Mettler-Toledo(MTD) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited interim consolidated financial statements and management's financial analysis Item 1. Financial Statements This section presents the unaudited interim consolidated financial statements and related accounting notes Interim Consolidated Statements of Operations and Comprehensive Income (Three Months) This section presents interim consolidated statements of operations and comprehensive income for the three months ended June 30 Three Months Ended June 30: Key Financial Highlights | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (%) | |---|---|---|---| | Net sales | $924,351 | $690,673 | 33.8% | | Gross profit | $536,904 | $397,970 | 35.0% | | Net earnings | $184,763 | $126,562 | 46.0% | | Diluted EPS | $7.85 | $5.22 | 50.4% | Interim Consolidated Statements of Operations and Comprehensive Income (Six Months) This section presents interim consolidated statements of operations and comprehensive income for the six months ended June 30 Six Months Ended June 30: Key Financial Highlights | Metric | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | Change (%) | |---|---|---|---| | Net sales | $1,728,741 | $1,339,835 | 29.0% | | Gross profit | $1,008,600 | $772,379 | 30.6% | | Net earnings | $334,426 | $224,677 | 48.8% | | Diluted EPS | $14.17 | $9.25 | 53.2% | Interim Consolidated Balance Sheets This section presents the interim consolidated balance sheets as of June 30, 2021 and December 31, 2020 Balance Sheet Highlights | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (%) | |---|---|---|---| | Total assets | $3,142,904 | $2,814,549 | 11.7% | | Total liabilities | $2,951,480 | $2,531,874 | 16.6% | | Total shareholders' equity | $191,424 | $282,675 | -32.3% | | Cash and cash equivalents | $142,252 | $94,254 | 50.9% | | Long-term debt | $1,602,005 | $1,284,174 | 24.8% | Interim Consolidated Statements of Shareholders' Equity This section presents interim consolidated statements of shareholders' equity for the six months ended June 30 Shareholders' Equity Changes (Six Months) | Metric (in thousands) | June 30, 2021 | December 31, 2020 | June 30, 2020 | |---|---|---|---| | Treasury Stock | $(5,751,052) | $(5,283,584) | $(4,717,962) | | Retained Earnings | $5,429,085 | $5,095,596 | $4,720,523 | | Total Shareholders' Equity | $191,424 | $282,675 | $450,093 | - The company repurchased common stock worth $474.999 million during the six months ended June 30, 2021, compared to $200.0 million in the same period of 2020[15] Interim Consolidated Statements of Cash Flows This section presents interim consolidated statements of cash flows for the six months ended June 30 Cash Flow Highlights (Six Months) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | |---|---|---|---|---| | Net cash provided by operating activities | $404,412 | $248,752 | $155,660 | 62.6% | | Net cash used in investing activities | $(226,045) | $(50,587) | $(175,458) | 346.9% | | Net cash used in financing activities | $(130,611) | $(275,077) | $144,466 | -52.5% | | Net increase (decrease) in cash and cash equivalents | $47,998 | $(80,508) | $128,506 | -159.6% | Notes to the Interim Consolidated Financial Statements This section provides detailed notes to the interim consolidated financial statements 1. Basis of Presentation Mettler-Toledo International Inc. is a global supplier of precision instruments and services, with financial statements prepared under U.S. GAAP - Mettler-Toledo is a leading global supplier of precision instruments and services, including weighing instruments, analytical instruments, automated chemistry solutions, and inspection systems[19] - The interim consolidated financial statements are unaudited, prepared under U.S. GAAP, and include all wholly-owned subsidiaries[20] - Management's estimates and assumptions are used in preparing financial statements, with actual results potentially differing due to uncertainties like the COVID-19 pandemic[22] 2. Summary of Significant Accounting Policies This section outlines the company's accounting policies for receivables, inventories, goodwill, revenue, and share-based compensation Inventories Breakdown | Inventory Component (in thousands) | June 30, 2021 | December 31, 2020 | |---|---|---| | Raw materials and parts | $148,548 | $132,041 | | Work-in-progress | $66,077 | $55,688 | | Finished goods | $135,534 | $109,882 | | Total | $350,159 | $297,611 | - The Company recognized amortization expense for intangible assets of $6.2 million (Q2 2021) and $10.2 million (YTD Q2 2021), with estimated annual aggregate amortization of $21.6 million for 2021[30] - Revenue from product sales is recognized upon transfer of control, typically based on shipping terms, while service revenue is recognized upon completion or ratably over the contract period for service contracts[32][35] - Share-based compensation expense was $4.6 million for Q2 2021 and $9.2 million for YTD Q2 2021, with an additional 0.9 million shares added to the equity incentive plan in May 2021[37][38] 3. Revenue Revenue is disaggregated by product, service, timing of recognition, and geography, showing strong growth across most segments Revenue by Geographic Destination | Geographic Destination | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | |---|---|---|---|---| | Americas | $353,415 | $270,291 | $656,754 | $535,124 | | Europe | $260,190 | $194,165 | $501,566 | $388,992 | | Asia / Rest of World | $310,746 | $226,217 | $570,421 | $415,719 | | Total | $924,351 | $690,673 | $1,728,741 | $1,339,835 | Revenue by Product Category | Product Category | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | |---|---|---|---|---| | Laboratory (55% of sales) | $506,106 | $359,471 | $950,732 | $716,562 | | Industrial (39% of sales) | $368,013 | $288,824 | $678,791 | $541,179 | | Retail (6% of sales) | $50,232 | $42,378 | $99,218 | $82,094 | | Total | $924,351 | $690,673 | $1,728,741 | $1,339,835 | - Deferred revenue and customer prepayments increased from $149.1 million at January 1, 2021, to $192.2 million at June 30, 2021[47] 4. Acquisitions In March 2021, the Company acquired PendoTECH for an initial cash payment of $185.0 million, resulting in significant goodwill and intangibles - Acquired PendoTECH in March 2021 for an initial cash payment of $185.0 million, with potential additional consideration of up to $20.0 million[48] - The acquisition resulted in $93.7 million in goodwill (tax deductible) and identified finite-life intangible assets totaling $106.1 million (customer relationships, technology, tradename, other)[49] - The estimated fair value of the contingent consideration obligation was $13.5 million, determined using a Monte Carlo simulation[48] 5. Financial Instruments The Company uses derivative financial instruments, including interest rate and cross currency swaps, to manage market risk - The Company uses interest rate and cross currency swap agreements as cash flow hedges to manage interest rate exposure, converting floating LIBOR rates to fixed Swiss franc income[51][53][54][55][56] - Foreign currency forward contracts are used to economically hedge short-term trade and non-trade intercompany balances, primarily in Swiss franc, other major European currencies, and Chinese Renminbi[58] - A derivative loss of $0.1 million from cash flow hedges is expected to be reclassified from other comprehensive income to earnings in the next twelve months[57] 6. Fair Value Measurements The Company's derivative assets and liabilities, and cash equivalents, are measured at fair value using Level 2 inputs Derivative Assets and Liabilities at Fair Value (Level 2) | Derivative Type (in thousands) | June 30, 2021 | December 31, 2020 | Balance Sheet Classification | |---|---|---|---| | Foreign currency forward contracts (assets) | $4,625 | $2,227 | Other current assets and prepaid expenses | | Cross currency swap agreement (assets) | $2,903 | — | Other non-current assets | | Foreign currency forward contracts (liabilities) | $2,373 | $1,399 | Accrued and other liabilities | | Cross currency swap agreement (liabilities) | $3,735 | $6,297 | Other non-current liabilities | - The estimated fair value of the contingent consideration obligation for the PendoTECH acquisition is $13.5 million, classified as a Level 3 measurement due to unobservable inputs[61] - The fair value of the Company's debt exceeds its carrying value by approximately $38.0 million as of June 30, 2021, estimated using Level 2 inputs[66] 7. Income Taxes The Company's reported tax rate for the three and six months ended June 30, 2021, was 19.8% and 19.6% respectively Income Tax Rates | Period | Reported Tax Rate | Projected Annual Effective Tax Rate | |---|---|---| | Three months ended June 30, 2021 | 19.8% | 19.5% | | Six months ended June 30, 2021 | 19.6% | 19.5% | - The difference between the reported and projected annual effective tax rate is mainly due to the timing of excess tax benefits from stock option exercises[67] 8. Debt The Company's debt primarily consists of Senior Notes and a $1.25 billion Credit Agreement, totaling $1.655 billion as of June 30, 2021 Debt Composition at June 30, 2021 | Debt Type (in thousands) | U.S. Dollar | Other Principal Trading Currencies | Total | |---|---|---|---| | Total Senior Notes | $473,410 | $457,578 | $930,988 | | $1.25 billion Credit Agreement | $512,501 | $155,140 | $667,641 | | Other local arrangements | $3,574 | $52,827 | $56,401 | | Total debt | $989,485 | $665,545 | $1,655,030 | - The Company entered into a new $1.25 billion Credit Agreement in June 2021, maturing in June 2026, with $576.3 million of additional borrowings available[69] - In May 2021, the Company agreed to issue $125 million twelve-year Senior Notes at a fixed interest rate of 2.83%, maturing in July 2033, to refinance existing indebtedness[73] - Euro-denominated Senior Notes are designated as a hedge of a portion of the net investment in euro-denominated foreign subsidiaries to reduce foreign currency risk[75] 9. Share Repurchase Program and Treasury Stock The Board authorized an additional $2.5 billion for share repurchases, with $2.6 billion remaining availability as of June 30, 2021 - An additional $2.5 billion was authorized for the share repurchase program in November 2020, with $2.6 billion remaining availability as of June 30, 2021[77] - During the six months ended June 30, 2021, the Company spent $475.0 million to repurchase 390,538 shares at an average price of $1,216.25 per share[78] - Since inception in 2004, the Company has purchased 29.8 million shares through June 30, 2021[78] 10. Accumulated Other Comprehensive Income Comprehensive income for the six months ended June 30, 2021, was $366.8 million, driven by foreign currency translation adjustments Comprehensive Income, Net of Tax | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |---|---|---|---|---| | Net earnings | $184,763 | $126,562 | $334,426 | $224,677 | | Other comprehensive income (loss), net of tax | $9,152 | $2,096 | $32,333 | $(21,932) | | Comprehensive income, net of tax | $193,915 | $128,658 | $366,759 | $202,745 | - Accumulated other comprehensive loss decreased from $(334.9) million at December 31, 2020, to $(302.6) million at June 30, 2021, primarily due to foreign currency translation adjustments and unrealized gains on cash flow hedging arrangements[80] 11. Earnings Per Common Share Diluted weighted average common shares outstanding for EPS calculation included common equivalent shares, with certain anti-dilutive options excluded Common Equivalent Shares for EPS Calculation | Period | Common Equivalent Shares Included | Anti-Dilutive Shares Excluded | |---|---|---| | Three months ended June 30, 2021 | 330,638 | 21,637 | | Six months ended June 30, 2021 | 326,169 | 23,620 | 12. Net Periodic Pension Cost Net periodic pension cost for the six months ended June 30, 2021, was $5.6 million, an increase from the prior year Net Periodic Pension Cost Components | Component (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |---|---|---| | Service cost, net | $10,600 | $9,697 | | Interest cost on projected benefit obligations | $2,810 | $4,124 | | Expected return on plan assets | $(20,863) | $(19,152) | | Recognition of actuarial losses/(gains) | $13,985 | $12,587 | | Net periodic pension cost/(credit) | $5,558 | $3,758 | - The Company expects to contribute approximately $27.9 million to non-U.S. pension plans and $0.2 million to its U.S. post-retirement medical plan in 2021[87] 13. Restructuring Charges Restructuring expenses for the six months ended June 30, 2021, totaled $2.1 million, primarily related to employee costs - Restructuring expenses were $0.9 million for the three months and $2.1 million for the six months ended June 30, 2021, mainly due to employee-related costs[88] Restructuring Accrual Roll Forward (Six Months Ended June 30, 2021) | Metric (in thousands) | Amount | |---|---| | Balance at December 31, 2020 | $9,184 | | Restructuring charges | $2,069 | | Cash payments and utilization | $(5,548) | | Balance at June 30, 2021 | $5,495 | 14. Other Charges (Income), Net Other charges (income), net, includes non-service pension costs, foreign currency transaction gains/losses, and acquisition costs - Non-service pension benefits were $2.5 million for the three months and $5.0 million for the six months ended June 30, 2021[89] - Other charges (income), net, also included $2.8 million of acquisition costs for the six months ended June 30, 2021[89] 15. Segment Reporting The Company operates through five reportable segments, with performance evaluated based on Segment Profit, showing strong growth Segment Performance Highlights | Segment (in thousands) | Net Sales to External Customers (3M 2021) | Segment Profit (3M 2021) | Net Sales to External Customers (6M 2021) | Segment Profit (6M 2021) | |---|---|---|---|---| | U.S. Operations | $323,310 | $79,272 | $595,269 | $142,943 | | Swiss Operations | $40,836 | $69,516 | $80,117 | $134,395 | | Western European Operations | $201,722 | $38,476 | $394,072 | $76,342 | | Chinese Operations | $205,521 | $94,663 | $361,595 | $166,687 | | Other | $152,962 | $21,414 | $297,688 | $41,586 | - Segment profit for the three months ended June 30, 2021, was $255.3 million, and for the six months ended June 30, 2021, was $465.9 million[98] 16. Contingencies Management does not expect any legal or environmental matters to have a material adverse effect on the Company's financials - The Company is involved in various legal proceedings and environmental matters, but management anticipates no material adverse effect on financial condition, results of operations, or cash flows[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Company's financial performance, including consolidated results, segment performance, liquidity, and capital resources General The discussion is based on U.S. GAAP, uses local currency for performance assessment, and includes qualitative factors - Interim consolidated financial statements are prepared in accordance with U.S. GAAP, and operating results for the interim periods are not necessarily indicative of the full year[101] - Local currency information is used to assess business performance, excluding currency exchange rate fluctuations, and is considered a helpful non-GAAP measure[102] COVID-19 The COVID-19 pandemic continues to pose risks, but the Company prioritizes safety, maintains operations, and monitors supply chain - The Company prioritized employee and business partner health and safety, implementing preventative measures during the COVID-19 pandemic[105] - Production and logistics facilities are operational, and the Company supports essential businesses like life sciences and food manufacturing[106] - Supply chain risks, including component availability, material shortages, and higher transportation/material costs, are being closely monitored[106] Results of Operations – Consolidated Consolidated net sales increased significantly, driven by demand and acquisition, with improved gross profit margin and higher expenses Consolidated Income Statement Highlights | Metric | 3 Months Ended June 30, 2021 (in thousands) | 3 Months Ended June 30, 2020 (in thousands) | 6 Months Ended June 30, 2021 (in thousands) | 6 Months Ended June 30, 2020 (in thousands) | |---|---|---|---|---| | Net sales | $924,351 | $690,673 | $1,728,741 | $1,339,835 | | Gross profit | $536,904 | $397,970 | $1,008,600 | $772,379 | | Net earnings | $184,763 | $126,562 | $334,426 | $224,677 | - Net sales increased 34% in U.S. dollars and 27% in local currencies for the three months ended June 30, 2021, benefiting approximately 1% from the PendoTECH acquisition[111] - Gross profit as a percentage of net sales increased to 58.1% (Q2 2021) and 58.3% (YTD Q2 2021), reflecting increased sales volume and favorable price realization, partially offset by higher costs[118][120] - Research and development expenses increased 37% (USD) and 28% (local currency) for the three months, while selling, general and administrative expenses increased 26% (USD) and 20% (local currency), primarily due to increased project activity and higher cash incentive expense[121][123] Results of Operations – by Operating Segment All operating segments reported strong growth in net sales and segment profit, driven by robust customer demand, cost savings, and favorable currency translation U.S. Operations U.S. Operations saw strong growth in net sales and segment profit, primarily from laboratory products and core industrial U.S. Operations Performance | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | |---|---|---|---|---| | Net sales to external customers | $323,310 | $249,340 | $595,269 | $490,750 | | Segment profit | $79,272 | $52,581 | $142,943 | $97,519 | - Net sales to external customers benefited approximately 4% (Q2) and 2% (YTD Q2) from the PendoTECH acquisition[128] Swiss Operations Swiss Operations experienced significant growth in net sales and segment profit, driven by strong product performance and favorable foreign currency translation Swiss Operations Performance | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | |---|---|---|---|---| | Net sales to external customers | $40,836 | $28,948 | $80,117 | $60,844 | | Segment profit | $69,516 | $48,248 | $134,395 | $102,158 | - Segment profit increased by $21.3 million (Q2) and $32.2 million (YTD Q2), driven by higher sales volume, cost savings, and favorable foreign currency translation[132] Western European Operations Western European Operations reported strong increases in net sales and segment profit, attributed to robust growth and cost savings Western European Operations Performance | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | |---|---|---|---|---| | Net sales to external customers | $201,722 | $149,051 | $394,072 | $302,376 | | Segment profit | $38,476 | $30,345 | $76,342 | $54,452 | - Segment profit increased by $8.1 million (Q2) and $21.9 million (YTD Q2), driven by higher sales volume, cost savings, and favorable foreign currency translation[135] Chinese Operations Chinese Operations demonstrated exceptional growth in net sales and segment profit, fueled by strong performance in both laboratory and industrial products Chinese Operations Performance | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | |---|---|---|---|---| | Net sales to external customers | $205,521 | $140,907 | $361,595 | $241,506 | | Segment profit | $94,663 | $63,955 | $166,687 | $109,505 | - The increase in local currency net sales reflects particularly strong growth in both laboratory and industrial products[137] - Segment profit increased by $30.7 million (Q2) and $57.2 million (YTD Q2), reflecting increased sales volume and favorable foreign currency translation[138] Other Operations Other Operations reported strong growth in net sales and segment profit, driven by robust performance across most product categories Other Operations Performance | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | |---|---|---|---|---| | Net sales to external customers | $152,962 | $122,427 | $297,688 | $244,359 | | Segment profit | $21,414 | $13,122 | $41,586 | $24,148 | - The increase in net sales to external customers includes strong growth in most product categories[140] - Segment profit increased by $8.3 million (Q2) and $17.4 million (YTD Q2), primarily due to increased sales volume and favorable foreign currency translation[141] Liquidity and Capital Resources The Company's liquidity is supported by strong operating cash flow, available borrowings, and cash balances, funding working capital and acquisitions - Cash provided by operating activities increased to $404.4 million for the six months ended June 30, 2021, up from $248.8 million in the prior year, primarily due to higher net earnings[143] - Capital expenditures totaled $47.4 million for the six months ended June 30, 2021, with expected net investments of $10 million to $15 million in new or expanded manufacturing facilities over the next two years[144] - As of June 30, 2021, the Company had $576.3 million of additional borrowings available under its $1.25 billion Credit Agreement and $142.3 million in cash and cash equivalents[147] - The Company spent $475.0 million on share repurchases during the six months ended June 30, 2021, with $2.6 billion remaining availability in the program[153] Effect of Currency on Results of Operations The Company's earnings are sensitive to exchange rate fluctuations, particularly involving the Swiss franc, euro, and Chinese renminbi - The Company is most sensitive to changes in exchange rates between the Swiss franc, euro, and U.S. dollar, and the Chinese renminbi[154][155] - A 1% strengthening of the Swiss franc against the euro is estimated to reduce earnings before tax by approximately $1.8 million to $2.0 million annually[154] - A 1% weakening of the Chinese renminbi against the U.S. dollar is estimated to reduce earnings before tax by approximately $2.1 million to $2.3 million annually[155] Forward-Looking Statements Disclaimer This section advises against relying on forward-looking statements due to various risks and uncertainties, including the COVID-19 pandemic - Investors should not rely on forward-looking statements to predict actual results due to various risks and uncertainties, including the uncertain duration and severity of the COVID-19 pandemic[157][158] - Forward-looking statements cover topics such as earnings and sales growth, strategic plans, market conditions, supply chain, gross margins, capital expenditures, and the impact of foreign currencies[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk disclosures were reported compared to the Annual Report on Form 10-K for December 31, 2020 - No material changes in market risk disclosures were reported as of June 30, 2021, compared to the Annual Report on Form 10-K for December 31, 2020[159] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2021[160] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2021[160] PART II. OTHER INFORMATION This section provides other required information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company reported no material legal proceedings for the period - No material legal proceedings were reported[162] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes from risk factors disclosed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 165,730 shares for $212.5 million during Q2 2021, as part of its ongoing share repurchase program Issuer Purchases of Equity Securities (Q2 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that may yet be Purchased under the Program (in thousands) | |---|---|---|---| | April 1 to April 30, 2021 | 54,552 | $1,254.26 | $2,727,503 | | May 1 to May 31, 2021 | 56,381 | $1,278.03 | $2,655,486 | | June 1 to June 30, 2021 | 54,797 | $1,314.98 | $2,583,428 | | Total (Q2 2021) | 165,730 | $1,282.18 | $2,583,428 | - During the six months ended June 30, 2021, the Company spent $475.0 million to repurchase 390,538 shares at an average price of $1,216.25 per share[164] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[165] Item 5. Other Information No other information was reported for the period - No other information was reported[167] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF)[168] SIGNATURE The report was duly signed on behalf of Mettler-Toledo International Inc. by Shawn P. Vadala, Chief Financial Officer, on July 30, 2021 - The report was signed by Shawn P. Vadala, Chief Financial Officer, on July 30, 2021[170]