REVENUES

3 Months Ended

Mar. 31, 2023

REVENUES

REVENUES

14. REVENUES

Revenue Recognition

Product and Sold Equipment

Product revenue is generated from sales of cleaning, sanitizing, water treatment, process treatment and colloidal silica products. In addition, the Company sells equipment which may be used in combination with its specialized products. Revenue recognized from product and equipment sales is recognized at the point in time when the obligations in the contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment.

On June 3, 2020, the Company completed the separation of its Upstream Energy business (“ChampionX”). The Company entered into a Master Cross Supply and Product Transfer agreement with ChampionX to provide, receive or transfer certain products for a period up to 36 months and for a smaller set of products with limited suppliers over the next few years. Sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales, while purchases from ChampionX are recorded in inventory. Sales of product to ChampionX post-separation for the first quarter of 2023 and 2022 were $23.7 million and $34.8 million, respectively. As of March 31, 2023 and December 31, 2022, the Company had an outstanding accounts receivable balance for sales of product to ChampionX of $8.6 million and $12.9 million, respectively.

Service and Lease Equipment

Service and lease equipment revenue is generated from providing services or leasing equipment to customers. Service offerings include installing or repairing certain types of equipment, activities that supplement or replace headcount at the customer location, or fulfilling deliverables included in the contract. Global Industrial segment services are associated with water treatment and paper process applications. Global Institutional & Specialty segment services include cleaning and sanitizing programs and wash process solutions. Global Healthcare & Life Sciences segment services include pharmaceutical, personal care, infection and containment control solutions. Revenues included in Other primarily relate to services designed to detect, eliminate and prevent pests. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized over time using costs incurred to date because the effort provided by the field selling and service organization represents services provided, which corresponds with the transfer of control. Revenue recognized from leased equipment primarily relates to warewashing and water treatment equipment recognized on a straight-line basis over the length of the lease contract pursuant to Topic 842 Leases.

The Company’s operating lease revenue was as follows:

	First Quarter Ended
	March 31
(millions)	2023		2022
Operating lease revenue*		$126.4		$112.1

*Includes immaterial variable lease revenue

The following table shows principal activities, separated by reportable segments, from which the Company generates its revenue. Corporate segment includes sales to ChampionX under the Master Cross Supply and Product Transfer agreements entered into as part of the ChampionX Separation. For more information about the Company’s reportable segments, refer to Note 15.

Net sales at public exchange rates by reportable segment are as follows:

	First Quarter Ended
	March 31
(millions)	2023		2022
Global Industrial
Product and sold equipment		$1,498.2		$1,358.4
Service and lease equipment		211.2		207.3
Global Institutional & Specialty
Product and sold equipment		920.8		827.0
Service and lease equipment		208.0		182.4
Global Healthcare & Life Sciences
Product and sold equipment		352.6		334.0
Service and lease equipment		27.1		28.8
Other
Product and sold equipment		81.0		70.0
Service and lease equipment		249.0		224.0
Corporate
Product and sold equipment		23.7		34.7
Service and lease equipment		-		0.1
Total
Total product and sold equipment		$2,876.3		$2,624.1
Total service and lease equipment		$695.3		$642.6

Net sales at public exchange rates by geographic region for the first quarter ended March 31 are as follows:

	Global				Global Institutional				Global Healthcare
	Industrial				& Specialty				& Life Sciences				Other				Corporate
	2023		2022		2023		2022		2023		2022		2023		2022		2023		2022
North America		$790.7		$716.6		$833.9		$732.0		$163.9		$145.0		$210.3		$181.7		$20.7		$29.4
Europe		348.8		313.5		146.5		136.7		174.4		170.1		67.2		62.1		0.7		0.6
Asia Pacific		214.3		205.1		56.8		52.7		19.7		20.0		20.2		16.6		1.0		1.0
Latin America		157.2		136.4		41.3		36.8		5.7		5.9		13.6		13.0		1.3		3.5
Greater China		94.6		110.2		35.6		40.2		10.8		14.8		16.3		17.9		-		0.1
India, Middle East and Africa		103.8		83.9		14.7		11.0		5.2		7.0		2.4		2.7		-		0.2
Total		$1,709.4		$1,565.7		$1,128.8		$1,009.4		$379.7		$362.8		$330.0		$294.0		$23.7		$34.8

Net sales by geographic region were determined based on origin of sale. The United States made up 54% and 52% of total revenues during the first quarter ended March 31, 2023 and 2022, respectively.

Accounts Receivable and Allowance for Expected Credit Losses

Accounts receivable are carried at the invoiced amounts, less an allowance for expected credit losses, and generally do not bear interest. The Company’s allowance for expected credit losses estimates the amount of expected future credit losses by analyzing accounts receivable balances by age and applying historical write-off and collection experience. The Company’s estimates separately consider macroeconomic trends, specific circumstances and credit conditions of customer receivables. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

The Company’s allowance for expected return of products shipped and credits related to pricing or quantities shipped was $59.6 million and $17.8 million as of March 31, 2023 and 2022, respectively. Returns and credit activity is recorded directly as a reduction to revenue.

The following table summarizes the activity in the allowance for expected credit losses:

	First Quarter Ended
	March 31
(millions)	2023		2022
Beginning balance		$71.9		$52.8
Bad debt expense		14.7		22.3
Write-offs		(7.9)		(4.0)
Other (a)		(1.3)		(1.6)
Ending balance		$77.4		$69.5

(a) Other amounts are primarily the effects of changes in currency translations.

Contract Liability

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Accounts receivable are recorded when the right to consideration becomes unconditional. The contract liability relates to billings in advance of performance (primarily service obligations) under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed, which primarily occurs during the subsequent quarter.

The following table summarizes the contract liability activity:

	First Quarter Ended
	March 31
(millions)	2023		2022
Contract liability as of beginning of the year		$116.5		$91.7
Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the year		(116.5)		(91.7)
Increases due to billings excluding amounts recognized as revenue during the period ended		107.5		96.8
Contract liability as of end of period		$107.5		$96.8