Q3 2021 Ingersoll Rand Inc Earnings Call
Yes.
Hello markers to run third quarter 2021 earnings conference call. My name is Harry and I'll be your operator for today.
If you'd like to ask a question during the Q&A session. You may do so by pressing star followed by one on your telephone keypad.
I'll now hand, the call over to your host Chris Martin Vice President of Investor Relations. Chris. Please go ahead.
Thank you and welcome to the Ingersoll Rand 2021 third quarter earnings call I'm, Chris Meyer, Vice President of Investor Relations and joining me are <unk>, President and Chief Executive Officer, and Vic Kenny Chief Financial Officer.
We issued our earnings release and presentation yesterday, and we will reference these during the call.
They're available on the Investor Relations section of our website Www Dot I R. C O dot com.
In addition, a replay of this conference call will be available later today.
Before we start I want to remind everyone that certain statements on this call are forward looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call.
Please review the forward looking statements on slide two for more details.
In addition in todays remarks, we will refer to certain non-GAAP financial measures.
You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website.
On today's call, we will provide a company strategy update review, our company and segment financial highlights and offer updated 2021 guidance.
For today's Q&A session, we ask that each caller keep to one question and one follow up to allow time for other participants.
At this time I'll turn the call over to the center.
Thanks, Chris and good morning to everyone starting on slide three coming out of the third quarter Ingersoll Rand remains in a position of strength demonstrating again that is a purpose driven company we remain grounded in what we do and how we do it.
In the environment, we find ourselves in right now our agility, our nimbleness and using the I R eggs for speed to execution has proven to be our competitive advantage.
Of course global macroeconomic factors continued to be a challenge, we're not immune to demanding supply chain inflation and labor market conditions, but we continue to outperform when our commercial and operational commitments.
And we are again raising our guidance.
This outperformance is propelled by continued organic and inorganic investments into the organization.
And our comprehensive M&A focus capital allocation strategy is fueled by our drive to create long term value and compounding stockholder returns.
Moving to slide four we remain committed to our five strategic imperatives and will focus our remarks today on our growth and capital allocation strategies.
Before we move to those I have two important goals.
Our strategy to deploy talent across our organization is paying off well.
We just concluded our second employee engagement survey this year across all 16000 employees globally.
And I am extremely proud to share we had outstanding participation at 91%.
And several of our scores improved again.
Placing us well above the relevant manufacturing benchmarks in results and participation.
In fact, one responses to how happy are you working that Ingersoll Rand.
We now rank in the top 10% of manufacturing organization.
Well, we talk about outperforming because of our agility nimbleness and Iraq, it's because of our people. This is our culture.
We always say and continue to believe that the combination of a highly engaged workforce.
With an ownership mindset is a catalyst for long term performance.
The fact that our voluntary turnover is less than 3% even in these challenging environment also speaks highly of the cultural we're nurturing and how we inspire our employees.
I want to take a moment to acknowledge and thank the tremendous contributions of each and every one of our 16000 employees.
Without whom these results would not be possible.
Our operate sustainably strategic imperative also highlights the speed at which our company most.
In less than 18 months, we have been upgraded twice by MSCI and we sit now added rating of eight this.
This is an improvement from approximately the bottom one third to now being in the top one third of the Companys rated by MSCI.
And we believe based on our work we will continue to see our ratings improve with the various ESG rating providers.
Great strides have been made this year to accelerate growth and allocate capital effectively.
We have announced or deployed approximately $1 billion towards M&A.
In Q3, we completed both the <unk> and Maximus solutions acquisitions.
And announced air des mentions acquisition last week.
We also announced an agreement to acquire two drill pumps earlier this week.
We shared our comprehensive capital allocation strategy with you earlier in September.
Along with our focus on M&A, we completed a large share repurchase as part of KKR sale of their final equity stake in the company.
As well as the prepayment of the more expensive tranche of debt taken out last year during the onset of Covid.
And in addition, we initiated a quarterly dividend that began in Q4 and a new board authorized $750 million share repurchase program.
On the next slide is a partial preview of what's to come at our November 18th virtual Investor Day.
Well, we look forward to talking in more detail about the Mega trends, we and our customers are seeing are seeking to address and how ingersoll Rand products and services help make life better for all our stakeholders.
Our strategy enables us to compound our contribution to addressing the megatrends, such as digitalization and sustainability and quality of life through organic growth enablers, where we have specific advantages.
For example, we continued to leverage our own unique preparatory demand generation engine to drive a holistic approach to customer buying patterns.
One that has already captured over 3 million end user context and allows us to generate over 200000 marketing qualified leads per year.
We also continued to invest in our industrial Iot platform as we aim to connect or digitally enabled and meaningful portion of that 5 million assets that we have identified in the field.
Moving to slide six we're not unique in needing to effectively manage the challenges of the current supply chain environment.
However, our key differentiator is our ability to respond with agility and discipline through.
Through the use of Rx to quickly and effectively minimize negative impacts from challenging supply chain conditions.
I would like to especially thank our global sourcing and logistics team I think so Ryan.
As well as our factory buyers and planners for their tireless efforts and creative thinking using data back to an Olympics to overcome deliver it got.
We saw very early on that supply chain and logistics challenges, we're going to be an important issue. So we invested in this area to guarantee that we have rigorous processes and capabilities in place to succeed.
And this has produced outstanding results.
Moving to slide seven we will now look more closely at our recent inorganic achievements.
We signed definitive agreements to acquire two pumps, which is expected to close in Q4 and their dimensions, both of which will become part of the precision and science technology segment.
We also closed the precision of Lauren's factor, which will become part of industrial technologies and service segment.
These three acquisitions are representative of the key characteristics, we're targeting with our inorganic growth strategy.
Dunhill Palms is a second assay, we have purchased from <unk> Corporation is a leader in the gear and pissed on pumping market.
Which supports the expansion of our positive displacement pumps portfolio.
This is another example of a multi generation family owned company with premium assets that approached us on an exclusive basis because of the relationship that we have built and the opportunities. They saw for their company and employees as part of the Ingersoll Rand family.
This is another testament to how our unique approach to employee ownership allows us to be at the frontline in M&A.
Every dimension is the market leader in gas diaphragm pumps.
Which is complementary to our existing lab and life science businesses and is specialized for environmental applications like emission monitoring and biogas.
He has an impressive three synergy EBITA margins of over 50% and.
And more than 70% of its revenue comes from like for like replacement of original equipment and aftermarket parts.
We also closed the acquisition of Lawrence factor, which will reside in the Ics segment.
Lawrence factor is a great example of an acquisition that is well aligned with our company purpose of making life better.
As our technology and ensure a safe work and play activities for people, who depend on compressed air and gas.
Through the appropriate or you are sampling and aftermarket offerings.
All three of these acquisitions were value and an attractive purchase multiples on our synergy execution is expected to deliver mid single digit post synergy realization by year three in line with our disciplined pre deal screening process.
I will now turn the presentation over to Vic to provide an update on our Q3 financial performance.
Thanks for center moving to slide eight we continue to be pleased with the performance of the company in Q3, which saw strong balance of commercial and operational execution fueled by the use of Iraq's to overcome a challenging inflationary and supply chain constrained environment.
Our commitment to deliver $300 million in cost synergies attributable to the Ingersoll Rand Industrial segment acquisition remains intact as we continue to drive performance on productivity and synergy initiatives using <unk> as the catalyst.
Total company orders and revenue increased 37%, 19% year over year, respectively, driven by strong double digit organic orders growth across each segment.
Compared to 2019 as reported orders in Q3 were up 27% and 16% on a quarter to date and year to date basis, respectively, highlighting the strong performance of our business irrespective of the Covid impacted 2020.
Our orders and revenue in the quarter were records for the company eclipsing Q2, and setting us up well as we move into Q4.
The company delivered third quarter, adjusted EBITDA of $314 million, a year over year improvement of $62 million and adjusted EBITDA margins of 23, 7%, a 110 basis point improvement year over year.
Adjusted free cash flow for the quarter was $307 million after taking into account the unique items as pointed out on the slide.
Total liquidity of $3 $1 billion at quarter end was up approximately $1 $7 billion from prior year.
This now takes our net leverage to one three times a one two times improvement from prior year.
Turning to slide nine for the total company orders increased 33% and revenue increased 17% both on an FX adjusted basis.
Overall, we posted a strong book to bill of one <unk> for the quarter.
We remain encouraged by the strength of our backlog moving into Q4, which is up approximately 40% from the end of 2020.
The I T N S N P N S T segments, both saw year over year improvements in adjusted EBITDA.
EBITDA margin improved 150 basis points, while the PST segment margin declined 100 basis points, driven by the impact of the <unk> and Maximus solutions acquisitions, both of which closed in Q3.
When adjusted to exclude the impacts of the <unk> and Maximus acquisitions, PSC margins increased by 20 basis points.
Finally, corporate cost came in at $35 million for the quarter up year over year, primarily due to higher incentive compensation costs as well as targeted commercial growth investments in areas like demand generation.
We expect corporate cost to remain elevated at comparable levels in Q4 due to the same drivers.
One other item of note is the adjusted tax rate, which came in at 10% for the quarter and stands at 15% on a year to date basis.
The adjusted rate is benefiting from our tax restructuring efforts that we've outlined before them and specifically a few nonrecurring impacts driven by our movement of IP and implementation of a royalty structure as well as the utilization of carryforwards foreign tax credits.
As a result, we do expect the adjusted rate for the year to be in the mid teens, but as we look ahead to 2022, we would expect the rate to be back in the low 20 is due to the non repeat of some of these items.
Turning to slide 10 free cash flow for the quarter was $131 million on a continuing ops basis, driven by strong operational performance across the business and prudent working capital management.
Capex during the quarter totaled $15 million and free cash flow included $6 million of synergy and standup outflows related to the IR merger.
In addition, free cash flow also included $220 million in cash tax payments related to the capital gains realized due to the divestitures of the H P. S in SVT segments.
Finally free cash flow also included a 49 $49 million payment from Trane technologies for post closing adjustments related to the IR merger.
Excluding these three items adjusted free cash flow was $307 million.
Leverage for the quarter was one three times, which was up $1 two times improvement as compared to prior year.
Total company liquidity now stands at $3 $1 billion based on approximately $2 billion of cash.
And over $1 billion of availability on our revolving credit facility.
Liquidity decreased by $1 $6 billion in the quarter as we executed our capital allocation strategy by buying back $731 million in shares as part of KKR sale of their remaining equity stake.
Strategically deployed nearly $600 million to M&A.
And prepaid approximately $400 million in debt to remove the tranche of debt taken out during the onset of COVID-19, which carried a higher interest rate.
We maintain considerable balance sheet flexibility to continue our portfolio transformation strategy through M&A, coupled with targeted internal investments to drive sustainable organic growth.
I will now turn it back to the center to discuss the segments.
Thanks, Rick moving to slide 11 in our industrial technologies and service segment revenue was up 14%.
The team delivered strong adjusted EBITDA up 26% year over year, and an adjusted EBITDA margin of 25, 5%.
150 basis points year over year, with an incremental margin of 33%.
Organic orders were up 31%.
Starting with compressors, we saw orders up in the high 30%.
A further breakdown into oil free and oil lubricated products shows orders, where oil free up over 50%.
And all in lubricate it up over 30%.
In the Americas orders in North America were up mid twenties, while Latin America was up high Forty's.
Mainly mainline Europe delivered strong performance up high Forty's, while India and Middle East. So continued strong recovery with order rates up in excess of 70%.
Asia Pacific continues to perform well with orders up high thirties, driven by strong mid 50% growth in China and mid single digit decline across the rest of Asia Pacific.
In vacuum and blowers orders were up low thirty's on a global basis with strong double digit growth across each of our regions.
Moving next to power tools and lifting orders for the total business were up mid twenties and saw continued positive growth driven mainly by our enhanced e-commerce capabilities and improve execution on new product launches.
We will also like to highlight one of the many ways that we enable our customers to become more sustainable.
Are there already gas compressors are used to capture biogas immediate from landfills dairy farms and wastewater facilities.
As the gas is admitted this system captures that guy.
Clearly the methane from other gases, such as hydrogen sulfide and carbon dioxide and our Leroy product compressor and methane for reinjection into pipelines or storage for power generation.
Both of which enabled the customer to capture additional economic value.
The compressor enables to capture up to 50% of the immediate biogas, whereas without without it 100% of the guys will be released into the atmosphere.
Our significant installed base of 25000 units will help capture 240 million cubic feet of biogas in the next few years.
Technologies, such as these across our portfolio enable us to advance our ESG impact not only with the steps, we're taking internally to reduce our carbon footprint water and energy usage, but also create significant value for our customers from both sustainability and economic perspective.
Moving to slide 12.
The precision and science technology segment revenue was up 10% organically, which.
Which remains encouraging given the tough comps due to COVID-19 related orders and revenue in Q3 of 2020 for the medical business.
Additionally, the PSC team delivered strong adjusted EBITDA of $76 million, which was up 17%.
Adjusted EBITDA margin was 29, 7% down 100 basis points year over year, driven by the impact of setbacks and Maximo solutions and again. This segment was up 20 basis points, excluding the impact of those acquisitions.
Overall organic orders were up 25% driven by the Arrow and Milton Roy product lines, and the medical and those are true businesses, which serve lab life Sciences water and animal health end markets.
All of these businesses were up double digits in the quarter.
Incremental margins were up 25% as reported and 33% when excluding setbacks in microphones.
In this segment, we would like to highlight the momentum our high school hydrogen solution business continues to build two making lives better through a more sustainable world.
We have announced a long term agreement with hearing got refueling to supply high capacity hydrogen refueling stations for a nationwide green hydrogen network across New Zealand.
Julian Guy has placed the first order of four stations with a total commitment of 24 stations to be provided through 2026.
The totality of this frame agreement alone will double our high school hydrogen refueling business on a revenue basis.
We're incredibly excited excited about these partnerships.
And as we spoke about last quarter the investments, we're making to expand our technologies and manufacturing capabilities. In these high growth markets are producing meaningful growth.
Moving to slide 13, given the company's performance in Q3 and continued strong outlook, we're increasing guidance for 2021.
Our guidance excludes both the divested high pressure solutions and specialty vehicle technology segment as well as the pending acquisition of Tokyo pumps.
However, setbacks maximal solutions are dimensions and Lawrence factor are included in our guidance.
Our prior revenue guidance.
It was up mid teens on a reported basis comprised of low double digit organic growth across.
Both of our segments.
We're now guiding up high teens in total with low double digit growth organic growth across both segments.
This reflects an approximately 100 basis point increase in organic growth for the total company as compared to prior guidance.
FX is expected to continue to be low single digit tailwind M&A was previously expected to contribute approximately $60 million in revenue, but given the close acquisitions of Maximus setbacks are dimensions, and Lawrence factor, we're increasing that expect that contribution to a $135 million.
Based on these revenue assumptions, we are increasing 2021, adjusted EBITDA guidance to 1.1 dollars 75 billion to $1 $195 billion, which represents a $20 million improvement from prior guidance at the midpoint of the range.
In terms of cash generation, we expect adjusted free cash flow to adjusted net income conversion to remain greater than or equal to 100%.
Capex is expected to be approximately one 5% of revenues and finally, we expect our adjusted tax rate for the year to be in the mid teens for the reasons big provided earlier.
Yeah.
Turning to slide 14, we're very excited about our upcoming virtual Investor day, which is fast approaching and we will be held on November 18th.
Look forward to outlining our long term growth strategy fueled by our alignment with Mega trends and compounded by our unique organic growth enablers.
We will provide detail on our markets and technologies and further discuss how our strong talent operational execution demand generation and M&A capabilities, coupled with a sustainable growth mindset creates incredible competitive advantages for our company.
We will also outlined future financial targets.
You can register for the event using the link on slide 14, and I look forward to seeing many of you on the webcast.
Moving to slide 15, as we wrap up today's call I want to reiterate that Ingersoll Rand is an outstanding position.
2021 is poised to be a great year, despite the challenging environment to our employees I want to again say, thank you for your relentless efforts to execute and solve tough problems throughout the quarter.
They are absolutely I appreciate it and.
It is apparent in our company's performance.
We are actively investing to deliver outpace growth both organically and through M&A to continue increasing the quality of our portfolio.
We continue to take our role as a sustainability minded industry leader very serious and our employees eagerly embrace Iraq to puts us in that leadership position.
We're proud of the transformation, we have achieved at Ingersoll Rand and are excited about the future opportunity to compound growth and deliver increased value to all of our shareholders with that I will turn the call back to the operator and open for Q&A.
Thanks, very much if you would like to ask a question you may do so by pushing stuff into the one on your telephone keypad.
Our first question is from Mike Halloran from Baird.
Mark Your line is open minded if you'd like to proceed with your questions.
Hey, Thank you and good morning, everyone.
Good morning, Mike.
So, let's let's start on the guide and how you guys are thinking about the fourth quarter coming up your sales obviously you feel good about what the demand conditions look like.
Youre layering on some acquisitions here <unk> was a good quarter in terms of performance feels like maybe the margins on an organic basis or a little lower than what the sequential trend would imply.
So maybe some commentary on how you're thinking about that as you move into the fourth quarter and you know certainly correct me if I have I have the wrong assumption there.
Yeah, Mike So you know our guidance.
As you heard it's taking the midpoint of our prior guidance.
Oh by $20 million, you can think about it being two thirds M&A and one third is organic.
You know even in this current environment, we continue to be prudent based on all the overall supply chain environment.
Kind of noise when situations that you hear out there.
In addition, just to point out you know Ips margins in Q4, 2020, we're up 400 basis points, reaching 26% margins what our guidance here implies is that even with all the inflation discretionary spend increases in investments, we're gonna be kind of flattish margin expansion year over year, which speaks to all the grid.
Actions of the teams are continuing to execute and puts that segment too.
Very solid margin performance.
In this environment, we believe in PSD margins for the core business, which is kind of excluding the M&A.
We said is EBITDA accretive, but gross margin accretive and some of the accelerated.
Hydrogen investments that we're doing based on that framework that we just received the EBITDA margin profile is still is in the thirties kind of range, which we view as quite healthy given the tough comps from medical shipments in 2020, as well as the inflation and discretionary investments that we have going here in 2021 and still do go into doing that.
The fourth quarter. So we feel good about that and at the same time prudent in terms of how we see <unk> supply chain out there.
So if I'm hearing you right, you're not implying that the market headwinds accelerate for you on the margin line <unk> in terms of supply chain logistics labor and transportation expenses things like that.
Yeah, Mike I don't I wouldn't not no I think I think what I'm, saying is exactly in line with kind of how you're interpreting it clearly obviously a lot of those same headwinds persist into Q4, but like we've been doing we think we've kind of taken prudent pricing actions.
Remain in line with offsetting those those headwinds much like you saw in Q3.
I think in that respect, we see Q4 fairly comparable to Q3 in terms of price you know mitigating the inflationary risks.
Got you and then on the order side, obviously really strong orders good to see maybe some thoughts on what types of orders.
Great I appreciate gentlemen, thank you.
Thank you Mike.
Our next question is from Jerry which you from Goldman Sachs.
So you are going to be I can now if you'd like to proceed.
Oh, great. Thank you good morning, everyone.
Hey, Joe Orange.
Hey, so maybe maybe just staying with orders obviously, you know clearly incredibly strongest quarter I'm. Just curious are you starting to hear just more you know capex decision being made Vincent de where your customers are looking to deploy a little bit more capex in this environment, just given given the supply chain.
<unk> it has been fairly unprecedented in what we're experiencing today or is this is this predominantly still a lot of opex, that's that's coming through here.
Joe where we're definitely hearing a lot more on the cutbacks towards well when we hear about topics. It it really has to do with E Z and sustainability.
And and I think it's exciting to see that you know a lot of all the technologies I mean, the majority of our technologies are kind of enablers and beneficiary four G and and I think the exciting thing here is compressors can reduce energy consumption and you can see how energy has really radically increase across mainland Europe and even those with China.
So whether compressors blowers and vacuums, we have always spoken a lot about our energy efficiency and so I think customers are starting to make the move based on the targets will be set up himself to be by achieving by 2020 2030 in 2050. So I think a lot of these is really seem so.
Going to see a concern continued momentum in my view.
Got it that's that's helpful and I guess, maybe maybe if you could just kind of parse out that the pricing commentary a little bit more I'd be curious to hear like how positive the price cost equation was this quarter what the expectation is through the end of the year and then as we head into 2022.
Should we continue to see like pretty decent price cost benefit through coming through your numbers.
Yeah sure I'll take that one so.
In the context of Q3.
Price realisation was a little bit in excess of 3% across the entire enterprise.
Which obviously speaks to the to the to the healthy performance and frankly, the proactive measures that frankly, all of our business is taken pricing.
Pricing did slightly outweigh inflation in Q3, so we were price cost positive in the in the context of Q3.
We would expect to be fairly comparable that equation in queue for now it is worth, noting obviously that not unexpectedly inflation, obviously headwinds have have risen in the second half of the year compared to the first half we always expected that and that's why we kind of got it had a lot of the pricing actions.
So again I think we're quite pleased with the performance and the momentum that we're seeing.
As we think about 2022, I think frankly, a little bit too early to start guiding on numbers, just yet, but obviously, we would expect to see healthy carryover on the pricing actions. The I'd say the majority of the pricing actions that we have taken our our list price oriented. So obviously it should be inherently a little bit stickier.
But obviously, we do obviously have some some some some some carryover inflation that will begin with into 2022 as well so.
Whereas will reserve commentary just yet on the price cost equation into 2022, but I think we're quite encouraged by the actions of the team to taken to still say price cost positive in the context of the second half of this year.
Sounds good nice to have guys.
Great.
Our next question is from Nigel coming from will free shirts natural your lines open now if you'd like to proceed.
Thanks, Good good morning us.
I just wanted to check on the back of that question inflation, just how how do you define inflation.
You just look at the direct.
Because the materials or.
Labour on on a broad definition cause I'm afraid so that that'd be interesting to hear but just curious on.
Obviously, there was a strong can.
Could you maybe talk about where we are on the revenue synergy capture from the from the merger.
<unk> put together a much more balanced portfolio some some clear.
Synergies across the product. So just wondering if some of this order strength has seen some of those changes come through.
Yeah, I'll take the first one and I'll, let this anti speak to the second one on the revenue synergies on the the price causes specifically on the cough comments that I made.
The inflationary numbers that I was speaking to really are what we'll call direct material and and logistics or afraid.
Obviously, we all of course measure and look at what I'll call labor inflation the.
The reality is labor inflation has been frankly largely in line with our expectations. The majority of this year. So.
So again, while we do look at it the commentary that I made with specifically around price versus what we'll call direct material and logistics and I think one thing that we're quite pleased with in the Sunday mentioned adhere is quite frankly, yes, while while Labour is we're in the same labor environment that everyone else is we've been really pleased with our retention rates are very low voluntary turnover, which I think percentage.
Bumped into prepared comments speaks very highly of the the culture and a lot of the employee engagement and ownership initiatives that we've put forth.
Yeah, Andrew on the on the on the second question that run the orders in terms of revenue synergies coming from the from the transaction. Yes. We are definitely seeing some of that you're going to hear more on some of the case stories that we will show you during the Investor day.
But clearly we're very pleased with how our oil free compressor product line is moving.
How are treatment so a lot of good momentum that.
With a little of the products that we have lunch and.
Through the multichannel Multibrand strategy that we have on a global basis is really giving us some some good tailwind come about.
And secondly on the Investor Day, you said longer term targets. Just wondering are we looking here three of targets, but not 2022.
That's correct, we will be talking about will call.
2025.
Targets in the framework to think about and then we will formally guide 2022, when we do our next earnings call.
Great. Thank you guys.
Okay.
Our next question is from Jeff sprang from Cisco Research check your line is open now.
Thank you good morning, everyone, maybe just coming back one more on cost also.
I would've guessed actually you might need more than 3% price to offset inflation. So I'm. Just wondering if you know isn't that direct materials I would assume you are including.
You are kind of sourcing and merger related benefits.
Sure it gets harder and harder to kind of separate those with the passage of time, but maybe just update us where you're at on that and what role that's playing in helping you kind of battle the inflation here.
Yeah, just just to just to be clear and put a finer kind of final pointed to the the pricing.
The pricing number you're going to see in the queue. When it's issued tomorrow right around 343, 5% kind of net across the entire enterprise fairly comparable numbers between it and PST.
And the.
The context of what I was speaking to in terms of that covering inflationary headwinds were not incorporating what's call at any of the merger related synergies or anything of that into that equation, you're right. It does become a bit of a scorekeeping exercise, but we've been pretty disciplined and prudent to keep those buckets separate in terms of how we actually manage and run the organization so things like.
Some of the direct material productivity or some of the innovative value those are kind of separate and I will say as as we kind of said at the beginning of the call. We're still on track to deliver the the kind of the year two synergies as part of the merger, which was the 100 million dollar number that we committed to.
Oh, that's great to hear of Thanks, and then just on the on.
On the new M&A, you gave us the kind of total additional revenue contribution, but would you mind just taking through those three what the kind of annualized revenue of each one of those are.
Sure I can I can absolutely do that so in terms of the three acquisitions that we that we've kind of spoken to here, which are are dimensions, tuthill pumps and Lawrence factor air dimensions of it.
Is a low double did right around $10 million to $12 million in annualized revenue.
The tuthill pumps is in the mid twenties in terms of 25 is probably a good number to use and Lawrence factor is relatively small.
It's been a $6 million purchase price, which is actually very comparable to the revenue base mid single digits about $5 million, but very exciting technology on.
On air Sampley in an aftermarket offerings that we think we can leverage very highly within our portfolio.
Great appreciate it thanks for the color.
Our next question is from Judy and mature from Barclays. Julian Your line of Yucca now if you would like to proceed with your question.
Hi, Good morning, maybe just the morning, maybe just searching back on sort of aggregate.
Incremental margie in our operating leverage so it's running in the sort of mid twenties.
Why'd I think the back half of this year.
Understand the cost constraints and new acquisitions coming in affecting that but as you sort of look at.
Next year, how quickly I guess do we see the operating leverage sort of move back into the thirties. Do you think you think that something that can happen sort of.
Fairly quickly or it's just too early to tell.
Given these acquisitions had just come in and give them the coast environment is moving around quite quickly.
Yeah, I mean, I think that that the latter part of your statement is probably true I think obviously, we're working through our our views on 2022 and the kind of annual budgeting process. As you would expect right now so I think it's a little too early to call.
I think I think the view right now is the first half of 2022, obviously, we're still going to be facing some of them are the same dynamics. We're facing now with regards to some of the inflationary headwinds and obviously, we have the pricing momentum to continue to offset some of that if not all of that and then frankly, yes, we will be continuing to integrate a lot of those that.
Those those acquisitions, so I think given the carryover price as well as the continued inflation into 2022, and then frankly, the synergy expectations for the base business, because we shouldn't forget that we still have the kind of the third year of the merger related synergies and as well as the kind of integration ash on the acquired assets.
We would expect to continue to see that trend improve as we move through 2022 based on kind of what we can see now and get kind of more climate closer to Ed let's call. It that 30 ish percent type number that we've been seeing across the segments, if not a little bit healthier, but I'd say right now the specific timing exact cadence is something we are working through and I think we will give a bit more color as we do our.
Our next earning call in formal guidance for 2022.
Thank you and then just on the the capital deployment. So yes about a billion dollars of deployed sort of M&A funds. This year, maybe when you look sort of across those those acquisitions Uhm you can pull out one or two specific ones are more interested in maybe the total deployment.
What do you think the three O five year return.
Sort of metric should be on that billion dollars or so that you have deployed.
And if there's maybe one or two acquisitions in particular way you think the margin expansion should be above average now that they're all once the integrated into Ingersoll.
Yeah, I think that we we should definitely expect to see that kind of low double digit mid teen Roissy return.
On this transaction, we always have about as a financial criteria that we have in our deals were still finding.
Great transactions.
That are highly complimentary from technology commercial argument and all of that.
And still be able to provide a good financial outcome based on a lot of a post synergy activities that we can do.
And then any sort of Karlovic <unk> specific transactions that you think of above average sort of margin expansion scope.
Well I mean, one that I will say comes to mind right now for sure see pics right I mean, seatbacks when we acquire <unk>, we said that that was and kind of the the mid teens EBITDA, but that we see that business to be way like a segment level to PSP. So I mean that is a tremendous.
And expansion.
So on the idea is the recently recently signed transaction on two pumps.
When you think about the prior to the Hill I mean, it was a phenomenal margin expansion. So we still expect that to to see some good momentum on expanding that so.
I think really across the board and the board.
Out of these transactions, where you expect to see some good good meaningful expansion.
Clearly when you look at the maximum that is already acquired at.
PSD segment level more difficult than that.
And also air dimension that is in the fifties and more difficult to continue spending on that and those tend to be then focus more on the organic growth opportunities that we see as we look into our commercial global footprint to expand the growth there.
Great. Thank you.
Thank you.
And our next question is from Andy Caplets from our secret any your line is now open if you'd like to proceed.
Hey, good morning, guys.
And it.
And you said that you've really been pushing hard into some of these newer markets over the last couple of years in a lab life Sciences water animal health, which obviously, leading to that 35% order grill and 20% revenue growth and PST that you saw if we look back at Carter Denver's old medical business. It averaged I think something like mid single digit growth, but given the sort of niche focus.
P. S T in what seems like higher growth markets is it fair to say that pissed he could average higher than mid single digits as you go into 22 and beyond.
Oh, yes, absolutely.
We feel really compelling that I mean, I think as you said the old investments that were doing are paying off in terms of redirecting into this kind of a very niche markets and commanding some good strong leadership positions launching a load on the product you're going to hear a little more about that also on the investor Zahm, how the cadence of new product has just been accelerated dramatically.
Even during.
During the days the team.
Team accelerated than your kittens of product development, and and we're seeing that come through fruition here now and into next year.
Great and then maybe a little bit more color into what's going on regionally for you guys, particularly in China and it looks like you had really strong compressor growth in China and I know, it's one of your key initiatives for the combined company, but you know the rest of APEC orders were down a little bit and compressor. So maybe just.
About regionally, what's going on particularly in Asia.
Yeah.
<unk>.
I mean, I think we're incredibly pleased with how the team continues to execute.
And Asia Pacific and particularly China.
And you know.
What we saw quarter over quarter Q2, Q3, we saw actually the momentum orders really accelerated in China.
Which is kind of contradictory to some of the things that you hear out there.
In other in other companies so to speak to a lot of the self help initiatives at the team is doing we spoke about relaunching the garden of Denver, compressors, which obviously has proven to be a tremendous success into.
And that was something that we always said we were super excited about the combination of English running during November because we can have a multibrand multichannel strategy, particularly in China and and the team has just done a phenomenal job leveraging the I to be initiative and an action to then relaunch an entire product portfolio with garner Denver.
And the second piece is blowers and vacuums.
Mm backends was fairly small piece.
In China, and again I think the team is put in a lot of good dedication and localizing and really penetrating some will be a market that that we have seen are good in terms of applications in other regions. The rest of Asia Pacific I cannot maybe a split it between.
Emerging.
And to develop developing like Australia for example.
And that's still continue to perform fairly well.
Where we saw it might be a little bit of softness was on the emerging as maybe countries like Vietnam or Philippines will was created a lot of shutdown due to covet, but again, that's a fairly small.
Portion of our business.
Before China overcoming.
Some of that decline still drive meaningful growth in the quarter for Asia Pacific.
Very helpful. In the centre. Thank you.
Yeah. Thank you.
And our next question is from Rob Westermeyer from Minas Research, probably online is now she'd like to proceed.
Hi, Thank you.
Yeah, I'd love to hear if you have any more color on how our ex was applied to supply chi issues that may be rose and promise through the quarter unlucky.
Which the quarterly cadence upper or ultra.
Added to the process in any way and then maybe just the outflow of that we had a few unexpected cost surprises across industrialist. This quarter you guys avoid that entirely I'm curious if you think that the risk of unexpected surprises.
Kind of mail, because you've got a handle on it or whether it lasts another few months, whether you see you know more and more issues pop up that you have to deal with or whether it's stable just general outlook on splashing over the next couple of quarters. Thank you.
Yeah, absolutely real great great Great question Bear I mean, so I can tell you that.
That definitely things will continue to pop up and even though.
Clearly based on the results you can see how we have overcome it really speaks to a lot of the great work that everyone is doing and I will say great.
Great work supported by by I R X of the process and the tool that we use so so we have definitely leverage the IRS tool as you know, it's a very high cadence high touch mechanism that we used to just accelerate how we execute and reprioritized teams to the critical items and that has allowed us to create these massive agility nimbleness.
Even though even though obviously were.
Fairly large global company and allows us to really redirect the teams through the appropriate priorities that are happening out there. So for example, we leverage irag when when logistics wasn't may your issue and you could go say for example into a factory and you can see how I R X.
<unk>, we were leveraging to track the backlog of containers that we need to do to fulfil and acquire as an example, I mean as simple as that can be and now we're leveraging Dara X IRL to prioritize the suppliers in the commodities that we need to go after and again that daily weekly cadence of ensuring that the teams.
Continuing to see a good momentum on good perspective is really what's giving us the outcome, but usually here. So I think as we continue I mean, we think we leave in a very dynamic world that will continue to see some maybe challenges.
But that's why we have always said that Julian nimbleness, it's going to be a core competitive advantage follow through the use of <unk> as a tool to really execute as you've given though that great sense of comfort zone that the teams will be able to continue to perform well.
Alright, thank you.
Thanks for our next question is from Josh poor Kaczynski from Morgan Stanley Joshua line is network and if you'd like to proceed.
Hey, mom you guys.
Merger, just just a question on.
I guess the question on compressor orders.
Yeah, there's some some.
Virtuous cyclicality going on there but.
Any idea of where those stand on kind of a historical basis like are we at all time highs on compressor orders today, obviously, there's a lot of new pieces the portfolio and the combination and what do you think the market is done sort of relative to you guys because apparently.
There is a recovery going on but I I would imagine that when you're with some of the IRS towards your gaming a lot of share as well.
Yeah, Josh I think in terms of compressor orders were definitely way above 2019 levels and.
And.
No one could think that it could be at a record level, we haven't dawn and going backwards through with a combined company to really reassess visit record levels are not that we haven't done that.
I mean, we're just focusing on continuing to execute them take a pig mark solid market share. So I think in terms of against what we've seen the market.
Think we continued to position ourselves the premium provider of compressor.
Products, you see that we're focusing on not only in the growth, but also on the perfect ability. So we believe in profitable growth is one of our key drivers and enablers for us and and with a unique differentiation that we're launching in terms of technologies that reviews total cost of ownership and great energy reductions I think that is why.
His position is really well.
Two two.
To continue to take some share and continued to launch products that help with that I mean, when example, the team in Europe. The compare team just launch a new compressor.
Very large fairly sizable compressor that some radical new technology and it is one of the most efficient compressors of that size.
Power in the market today. So so a lot of continue innovation is really what is driving the momentum in my view and because we're able to deliver some differentiated value to the customers. Then we're able to continue to command that the price positioning that that we have in the market.
Got it it is helpful. I guess you know maybe just following up on that last comment on kind of the pricing power in the pricing devalue seems like steel could start to be coming down here can't help but notice.
The average Ingersoll Rand product, particularly in the portfolio has an awful lot of Ferris content in it if steel prices say got cut in half.
What sort of kind of course tailwind would would that be to you guys. Because I would imagine that you know pricing stays fairly sticky in that environment.
Yeah, great great Belinda Joshua definitely pricing various speaking.
And so as we look forward in commodities compared to get stabilized, yes, we should see that margin progression through even accelerate I mean, not only from the commodity but also as we continue to execute a lot of the ITV initiatives, though we're having a photo.
I think.
Overcoming the current market situation fairly well in my opinion of gifts again, thanks to the team and leveraging the tools that we have like I R X.
But as this current inflationary market continue subsides at some point in time in 2022, we shall see earnings power to accelerate.
Alright best of luck.
Okay.
Our next question is from Nicole to police from Deutsche Bank, Nicole Your line is not like.
Yeah. Thanks, good morning, guys.
Alright clinical.
So we've been through a lot here, but I guess I just have a few pretty brief plans first just a clarification I think you talked about back like 30% P. S. T margins in the fourth quarter, but that was organic is the drag from M&A expect it to be pretty similar to three Q I know you have some more deals clothing and and the fourth corner.
[noise] that's correct, yeah, just to be clear, that's that's 30% on I'll I'll call the base business.
Easily the overall because you are going to have a you have a full quarter now off the acquisitions primarily <unk>.
Which which which you only had.
One month off in in the queue three so.
The the overall margin profile for for PST, It will be dilutive obviously.
Up front here, you're thinking kind of more in the.
Upper twenties range you know.
That's probably a probably a decent properties so it'll be a little bit more dilutive than the impact you saw discreetly in Q3, just because of the the full quarter impact of <unk>, but the percentage point here. The good deals on <unk>. That's a gross margin accretive business. So obviously, there is meaningful synergy opportunity that admittedly you're going to see a star to execute on very shortly here into $2000.
Two onwards.
Got it thanks back and then secondly on the synergy profile. So I know that change to the 300 million dollar full run rate synergies, but are you guys still expecting to do about 50 million incremental in 2022, I'm just thinking about all the big puts and takes in the walk into next year.
Yeah, that's definitely a lot of puts and takes but Nicole at this point that's correct.
Just to kind of recalibrate you know $115 million was delivered in 2020, we expect $100 million. This year $50 million next year, and then the tail, which would be $35 million into 2023 at this point in time Nothing's really changed in terms of that phasing and clearly as we move into 2022 and onwards I'd say.
The and the footprint components of that equation are probably the more prominent drivers of the synergy profile moving forward.
Got it thanks Heck I'll pass it on.
Thanks for calling vehicle.
Our next question is from Marcus missionary from GPS Marcus Your line is now I can.
Yes, hi, good morning, everyone.
I wanted to.
Hello, Hey, Hi, good money pulled up on the first question if I may on compressor.
Place the orders and if I look at that particularly compared to your large European Cup pubic, they're quite impressive and this has been going on for cute few quarters <unk> I Wonder. If this product is channel is this <unk>.
Guys may be managing availability better I think if you could elaborate on that that would be great and then connected to that how much do.
Do you happen to the backlog obesity abuse massive ordering take numbers that could be some concern that some customs stuff pulled the boots law plus just wander the risk of stubble ordering how do you how do you jump steps.
Yes, Microsoft So in terms of the first question about the.
The compressor is orders I will tell you that is a little bit of everything I mean, it's definitely the product because again.
How we are leveraging the entire product portfolio.
Across multiple brands. It is also the channel and.
I think this is a great lead ques.
Question, Mark goods, we kind of go into the investors day, because we have capabilities actually that will will show you. How we have expanded our channel that really actually accelerated growth or <unk> or and also.
Reposition the product.
Really accelerated growth. So I think it has to do with a lot of the work that we have done.
Since the product summits, if you remember back in the I don't know about a year ago, we spoke a lot about <unk> and how the team. So it's just been very thoughtful way.
And then executed with the use of I R X two really reposition a lot of approach on the channel.
With Ah create any conflict and I think that has proven to be a pretty successful recipe.
Hello entity.
In some products has been actually quite good.
I saw the team is marketing for example in blowers that that we have one of the best lead times and how that is accelerating now even the momentum as they see here in the fourth quarter.
Do you have a question in terms of their disability a backlog.
Customers for compressor is because you have to.
Customize many times the options to the specific application, there's not a lot of preorder that can be the one on compressors, just because of the optionality and they receive your Lady that we have in the backlog in the compressor Israeli and the more larger compressor is a multi stage since difficult compressor that are kind of precision that is more long.
Cycle business and those when we're doing a contract with a customer.
We have a cough.
Caveat that we could actually pass or surcharge.
Any specific cost increases that we're seeing through the supply chain in this environment. So I think we feel that we're doing everything that we can protect ourselves in case that obviously inflation continues to stare at this level and commodities.
Do not go down, but I think we we feel good in terms of.
How we are protecting ourselves from the cost precision.
That's very helpful. Thank that in just a very brief pull up to about lost common so with a 40% increase backlog, which is probably related to those long with like in order to you could if you have to.
Re price.
The stand up right, though.
Mark is let me let me clarify here so the 40% increase in backlog is overall, it's told it's total so yeah some of the longer cycle projects and part of that sure but also some of it and a good portion of it is obviously just the normal course orders that we've taken for things that are.
Typically you know what I'll call shorter and a medium cycle type compressor is not the larger compressors.
In terms of in terms of the comment on whether you could reprice backlog, there's components like the longer cycle that you do have some of those optionality by and large though no I mean, most of the rest of the backlog is typically a couple of months in duration and you wouldn't expect to reprice that.
Clearly, it's inclusive of the pricing actions, we've already taken but not typical to reprice those types of backlog items.
One more point there I mean, we track pricing on bookings. So we know we haven't really great leading indicator on how that backlog is doing against that price increases that we have them.
Super Thank you.
Thank you.
And we have no further questions furniture, so behind the <unk> closing remarks since over to you.
Great I just want to say thank you for the interest in English around I know that many of our employees are participating in the call I also see that many of our employees from the new acquisitions are Nicole So I just want to say it one more time and welcome to those of you that are new exciting to have everyone on board exciting that how very thankful for everything that.
All of you are doing everyday to make life better for our customers.
Our employees our communities and obviously our shareholders so with that will leave it here for now and talk to you soon thank you.
Thank you to everyone who has joined US today. This concludes cool and you may now disconnect your lines.
Uh-huh.
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