The operator of the Ingersoll Rand Third Quarter 2023 Earnings Conference Call welcomes participants and introduces the company's Vice President of Investor Relations, Matthew Fort. Fort reminds everyone of the risks and uncertainties associated with forward-looking statements and refers to non-GAAP financial measures. The call will include a review of company and segment financial highlights and an update to the 2023 guidance. The Q&A session will be limited to one question and one follow-up per participant. Vicente Reynal, Chairman and CEO, will lead the call.

In the second paragraph, Vicente Reynal expresses gratitude to the employees for their hard work in achieving another record quarter. He also welcomes new employees from recent acquisitions and highlights the company's focus on controlling what they can and directing demand towards high-growth markets. He then mentions the company's economic growth engine and their commitment to long-term targets. Finally, he provides examples of how the company has accelerated organic growth and margin expansion through recent M&A.

The company has successfully demonstrated its ability to achieve significant growth through its M&A strategy, as evidenced by the 540% growth achieved with the LeROI acquisition and the 27% growth with the Air Dimension acquisition. These acquisitions were made at a purchase multiple of 11 times and have resulted in post-synergy adjusted EBITDA purchase multiples of 0.5 times and 8 times, respectively. The company remains committed to its M&A strategy and has already closed on two recent transactions, bringing its annualized inorganic revenue close to its target of $200-300 million for the year.

In this paragraph, the speaker discusses two recent acquisitions made by Ingersoll Rand, a company that provides air compressors and other industrial equipment. The first acquisition, Oxywise, is a company based in Slovakia that specializes in on-site oxygen and nitrogen generation systems. The second acquisition, Fraserwoods, is a company that provides aftermarket services for blowers and pumps in the vacuum truck market. The speaker also mentions Ingersoll Rand's strong M&A funnel, their recognition for corporate responsibility, and their employee ownership model.

In the fifth paragraph, Vik Kini provides an update on the company's Q3 financial performance. He mentions that the company saw a 6% increase in organic revenue and a book-to-bill ratio of 0.94x. The backlog is also up 6% year-over-year, providing good visibility and momentum for the future. The company's adjusted EBITDA and margins are approaching their long-term targets, and free cash flow generation and liquidity remain strong. Orders declined 2% and revenue increased 13% on an FX adjusted basis, with the ITS segment margin increasing by 260 basis points and the PST segment margin improving by 120 basis points.

The company's segments have remained positive despite inflationary headwinds, with adjusted earnings per share increasing by 24%. Free cash flow for the quarter was $369 million, with $308 million used for M&A activities. The company remains committed to its annual share repurchase plan and continues to prioritize M&A for capital allocation. The company has also refinanced its debt portfolio after being upgraded to an investment-grade credit rating.

The company's capital structure has improved, with a higher fixed-to-floating ratio and longer weighted average maturity on debt, resulting in a reduction in interest expense and an expected increase in earnings per share. In the Industrial Technologies and Services segment, there was strong organic revenue growth and a significant increase in adjusted EBITDA margin, exceeding the company's 2025 targets. Book-to-bill remained on track and organic orders were in line with expectations, with a two-year stack showing growth.

The product lines for Ingersoll Rand continue to perform well, with strong momentum and double-digit increases in orders and revenue. The company has also launched a new oil-free compressor that is more efficient than previous models and the competition. In the Precision and Science Technology segment, there was a decline in revenue due to softness in the Life Science business, but the short-cycle business showed positive growth. The segment remains on track to meet long-term growth targets and adjusted EBITDA increased despite the decline in revenue.

In the second quarter of 2023, the company saw a 120 basis point increase in adjusted EBITDA margin, driven by price cost improvements and synergy delivery on acquired businesses. The company has entered into a 10-year contract with GRDF, the largest natural gas transmitter in Europe, for providing odorization equipment for renewable natural gas. Due to strong performance and backlog, the company has raised its 2023 guidance, with expected revenue growth of 14-16%, organic growth of 9-11%, and adjusted EBITDA in the range of $1.73 billion to $1.77 billion. The company also reaffirms a book-to-bill ratio of one for the year.

In summary, Ingersoll Rand expects to end the year with a 40% increase in backlog compared to last year and a projected interest expense of $155 million. The company's guidance for adjusted tax rate and CapEx spend remains unchanged. For Q4, organic orders and revenue are expected to be positive year-over-year, with incremental margins of approximately 35%. Ingersoll Rand is confident in its resilience and ability to outperform in the market, thanks to its strong balance sheet and disciplined capital allocation strategy. The company remains prepared for any challenges that may arise in the dynamic market conditions.

During the call, the speaker turned the discussion over to the operator for a Q&A session. The first question came from Mike Halloran from Baird, who asked about the order trajectory and trends. The speaker explained that while there were some challenges in the life science sector, there were signs of recovery in the industrial sector. The speaker also mentioned that the Q3 orders were in line with expectations and that there was stable momentum in the business. They also noted that there was solid momentum in marketing qualified leads.

The company is confident about their orders and expects them to increase in the fourth quarter due to strong data points and long-term visibility. They have also seen positive sentiment from potential M&A targets and expect continued strong activity in this area. The fourth quarter guidance includes mid-single-digit organic sales growth and mid-30s incremental margin.

The speaker asks if the mid-30s operating leverage and low to mid-single-digit sales growth seen in Q4 will continue in the future. The speaker responds that this is likely to be the case and also mentions that pricing will likely be in the 1-2% range. They also discuss the current state of PST, noting that the short-cycle industrial bid is good but the biopharma bid is still bad, and that the medical piece of PST is a significant portion of the revenue.

Vicente Reynal, CEO of Parker Hannifin, discusses the company's performance in the PST segment and its exposure to the biopharma and oxygen concentration markets. While the biopharma market has been struggling, the oxygen concentration market has been a leading indicator for Parker Hannifin and is expected to see an uptick in the coming year. Overall, the PST segment has shown positive organic growth in both orders and revenue and is expected to continue this trend in the mid-single digits over time.

Vicente Reynal, CEO of Gardner Denver Holdings, discusses the company's outlook for the future and its focus on improving its operations. He mentions that the company is not heavily exposed to the biopharma industry and does not expect a V-shaped recovery. During Q4, the company has seen an increase in long-cycle orders, which gives them confidence for the future. They expect to see more large projects being released and have a good level of visibility for Q4 and 2024. They also anticipate potential bolt-on deals in the future.

Vicente Reynal, the CEO of a company, gives some insight into their recent performance and plans for the future. He mentions that their M&A strategy is going well, and they have a strong pipeline of potential deals, with some being above $1 billion. He also discusses their balance sheet and how it puts them in a good position for future transactions. In terms of geography, the company has been successful in gaining market share in China and Europe, but the overall Chinese market has been soft. However, they have still been able to deliver good results.

The team in Asia-Pacific, particularly in China, has shown another quarter of organic growth in the compressor side, demonstrating their self-help initiatives. In Europe, there have been no significant changes in demand and the company continues to focus on demand generation for sustainable end markets. Despite higher interest rates, customers are still prioritizing energy efficiency and sustainability due to the ROI and payback it offers. This is how the company's sales team approaches their conversations with customers.

The speaker discusses how the company's success in China is due to their focus on total cost of ownership and ROI. They also mention the outperformance gap and competitive response in the market, as well as the impact of IRX on generating better orders. The speaker also acknowledges the soft and choppy market in China and credits the teams for their efforts in driving success.

The speaker discusses the company's presence in China and their strategy to be viewed as a local player. They also touch on their PST segment and mention that biopharma makes up about a quarter of that segment. The company has had positive momentum in the PST segment, and they expect a slight uptick in Q4 compared to Q3.

The speaker reminds the audience that their business is not affected by seasonal changes and is relatively consistent quarter to quarter. They have a healthy backlog and strong momentum in the industrial side of the business. They expect a slight increase in Q4 and the $1 billion transactions are properly sourced. They cannot provide guidance for 2024 yet, but the construct remains consistent with a book-to-bill above one and continued order expansion.

The company expects book-to-bill ratios to be above 1 in the first half of 2024 and below 1 in the second half, following normal seasonality and the progression of longer cycle orders. They have not seen any significant changes in project timelines due to interest rates and are currently focused on finding labor to get sites ready. They have a nimble resource allocation model to capitalize on growth opportunities.

Vicente Reynal discusses the company's approach to identifying growth opportunities from a geographic and end market perspective. He mentions that their team is currently working on demand generation activities to position the company for growth in 2024. He also notes that their strategy varies by region and country, as they analyze micro-level data to determine the best growth vectors. On the topic of ROI, Vicente gives the example of their oil-free compressor being 14% more efficient than the previous model, and suggests that customers may be encouraged to replace their existing systems ahead of their natural aging due to the compelling ROI.

The speaker, Vik Kini, responds to a question about the expected ROIs for the company. He explains that the ROIs are currently between 12-15 months, driven by energy efficiency and higher energy costs. He also mentions that customers are interested in the sustainability aspect and the company is seeing a positive impact from Scope 1 and Scope 2 initiatives. The next question is about the fourth quarter and the guide for organic growth, which Kini says has a tighter spread than the suggested range. He breaks down the expected growth into two components, with approximately 3% organic growth expected in the ITS segment due to pricing momentum and volume growth.

The company expects to see positive growth in both the ITS and PST divisions, with a stronger emphasis on organic volume growth for ITS. They also anticipate a positive trend in orders for Q4, which could be due to both timing of larger projects and a potential stabilization or improvement in demand. Last year's Q3 was a peak for orders, making for a tough comparison.

The company acknowledges that there may be some seasonality in the ITS segment, but it is not expected to have a significant impact. The company closely monitors channel inventory and has data from the past five years to ensure that customers do not end up with overstocked products.

The speaker, Vicente Reynal, thanks the audience for their interest in the company and gives an update on the Power Tools and Lifting business, which has shown strong growth under their ownership. Reynal mentions that the business was previously considered noncore, but has significantly improved in terms of EBITDA margin and new product introductions. He also mentions that the company plans to launch a next-generation set of tools and lifting mechanisms in 2024. Reynal thanks the company's 20,000 employees for their performance and looks forward to future success.

This summary was generated with AI and may contain some inaccuracies.