Segment Results

6 Months Ended

Jun. 30, 2019

Note 17. Segment Results

A description of the Company’s three reportable segments, including the specific products manufactured and sold follows below.

In the Industrials segment, the Company designs, manufactures, markets and services a broad range of air compression, vacuum and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use air compression and vacuum products in a variety of applications such as operation of pneumatic air tools, vacuum packaging of food products and aeration of waste water. The Company maintains a leading position in its markets and serves customers globally. The Company offers comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of its products.

In the Energy segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. It serves customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. The Company is one of the largest suppliers in these markets and has long-standing customer relationships. Its positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Its liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations. Its engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.

In the Medical segment, the Company designs, manufactures and markets a broad range of highly specialized gas, liquid and precision syringe pumps and compressors primarily for use in the medical, laboratory and biotechnology end markets. The Company’s customers are mainly medium and large durable medical equipment suppliers that integrate the Company’s products into their final equipment for use in applications such as oxygen therapy, blood dialysis, patient monitoring, wound treatment, and others. Further, with the recent acquisitions, the Company has expanded into liquid handling components and systems used in biotechnology applications including clinical analysis instrumentation. The Company also has a broad range of end use deep vacuum products for laboratory science applications.

The Chief Operating Decision Maker (‘‘CODM’’) evaluates the performance of the Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.

The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income Before Income Taxes for the three month and six month periods ended June 30, 2019 and 2018.

	For the Three Month Period Ended June 30,					For the Six Month Period Ended June 30,
	2019		2018			2019			2018
Revenue
Industrials	$	334.3	$	328.7		$	652.4		$	645.6
Energy		222.8		273.1			455.9			515.3
Medical		72.0		66.4			141.1			126.8
Total Revenue	$	629.1	$	668.2		$	1,249.4		$	1,287.7
Segment Adjusted EBITDA
Industrials	$	76.6	$	71.1		$	147.7			137.9
Energy		56.3		79.7			116.3			147.6
Medical		21.4		18.0			41.4			33.9
Total Segment Adjusted EBITDA	$	154.3	$	168.8		$	305.4		$	319.4
Less items to reconcile Segment Adjusted EBITDA to Income
Before Income Taxes:
Corporate expenses not allocated to segments⁽¹⁾	$	6.7	$	7.2		$	17.7		$	9.6
Interest expense		22.4		26.1			44.8			52.1
Depreciation and amortization expense		44.4		45.3			89.9			90.2
Restructuring and related business transformation costs⁽²⁾		2.0		8.4			6.1			12.9
Acquisition related expenses and non-cash charges⁽³⁾		17.1		5.7			18.7			10.3
Expenses related to public stock offerings⁽⁴⁾		—		0.5			—			1.9
Establish public company financial reporting compliance⁽⁵⁾		—		1.1			0.6			1.9
Stock-based compensation⁽⁶⁾		7.1		(0.8	)		16.4			1.9
Foreign currency transaction losses (gains), net		0.6		(2.4	)		3.7			0.2
Loss on extinguishment of debt ⁽⁷⁾		0.2		0.2			0.2			0.2
Shareholder litigation settlement recoveries⁽⁸⁾		—		—			(6.0	)		(4.5	)
Other adjustments⁽⁹⁾		0.6		—			0.9			(0.7	)
Income Before Income Taxes	$	53.2	$	77.5		$	112.4		$	143.4

⁽¹⁾

Includes insurance recoveries of asbestos legal fees of $5.6 million in the six month period ended June 30, 2018.

⁽²⁾

Restructuring and related business transformation costs consist of the following.

	For the Three Month Period Ended June 30,					For the Six Month Period Ended June 30,
	2019			2018		2019			2018
Restructuring charges	$	0.8		$	—	$	2.8		$	—
Severance, sign-on, relocation and executive search costs		0.2			1.9		1.2			3.9
Facility reorganization, relocation and other costs		0.5			0.7		1.1			1.3
Information technology infrastructure transformation		0.4			0.2		0.7			0.2
Gains on asset disposals		(0.4	)		—		(0.3	)		(1.2	)
Consultant and other advisor fees		0.1			4.0		0.2			6.6
Other, net		0.4			1.6		0.4			2.1
Total restructuring and related business transformation costs	$	2.0		$	8.4	$	6.1		$	12.9

⁽³⁾

Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.

⁽⁴⁾

Represents certain expenses related to the Company’s secondary stock offerings.

⁽⁵⁾

Represents third party expenses to comply with the requirements of Sarbanes-Oxley and the accelerated adoption of the new accounting standards (ASC 606 - Revenue from Contracts with Customers and ASC 842 - Leases) in the first quarter of 2018 and 2019, respectively, one year ahead of the required adoption dates for a private company.

⁽⁶⁾

Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2019 of $6.0 million and $13.6 million, respectively increased by $1.1 million and $2.8 million for the three month and six month periods ended June 30, 2019, respectively, due to costs associated with employer taxes.

Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2018 of $1.8 million and $5.2 million, respectively, reduced by a $2.6 million and $3.3 million decrease in the estimated accrual for employer taxes for the three month and six month periods ended June 30, 2018, respectively, as a result of the achievement of employer tax caps in countries outside of the United States.

⁽⁷⁾

Represents losses on extinguishment of a portion of the U.S. term loan and the amendment of the revolving credit facility.

⁽⁸⁾

Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

⁽⁹⁾

Includes (i) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.