The operator introduces the Ingersoll Rand Second Quarter 2024 Earnings Call and welcomes participants. The Vice President of Investor Relations, Matthew Fort, introduces the Chairman and CEO, Vicente Reynal, and the Chief Financial Officer, Vik Kini. The company's earnings release and presentation are available on the Investor Relations section of their website. Forward-looking statements and non-GAAP financial measures will be discussed. The call will review financial highlights and provide an update to the 2024 guidance. Participants are asked to limit questions to 1 question and 1 follow-up. Vicente Reynal then begins his remarks.

In this paragraph, the speaker thanks and acknowledges the employees for their hard work in delivering another record quarter in Q2. Despite the challenging macroeconomic environment, the team's execution engine, IRX, remains strong and adaptable. The company has raised its 2024 full year guidance based on its solid performance and remains committed to its long-term strategy and Investor Day targets. The speaker also provides an update on the company's recent inorganic growth initiatives, highlighting three recently closed transactions that are expected to achieve mid-teens ROIC by year 3. These deals include CAPS, Fruitland, and Del Pumps, which will expand the company's technology, access to a large install base, and provide high-margin pumping solutions in India.

In summary, the closure of recent transactions, including ILC Dover, has exceeded the annualized inorganic revenue target and sets the company up for a strong start in 2025. The company remains disciplined in their approach to M&A and is committed to creating long-term shareholder value. The biopharma business, which accounts for half of the total business, is expected to deliver double-digit growth in 2024 and beyond, with exposure to high-growth therapies like GLP-1 and ADCs. The niche and unique nature of the product solutions and offerings in this sector has contributed to its strong performance, with GLP-1 therapies projected to have a 20-30% annual market growth rate in the next 5 years.

The company has strong relationships with customers who use their single-use technology in their production process. As customers expand, the company's products are used to minimize validation time and reduce risk. The company's single-use containment technology is also used in the production of antibody drug conjugates, which is a growing market. The company has seen success in converting customers to use their technology. In the second quarter, the company had solid results despite economic challenges, with a 1% decline in organic orders.

In the second quarter, Ingersoll Rand saw strong sequential orders growth of 5%, with a book-to-bill ratio of 1.0x. This resulted in a healthy backlog for the company and gives confidence in meeting full year revenue guidance. Organic revenue was up 1% and adjusted EBITDA increased by 16% year-over-year. Adjusted earnings per share also saw a 22% increase, marking 6 consecutive quarters of double-digit growth. Free cash flow was $283 million and total liquidity was $3.7 billion. Net leverage increased to 2.0 turns, primarily due to the acquisition of ILC Dover. The company expects net leverage to finish at 1.5 turns for the full year. On an FX-adjusted basis, orders and revenue were up 5% and 8% respectively, with adjusted EBITDA margins expanding by 220 basis points. Corporate costs were in line with expectations and adjusted EPS increased by 22% to $0.83 per share.

In the most recent quarter, the company's free cash flow was $283 million, with a total liquidity of $3.7 billion. This increase in leverage was due to the purchase of ILC Dover, which was funded through bonds and cash. The company's capital allocation strategy remains focused on M&A, with $2.6 billion deployed in the quarter. The company's debt portfolio has been transformed to a fully investment-grade structure, with a 1 notch upgrade from each of the 3 rating agencies. The company issued $3.3 billion in unsecured investment-grade bonds, which were used to repay legacy secured loans and partially fund the acquisition. The company also increased the size of their revolving credit facility to $2.6 billion for added flexibility.

The Industrial Technologies and Service segment of the company experienced a 6% increase in revenue and a 230 basis point increase in adjusted EBITDA margins. Compressor orders and revenue were up, while industrial banking orders and revenue also saw growth. The company also launched a new high-speed blower technology that offers significant energy savings for customers.

The PST segment of the company experienced 6% organic order growth and achieved an adjusted EBITDA of $103 million with a margin of 30.3%. The legacy Ingersoll Rand Life Science business also saw organic order growth of 8%. Short cycle orders remained positive and the company is optimistic about the future growth of the PST business. They have developed an innovative technology in micro-fluidics that is expected to drive up to 50% productivity in a growing market. The company's leading indicators, such as marketing qualified leads and funnel activity, continue to show positive trends. However, there has been a delay in decision-making processes, which has affected the conversion of MQLs.

The company is facing challenges such as customer site readiness and high project volume, but these are seen as positive signs for the future. The Americas is expected to have mid-single-digit growth, while EMEIA remains stable with growth in emerging markets. Inorganic growth is expected to contribute $270 million, with ILC Dover being the largest driver. Biopharma and Aerospace & Defense are expected to have strong growth, but the space business is experiencing lower activity levels. The company is raising its 2024 guidance, with overall revenue expected to grow between 6% to 8%. Organic growth is expected to be 0% to 2%, with a 1% headwind from FX.

The company's M&A is expected to contribute $440 million by the end of July 2024, while corporate costs are projected to be $170 million for the remainder of the year. Adjusted EBITDA is estimated to be between $2.01 billion and $2.06 billion, a 14% increase from the previous year. Adjusted EPS is expected to be $3.27 to $3.37, a 2% improvement from previous guidance and a 12% increase from the previous year. The company's adjusted tax rate is expected to be between 22% and 23%. Gross interest expense is projected to be $250 million, while net interest expense will be $170 million and the adjusted tax rate is estimated to be between 22% and 23%. There have been no changes to the company's guidance on CapEx, free cash flow, or share count. Despite market conditions, the company has delivered record results and expects to exceed their long-term Investor Day targets.

The company's 2024 full year guidance projects a 10% CAGR for organic revenue growth and a 25% CAGR for adjusted EPS. The CEO thanks employees for their hard work and resilience and discusses the impact of IRX on the company's strength and value. There was no significant change in July that would alter the company's trajectory, but there were some project pushouts and delays in orders, particularly in China.

The company is seeing positive results in the first half of the year, with orders improving and organic revenue growth expected to be positive in the second half. However, the guidance has been reduced due to concerns about the Chinese market. The company is being cautious and not expecting a significant change in the market, despite some encouraging signs. The delay in converting leads into sales could be due to various factors such as elections, geopolitical issues, and capacity constraints.

The company is being cautious in the second half, but is optimistic about the future based on leading indicators. The book-to-bill and order cadence will remain the same as last quarter. China is a key factor in the organic sales guide, with the majority of the company's APAC revenue coming from China. The company expects growth in China in the second half of the year.

In the first half of the year, APAC (led by China) saw a low double-digit decrease in revenue, but the second half is expected to show stability and some improvement. The comps will also be easier in the second half, particularly in China. Excluding long-term projects, China's core business is still performing well. The second half guidance suggests that Q3 will be around 25-26% of the year's EPS and Q4 will have slightly higher revenue than Q3.

Vicente Reynal, the speaker, discusses the seasonal phasing of revenue and earnings, which is similar to previous years. He then addresses the growth in the biopharma market, specifically in the legacy Ingersoll Rand Life Science and medical business, which saw 8% growth in the second quarter. The recent acquisition of ILC Dover has also contributed to the company's positive outlook for the biopharma market, with expectations of double-digit growth for the year. The company's focus on product innovation and targeting specific end markets has been key to their success.

The speaker discusses the growth of service attachment and the company's continued focus on service activities. They also mention the recent acquisition of a company in Australia that will provide better access to service channels. The questioner asks about the company's gross margin and how it is being affected by price and competition. The speaker acknowledges the positive impact of initiatives like I2V and recurring revenue streams on gross margin. They also mention the potential for increased spending due to the higher gross margin.

The company's gross margin and EBITDA margin have increased due to investments in areas like demand generation and R&D. Price increases were around 2.5% in the quarter, with minimal inflation on direct materials and normal labor costs. Pricing is expected to return to historical levels of 1-2% in the back half of the year.

During a recent earnings call, Vicente Reynal, the CEO of a company, discussed the expected growth for the back half of 2024 and beyond. He stated that they expect a range of 1% to 2% and that they are seeing an increase in funnel for mega projects, but there is a delay in orders due to EPCs having a backlog of 2 to 3 years. However, they are still seeing good growth in their short to medium cycle business, with mid-single digit growth in PST and double-digit growth in MQL.

The speaker discusses the company's performance and market activity, stating that while they have not seen double-digit orders, they are successfully penetrating new accounts and customers. They also mention their recent acquisition of ILC Dover and the importance of managing volatility in their acquired companies.

The company has historically been successful with carve-outs and selecting bases that they like. They are now focused on increasing their penetration in the Life Science side of the business. In order to achieve the midpoint of their guidance for organic revenue growth, they will need to see a slight acceleration in their short-cycle businesses and maintain stability in their long-cycle markets. The company has revised their China expectations, but overall, they expect to see stronger growth in the second half of the year compared to the first half.

The speaker is asked about the decrease in PST adjusted EBITDA margin in the second quarter, despite higher revenue and the acquisition of ILC Dover. The speaker explains that the decrease is due to normal revenue mix and nothing to be concerned about. They also mention that the margin is expected to improve in the second half of the year and meet their targets. When asked about their conversion rates, the speaker says there have been no changes.

The speaker discusses the changes in the company's processes and the impact of the CAPS acquisition. They mention that while there has been an elongation in the project timeline, there has been no change in win rates. The speaker also mentions the potential for the CAPS acquisition to open up new opportunities, particularly in the power and air sectors. They also mention that they have existing programs in place for air-by-the-hour services. Finally, the speaker mentions their excitement about the CAPS acquisition and the potential it brings for expanding their customer base and revenue.

During a Q&A session, a question was asked about the book-to-bill ratio for the second half of the year. The speaker confirmed that it would be less than 1, implying low single digit growth in Q3 and Q4. They also mentioned that the decision-making process for EPC projects is taking longer, and while they are still active, they may not be completed until 2025. The main issue affecting the second half of the year is China, with battery EV making up around 15% of their business there.

The speaker discusses the company's verticals across the globe, specifically mentioning trends in the food and beverage industry. They state that EV battery and solar markets were significant in 2023 but are not at the same level currently. They also mention that there is nothing of note in the food and beverage industry and that their focus is on sustainability and return on investment. They clarify that the low single digit growth mentioned earlier is organic. In response to a question, they discuss the emergence of site readiness and EPC challenges and mention that it may be due to changes in the mega project funnel.

In the second half of the year, the company expects to see some of the projects that were approved in previous years to start generating revenue. However, there are bottlenecks in the process due to labor shortages and EPC capacity constraints. The company does not have any specific expectations for the second half of the year, but any potential solutions or orders may not convert to revenue until 2025 or later. In terms of China, the company did not experience any unexpected developments in the first half of the year.

The speaker discusses the guidance adjustment for the second half of the year, which is expected to be a little softer than initially anticipated. They mention that China has performed well in the first half, but they are being more cautious about potential geopolitical and election factors in the second half. They also mention that short cycle activity in the PST segment saw mid-single-digit growth in Q2, with good momentum in all regions except China. Compressors have also seen an increase in orders, mostly in the short to medium cycle.

During a recent earnings call, Nicole DeBlase asked about the expected margins for ITS in the second half of the year, to which Vicente Reynal responded that they are likely to remain around 30%. Later, David Raso asked about a larger transaction that the company had decided to walk away from, and Vicente explained that it was due to valuation and the fact that the business fell more into the adjacent category rather than their core offering. He also mentioned that with the acquisition of ILC, PST will now have a run rate of $1.7 billion, with $700 million being in the Life Science sector and the remaining $1 billion in Precision Tech.

The speaker, Vikram Kini, states that the margins of Precision Tech and Life Sciences are quite comparable, with no significant difference between the two. He also mentions that both are playing around the segment average profile. The operator then concludes the question-and-answer session and turns the call back over to Vicente Reynal for closing remarks. Reynal thanks the participants for their interest and the employees for their performance, and encourages everyone to continue executing well in the second half of the year. The operator then ends the call.

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