstanding.

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED

NET INCOME AND CASH FLOWS - OPERATING ACTIVITIES TO FREE CASH FLOW

(Dollars in millions)

(Unaudited)

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF SEGMENT ADJUSTED EBITDA TO INCOME BEFORE INCOME TAXES

(Dollars in millions)

(Unaudited)

14

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