The paragraph is an introduction to the Ingersoll Rand Q3 2024 Earnings Call. The operator welcomes participants, notes that the call is being recorded, and introduces Matthew Fort, Vice President of Investor Relations. Matthew Fort then introduces key participants, Vicente Reynal, Chairman and CEO, and Vik Kini, Chief Financial Officer. He mentions the availability of the earnings release and presentation on the company's website, emphasizes the forward-looking nature of some statements, and explains the use of non-GAAP financial measures. The call will cover company and segment financial highlights and an update to 2024 guidance, with a Q&A session at the end. Vicente Reynal will begin the detailed presentation.

The paragraph outlines the company's strong quarterly performance driven by leveraging its competitive advantage, IRX, and highlights the contributions of its employees. The company achieved record orders, revenue, and significant financial growth despite challenging economic conditions. It remains committed to its long-term targets of double-digit earnings growth and strong cash flow. The paragraph also introduces the firm's growth initiatives, including four recent transactions expected to yield substantial returns. Notably, APSCO's acquisition enhances the company's market presence in fluid power systems, while Blutek expands its technology capabilities in high-growth sustainable markets such as biogas and carbon capture.

The paragraph highlights recent developments and achievements of a company in expanding its pump technology portfolio and its successful business acquisitions in 2024. It mentions the addition of new high-pressure pumps and positive displacement pumps to its offerings, with significant deals completed and more under letters of intent, particularly in the life sciences sector. The company has surpassed its revenue targets and remains active in acquisitions. The paragraph also discusses efforts to drive organic growth by utilizing data from digitally-connected assets to improve energy efficiency and uptime, leading to significant revenue opportunities. A recent company initiative involving 45 employees from multiple countries identified over 40 revenue-generating insights, potentially yielding $25 million in additional revenue.

In the presented update, the company highlights its strong financial performance in Q3 despite a challenging macroeconomic environment. Utilizing their IRX differentiator, they achieved a 10% increase in total orders and a 7% increase in total revenue, although organic revenue decreased by 2%. There were some order delays due to site readiness and approvals, but no cancellations were reported, and none are expected. The company improved its adjusted EBITDA by 15% year-over-year to $533 million, with a margin improvement to 28.6%. Adjusted earnings per share rose 9% to $0.84, and free cash flow was $374 million, reflecting a 20% margin. With $4 billion in total liquidity and $1.4 billion cash on hand, the company plans to continue focusing on its capital allocation strategy.

The paragraph reports on Ingersoll Rand's financial performance and strategic priorities in the third quarter. The company has 10 pending transactions under letters of intent (LOI) and is actively expanding its mergers and acquisitions (M&A) pipeline. Financial highlights include a 10% increase in orders, a 7% revenue rise, and a 15% growth in adjusted EBITDA compared to the previous year. The ITS segment's margin improved, while the PST segment's margin slightly decreased. Adjusted EPS increased by 9% to $0.84 per share, and free cash flow was $374 million. The company holds $4 billion in liquidity, facilitated by cash and its credit facility. Leverage increased due to the acquisition of ILC Dover. Capital deployment included M&A and shareholder returns. M&A remains the primary focus for cash use.

In the Industrial Technologies and Service segment, there was a 3% year-over-year revenue growth, building on a 19% increase from the previous year, with adjusted EBITDA margins hitting a record high of 30.7%. This growth was driven by gross margin expansion, with a book-to-bill ratio of 0.97x and organic orders up slightly. Compressor orders rose mid-single digits, with a focus on oil-free technology for sustainable markets. In the PST segment, there was 3% organic order growth and an adjusted EBITDA margin of 30%, supported by sequential order and revenue growth of 13% and 16% respectively and a book-to-bill ratio of 0.96x, showing strong demand generation efforts and stabilizing organic order growth.

In the quarter, ILC Dover showcased strong performance with biopharma revenue up significantly both sequentially and year-over-year. The company highlighted the use of its Dosatron pumps in emergency water systems, notably deployed in North Carolina after Hurricane Helene, and acknowledged the dedication of its Tampa-based team amid recent hurricanes. Additionally, the company reported an increase in marketing qualified leads and positive funnel activity for engineered-to-order compressor systems, signaling strong ongoing business growth.

The paragraph discusses updates to the company's financial guidance for the full year 2024. It highlights that the decision-making process remains elongated due to customer-side readiness issues and overlapping projects affecting engineering capacity. As a result, the company reduced its revenue growth expectation to 5% to 7%, down 100 basis points from the prior guidance, with a 200 basis point reduction for organic revenue due to delays in converting orders to shipments. Despite these challenges, there's optimism for 2025 due to positive Q3 order momentum and strong market activity. FX is expected to remain flat for the year, and M&A is projected to contribute $455 million. Corporate costs are estimated at $170 million. Adjusted EBITDA is forecasted to be between $2.01 billion and $2.04 billion, marking a 13% year-over-year increase at the midpoint, while adjusted EPS is projected between $3.28 and $3.34, a 12% increase year-over-year at the midpoint. The paragraph concludes with a note on a guidance bridge illustrating changes from prior guidance.

In the paragraph, Ingersoll Rand reports that their guidance on interest expenses, tax rate, CapEx spend, and free cash flow to adjusted net income conversion remains unchanged and consistent with previous guidance. The company is pleased with its performance amid challenging market conditions and anticipates achieving almost 10% organic growth CAGR over the past four years, doubling their target. Ingersoll Rand distinguishes itself by adding differentiated technologies, focusing on high-growth sustainable markets. They have acquired 15 companies year-to-date through M&A, with more acquisitions planned. The company expects significant EBITDA margin expansion, strong double-digit earnings growth, and solid free cash flow. Ingersoll Rand believes its durable model will continue delivering exceptional financial results. The paragraph concludes with the call opening for a Q&A session.

The paragraph discusses the current market trends affecting Ingersoll Rand, focusing on how marketing qualified leads (MQLs) are evolving. Vicente Reynal notes that while MQLs, which are key to generating demand and attracting new customers, are increasing, the conversion of these leads into orders is taking longer than usual. Historically, this process took six to eight weeks, but it has now become more extended due to market uncertainties, including potential election instability and customer readiness concerns. Despite these challenges, Reynal expresses optimism, highlighting that the interest from potential customers is genuine and focused on actual products.

The paragraph discusses the positive outlook and progress of customer activities and projects in the company's sales funnel. There have been no cancellations, and customer interest remains strong, with good closure rates observed. There's ongoing encouragement from long-cycle projects, though these take time due to complex processes with engineering contracting companies. The author notes active global engagement and positive signs from recent travels in the Middle East, despite the longer timelines for project realization. Overall, the company remains optimistic about future growth and performance. Mike Halloran questions whether this optimism indicates a return to normal growth patterns for the company next year.

In the paragraph, Vicente Reynal discusses the company's outlook on margin recovery, indicating that a gradual recovery is expected through 2025 rather than a V-shaped one. He mentions that their backlog grew year-over-year and sequentially in Q3, which is a positive indicator for 2025. They plan to provide more detailed guidance in the next earnings call. Julian Mitchell from Barclays asks about current demand trends, pointing out China's market challenges and inquiring if other regions are experiencing similar weaknesses. Reynal acknowledges that while orders and backlogs are strong, converting them into sales is currently slow, attributing the gradual recovery to the process industries' tendency to lag behind earlier cycle markets.

The paragraph discusses a recent visit by a team from Ingersoll Rand to China, where they engaged with customers despite the challenging market conditions. A large customer in China expressed positive sentiments about Ingersoll Rand's service-oriented initiatives and technology acquisitions, indicating enthusiasm about improving energy efficiency and operational capabilities. The customer appreciated the company's ownership mindset and care provided by its employees. They also noted a willingness to invest and expand operations outside China, including Africa. Overall, there are no significant negative trends in other regions, with business influenced mainly by shipment timing.

The paragraph discusses the company's expectation for gradual growth in its ITS business, despite current challenges in process industries and PMIs being in contraction territory. The company has managed to outperform these conditions, achieving double-digit organic growth last year, although this year is expected to be flat. The growth is anticipated to continue gradually without a V-shaped recovery. Additionally, there's a discussion about EBITDA margin rates, with a possible slight sequential decline in Q4 despite historical trends of sequential increases. The speaker acknowledges exceptional margin performance in Q3, attributing it to the teams' efforts.

The paragraph discusses the company's focus on gross margin expansion and recurring revenue, noting that two segments are expected to maintain EBITDA margins around 30% in Q4. Corporate costs are expected to normalize between $40 million and $45 million. The company plans to continue investing in growth and does not anticipate any margin reductions in 2025, aiming for normal margin expansion. They emphasize ongoing investments in innovation, demand generation, and commercial resources. The paragraph ends with a prompt from the operator for a question from Jeff Sprague of Vertical Research Partners regarding project delays and election uncertainty.

In the paragraph, Vicente Reynal discusses the impact of upcoming elections on their business, stating that while the election isn't the primary reason for delays in projects, it's mentioned more frequently as it approaches. He emphasizes that project delays are global, not just limited to the U.S., with factors like site readiness and EPC contributing to these delays. Despite the uncertainty surrounding the election, the company remains focused on controlling what they can. Jeff Sprague adds that the mix, particularly in terms of service, seems positive despite softer equipment sales.

In the paragraph, Vicente Reynal discusses the positive performance and growth momentum of their service sector, highlighting strong organic growth in various regions including the U.S., Europe, China, and India. He emphasizes the importance of recurring revenue and the team's efforts in providing service-oriented solutions desired by customers. In response to Robert Wertheimer's question about margin performance, Reynal mentions their focus on both growth and profitability, aiming for a balance that ensures quality earnings. They prioritize growing profitably rather than just expanding margins or growth alone.

The paragraph discusses the company's positive financial performance and strategic investments, despite market volatility. The speaker highlights substantial year-to-date growth, driven by effective gross margin activities and investment in recurring revenue streams and innovative technologies, particularly in China. There is optimism about continued margin expansion, particularly in the ITS segment, though growth may not match historical levels. However, there is a greater opportunity in the PST segment, aligning with the company's Investor Day targets to achieve mid-30s EBITDA margins. The integration of ILC Dover into the business is also mentioned as a factor in future growth. Andy Kaplowitz from Citigroup is introduced as the next questioner.

The paragraph involves a discussion between Andy Kaplowitz and Vicente Reynal about the acquisition landscape and growth prospects for 2025. Vicente confirms that 2025 appears promising for mergers and acquisitions, similar to 2024, particularly with bolt-on acquisitions like the ILC Dover deal, which expanded their addressable market significantly. They expect this positive momentum to continue. Andy also inquires about the PST segment's performance, noting improved order growth despite previous challenges with organic revenue. Vik Kini responds that they're seeing better order momentum and expect it to contribute positively to Q4 growth, though they refrain from providing detailed 2025 guidance.

The paragraph discusses the successful integration of acquisitions into the company's operations, highlighting positive outcomes in the biopharma and medical device component businesses. Vicente Reynal mentions ongoing growth investments in ILC Dover, focusing on demand generation, product innovation, and talent acquisition, to enhance business scaling. The business has been restructured into three distinct profit and loss units, each with its own general manager. Following this, Nigel Coe from Wolfe Research raises a query about the PST business's growth outlook for the fourth quarter, suggesting a return to growth and seeking clarity on the M&A contribution from ILC Dover. He also asks for clarification on the book-to-bill ratio, particularly regarding acquisitions.

In the paragraph, Vik Kini responds to Nigel Coe's inquiries about the company's performance, specifically in terms of growth expectations and contributions from mergers and acquisitions (M&A). Kini confirms that they expect a return to positive organic growth in Q4. He notes that M&A contributions in Q4 might be slightly lower than in Q3 but emphasizes that this doesn't indicate any significant market trend. The biopharma and medical device sectors are stable, while the space business can cause variations due to larger, platform-level contracts that lead to fluctuating order patterns and a lower book-to-bill ratio in Q3. However, Kini reassures that this is normal for the business and expects regular contract bookings in future quarters. Nigel Coe also confirms with Kini whether the full-year contribution from ILC is on track to meet the projected range of 215 to 220, to which Kini affirms.

In the paragraph, Joe Ritchie from Goldman Sachs asks Vicente Reynal for clarification on "site readiness" and concerns about the book-to-bill ratio potentially declining in the fourth quarter. Vicente explains that site readiness involves various logistical factors like permits and labor, essential for project commencement, especially in expansions or new developments. Regarding the book-to-bill ratio, Vicente notes they don't provide specific guidance on orders, but they expect the full-year ratio to average around 1%. Historically, the first half of the year sees ratios above 1, with the second half typically below 1, and this trend is expected to continue into the fourth quarter.

In the paragraph, Joe Ritchie and Vicente Reynal discuss the growth and future potential of the biopharma sector within their business. They highlight that biopharma has experienced a 20% growth, which is considered margin accretive, and there's potential for further growth in areas like radiopharma and theranostics. Reynal emphasizes their focus on high potency APIs, which are crucial for developing next-generation gene therapies and cancer treatments. Their business specializes in customized powder handling and containment processes, essential for producing these compounds. They express optimism about the sector's growth momentum and intend to concentrate on early drug development.

The discussion focuses on labor constraints impacting site readiness for projects, with a particular emphasis on skilled labor shortages in the U.S. and globally. Despite increasing employment, labor remains a constraint for project activities. Regarding China, there's acknowledgment that current stimuli haven't yet influenced the operating environment significantly, but future economic impact is anticipated, particularly through policies prioritizing energy-efficient upgrades and equipment conversions.

In this discussion, Vicente Reynal, addressing Joe O'Dea's question, explains how Ingersoll Rand engages in large, multiyear projects. He emphasizes that the company gets involved early, often working with subject matter experts on specialized technology. Typically, there is a timeline of 12 to 18 months between receiving an order and shipment, which can be about 12 months after construction begins. Overall, the process from initial groundwork to project completion can take up to two years, although this duration can vary.

The paragraph discusses the variability in project lead times, which can range from 12 to 18 months depending on customer readiness. Joe O'Dea questions the company about trends in PST (Product or Service Type), noting a sequential softening in organic growth from Q2 to Q3, but with expectations for improvement in Q4. Vik Kini responds, clarifying that there were no major weather-related disruptions and highlighting two consecutive quarters of positive year-over-year organic growth for PST. The company has overcome previous challenges related to the Ingersoll Rand Medical or life sciences sectors, although no significant recovery has been observed there yet. The industrial or book-and-ship segment is performing well and showing positive trends.

The paragraph discusses the impact of longer-cycle projects on the PST business and notes positive organic orders growth in recent quarters, with expectations for positive organic revenue growth in Q4. David Raso from Evercore ISI questions the organic order dynamics within the ITS segment, seeking clarity on contributions from different product lines amidst acquisitions and currency changes. Vik Kini responds by identifying Asia, particularly China, as a significant negative factor impacting organic figures, with little M&A influence. The power tools business also contributed to lower-than-average performance, affecting overall results.

The paragraph discusses regional performance trends in various markets, highlighting a stronger performance in the Americas compared to other regions. It notes that India and the Middle East have shown solid organic growth, while Western Europe has experienced mixed results. China has been a significant detractor, impacting the overall performance. The discussion also touches on the performance of product technologies, which tend to follow regional trends. David Raso questions the year-over-year organic orders excluding China, and Vik Kini indicates that excluding China, the growth could be in the low single-digit range. The paragraph closes with Andrew Buscaglia's question about incremental activity in water treatment, with Vicente Reynal affirming their strong presence in that market, mentioning the example of Dosatron.

The paragraph discusses the market leadership in technologies used for wastewater treatment facilities, specifically highlighting companies like [indiscernible], Milton Roy, and their involvement in aeration technologies. The company has focused on growth in wastewater treatment, including acquiring Everest in India, a leader in wastewater aeration, highlighting opportunities for growth, given that only 30% of India's water is treated. Then, Andrew Buscaglia inquires about future prospects for free cash flow in 2025, particularly in connection to delayed projects and other considerations. Vik Kini responds by emphasizing the focus on business growth and working capital as important factors in predicting future cash flows.

The paragraph discusses progress in transactional areas like accounts payable and highlights opportunities in inventory management and mergers and acquisitions (M&A). The M&A often involves smaller, privately held companies with less focus on working capital, presenting integration opportunities. Additionally, the speaker mentions optimizing cash interest and taxes to maintain free cash flow conversion. They are pleased with the team's performance, aiming to sustain 100% free cash flow conversion. Following this, a participant named Nathan Jones from Stifel asks questions regarding marketing qualified leads (MQLs) and their processing time through the funnel, particularly in relation to customer site readiness and engineering capacity, seeking insights on whether improvements require merely more time or other conditions.

The paragraph involves a discussion between Nathan Jones, Vicente Reynal, and Vik Kini about market dynamics and order forecasts. Reynal asserts that elongation in project timelines is primarily due to time factors, rather than interest rates or elections. The company has detailed intelligence on market projects, though they won't disclose specifics. Vik Kini explains that, based on current data, they anticipate low single-digit organic growth for orders, maintaining a stable book-to-bill ratio. Overall, the outlook for organic orders is positive.

The paragraph discusses the positive performance of the company's orders growth, with two consecutive quarters of year-over-year organic orders growth in PST and a return to positive organic growth in ITS during Q3. Despite a challenging macroeconomic environment, the company remains optimistic going into the fourth quarter due to a stable and healthy general market. Vicente Reynal thanks the teams for their efforts and results and looks forward to future engagements. The conference call ends with the operator's closing remarks.

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