Q2 2023 Ingersoll Rand Inc Earnings Call

Thank you for standing by my name is Kayla Baker and I will be your conference operator today.

At this time I would like to welcome everyone to the Ingersoll Rand Q2, 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press Star and one I would now like to turn the call over to Vice President of <unk>.

Better relations Matthew for it you may begin.

Thank you and welcome to the Ingersoll Rand 2023 second quarter earnings call I'm, Matthew for Vice President of Investor Relations and joining me. This morning are based on <unk>, Chairman and CEO and <unk> Chief Financial Officer, We issued our earnings release and presentation yesterday, and we will reference these during the call bolt.

They're available on the Investor Relations section of our website. 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, today's 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 review our company and segment financial highlights and provide an update to our 2023 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 will turn the call over to the center.

Thanks, Matthew and good morning to all I would like to begin by thanking and acknowledging all of our employees for their hard work in helping us to deliver another record quarter in Q2.

Our employees continue to deliver on our commitments despite the constantly changing macroeconomic environment and consistently exemplify our purpose.

Thinking and acting like owners.

I'd also like to welcome our new employees from our recent acquisitions together, we had a great opportunity to build upon our strong complementary brands products and capabilities.

Regarding customers and the industry with a broader spectrum of solutions.

Beginning on slide three fueled by our competitive differentiator IRA eggs in the second quarter, we delivered double digit growth in revenue adjusted EBITDA, adjusted EPS and free cash flow.

We recently published our 2022 is just going to be able to report, where we get again deliver industry leading results while remaining on track to meet our 2030 sustainability goals.

Finally based on our continued robust performance in Q2, we're once again, raising our 2023 full year guidance.

As we move to slide four our economic growth engine is the key to how we deliver compounded annual results.

During our last Investor day in Q4 of 2021, we presented this model and highlighted our organic inorganic and quality of earning growth enablers, we remain committed to our strategy and our long term investor day targets outlined in this page.

On the next two slides I will provide you with deeper insights into our organic initiatives, which are centered around product innovation and innovate to value also knowing that JV.

In addition, we will provide an update on our progress towards our inorganic growth.

Turning to slide five we start with our organic growth initiatives.

Here, we have some examples of how in China, we have leverage product localization as well as I do be to drive organic growth.

On the left hand side of the page we show how localization has created new product offerings and enabled channel expansion all with a focus on high growth sustainable end markets.

Cause at Gardner, Denver, and Ingersoll Rand merger, our blower and vacuum probe lines have grown organically at a 17% CAGR.

On the right hand side of the page we have an example of organic growth through the combination of recently acquired M&A in <unk>.

And as you can see in the pictures on the bottom right hand side of the page the Asia Pacific team conducted a turndown event with legacy products recently acquire M&A and competitive technologies.

The outcome of that turnaround event in the development of our new oil free screw vacuum pump.

This new product will expand our addressable market by over $350 million and we will go from development to launch in approximately six months.

Next on slide six M&A continues to be at the forefront of our capital allocation strategy.

We're thrilled to highlight our recently signed M&A deal roots.

These iconic roots, Brian is a leading provider of low pressure compression and vacuum technology.

Brian a synonymous with blowers in the same way the kleenex and mandates are recognized and consumer markets.

We're very excited to acquire these iconic brands, which had been in business for almost 200 years.

The acquisition also expands our capabilities in both low pressure technology and centrifugal technology and this technology is a critical component in the process of Green steel manufacturing.

Our M&A funnel remains strong.

And as of today it continues to be over five times larger than it was at the time of the R&D.

We currently have seven transactions at the LOI stage and more importantly, we have several other transactions in process.

We are closed to the LOI stage.

Based on acquisitions to date, the seven transactions under LOI at our current M&A funnel, we are reaffirming our commitment to an additional $200 million to $300 million in annualized inorganic revenue to be acquired in 2023.

On slide seven we recently released our 2020 due the sustainability report showcasing the commitment and result of our strategic imperatives lead sustainably.

We have made significant progress in establishing ourselves as a top quartile ESG company by leveraging our competitive differentiator I Rx to deliver results in a very short period of time.

In fact, we have received several industry, leading sustainability acknowledgment of our efforts.

<unk> being named to both the Dow Jones sustainability World Index, and the Dow Jones Sustainability North America Index.

Ingersoll Rand was ranked as the number one performer in the eye EQ machinery, and electrical equipment industry in North America and number four globally in 2022.

As of April of 'twenty, 'twenty, three Ingersoll Rand receive an ESG risk rating of low at 12 eight for morning stands just analytics.

We also receive an ESG rating improvement to them late in 2023 from MSCI and ranked as a leader among 47 companies in the industrial machinery category.

More important we're also leading the way in the social aspect of E Z with our employee ownership model.

We believe employee ownership creates economic opportunity for our employees and their families while driving increased employee engagement.

Term shareholder.

To that end, we have awarded approximately $275 million since 2017 in equity to our employees and plays that are not already on the management equity program.

This has increased to over $660 million in value as of June 32023.

We continue to offer our ownership awards program the grants equity to all employees after the one year anniversary.

Employees are critical element of our business and making life better for them the games with the opportunity.

Through their engagement and commitment we are on track to meet our 2030 sustainability objectives.

I'll turn now the presentation over to Vic to provide an update on our Q2 financial performance.

Thank you Sanjay.

On slide eight fueled by Rx, we again delivered solid results in Q2 through a balance of commercial and operational execution.

Total company organic orders and revenue increased 5% and 12% year over year, respectively.

Book to Bill was 1.03.

The backlog is approximately 45% higher than it was at the end of 2021, which gives us good visibility and momentum as we move into the back half of 2023 and start to look into 2024.

The company delivered second quarter, adjusted EBITDA of $425 million or 27% year over year improvement in adjusted EBITDA margins of 25, 2%, a 190 basis point year over year improvement.

For the quarter adjusted diluted earnings per share was <unk> 68 up 25% versus the prior year.

Free cash flow for the quarter was $204 million, despite ongoing headwinds from inventory due to the need to support backlog as well as continued global supply chain challenges.

Even with these headwinds free cash flow was up 24% versus prior year.

Total liquidity of $3 $2 billion at quarter end was up approximately $1 billion sequentially.

This increase was driven in large part due to the recently amended extended and Upsized, our revolving facility, which took place in early Q2 of this year.

Our net leverage continues to remain near all time lows.

1.0 turns we are 0.1 turns better than both the prior year and prior quarter.

Finally, I'd like to highlight an example of the power of our ownership mindset and the effectiveness of our competitive differentiator I Rx.

Due to the team's resiliency and overcoming the cyber security incident.

Q2 revenue and adjusted EBITDA risks associated with the incident was mitigated within the quarter.

This is no small task and I would like to thank all of our employees that were involved in helping to overcome this impediment, enabling us to deliver tremendous results in Q2.

Turning to slide nine for the total company Q2 orders grew 10% and revenue increased 18% both on an FX adjusted basis.

Total company adjusted EBITDA increased 27% from the prior year.

The Ats segment margin increased 200 basis points, while our PST segment margin improved 240 basis points.

Notably both segments remained price cost dollar and margin positive, which speaks of the nimble actions of our teams despite persistent inflationary headwinds.

Corporate costs came in at approximately $43 million for the quarter driven by continued investments to support growth in areas like demand generation and Iot as well as the impact of incentive compensation adjustments.

Total company liquidity was $3 $2 billion based on approximately $1 $2 billion of cash and $2 billion of availability on our revolving credit facility.

Cash outflows for the quarter included $49 million deployed to M&A, and we returned $64 million to shareholders through $56 million in share repurchases and $8 million in dividends.

M&A remains our top priority for our capital allocation and we continue to expect M&A to be our primary usage of cash for the foreseeable future.

We continue to have an active and healthy funnel of inorganic growth opportunities.

This funnel consist primarily of bolt on M&A relatively similar in size scope and nature to the assets we have acquired over the past two to three years.

I will now turn the call back to the center to discuss our segment results.

Thanks, Vic on Slide 11, our industrial technologies and service segment delivered strong year over year organic revenue growth of 14%.

With volume growth slightly outpacing pricing.

Give me a the man cause you have to be above market with orders of high single digits.

The Asia Pacific team continues to deliver a great performance with older growth in the mid teens driven by continuous solid execution from our team in China.

So <unk> up in the low twenties.

Today, we showed on slide five an example of how the team in China continues to outperform the market conditions with our own self help initiatives.

Vacuum up Laura orders were up meeting.

[noise] region, so positive orders with good strength from Europe .

Ordered into power tool and lifting business was low single digits.

Moving now to the innovation of next Gen portion of his life or illustrating on oil free hydrogen compressor recently launched enemy out.

This product is a perfect example of how we compare to focus our portfolio on high growth sustainable and markets with region for region in manufacturing.

Amy a team collaborated with a cleaner energy take startup in the Netherlands to develop and build a system for our innovative hydrogen process.

And the first you wanted was shipped in July .

Four P. I think innovation inaction, we're highlighting our new prey stomach pumped technology that is used for water treatment industrial and life Sciences market.

This product innovative design provides a robust alternative for chemical dosing and transfer applications.

The products are Iot ready and complement our already strong portfolio of products for water treatment and chemical applications.

Offering customers, you'll donated to choose the best technology for each application.

Leveraging technology across both I'll been pump and LMI brands, we continue to execute our multibrand multi channel strategy, while expanding our addressable market by over $250 million.

Moving to slide 13 give.

Given the solid performance in the first half and continued momentum from backlog, where gained racing or 22 and three guidance.

As you May recall doing Q on earnings we got it in anticipated impact of approximately $20 million of adjusted EBITDA moving out of cute to adding to the back half of the year due to the cyber security incident that we experienced in late April .

They mentioned earlier this risk was mitigated within the quarter Ah no significant revenue or adjusted EBITDA is now expected to have been pushed into the backpack.

We have included some additional commentary on the bottom right hand side of the page outlining the increase in full year guidance incorporate into impact from the queue to outperformance and the improvement in organic growth expectations in the second half of the year.

For the full year with little company revenue is expected to grow overall between 12% and 14 per cent, which is at 200 basis point improvement versus our previous guidance.

We anticipate organic growth of eight to 10 per cent were price on volume is split approximately 60 40.

FX is now expect it to be a slight headwind however, approximately flat on a full year basis.

Revenue from M&A has increased $30 million to approximately $300 million do.

These increase reflects the impact from all completed and clothes M&A transactions as of August 1st of 2023.

Corporate caused our plan at $165 million and will be incur a relatively evenly per quarter throughout the year.

Total adjusted EBITDA for the companies expect it to be in the range of 1.69 billion, a 1.74 billion, which is up 2% versus probably got them and up 7% versus our initial guidance.

At the bottom of the table just the G. P. S is predicted to be within the range of $2.70 and $2.80, which is 17% a year at the midpoint.

No changes have been made to our guide if somebody had just a tax rate total interest expense or capex spending as a percentage of revenue all.

All remain in line with both initial priority items.

Turning out to his life routine as we were up today's call I want to reiterate that info run remain Siemens Trump position we.

We continue to leave her record results and are updated guidance is reflective of our queue to performance an ongoing battle of momentum.

Re remain nimble we continue to monitor the day 90 market conditions and we're prepared for the challenges that may come.

Two employees I want to thank you for an excellent first half of the year. Please.

These results show the impact that each of you have as owners of the company.

Thank you for your continued hard work resiliency and full connection.

As we continue our track record of market outperformance, our balance sheet is astral has ever and with our discipline and comprehensive capital allocation strategy, we remain resilient and have the capacity to deploy capital to invest with the highest return.

With that I'll turn the call back to the operator and open the Cola for Q&A.

And at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

Our first question comes from the line as Michael Holleran was there to your line is open.

Yeah. Good morning, gentlemen, good morning migraine.

So we.

We just talked about her.

The underlying trend you sort through the quarter.

No maybe any sequential commentary and a focus on where you saw any changes positively or negatively or is the demand environment essentially keeton seeing how you would have expected Marines.

Lying level.

Yeah, I'll say, Mike we we saw the sequential sequential kittens in the quarter very comparable to what we always see which is typically.

Lower on month, one and kind of stars ramping up through the quarter.

And we saw that happening pretty well, so nothing but we will call anything different auto color or which obviously continues to show that there's good cadence Ah momentum and that you know more important for us to as well as the leading indicators and particularly as we always talk about the <unk>.

Those marketing qualify leads we generated with our demand generation engine.

And that continues to see a good good sustainable pays momentum across the front lines, which is encouraging to see.

And and the P. S T side, but those are the orders in context, a little bit I certainly understand.

And your tech side, and and some of the largest larger projects orders not repeating.

But it sounds like things are healthy when you exclude him those two pieces and maybe a little bit of help and how you expect the order trends to detract from here and and you know recovery curves and some of those some of those markets.

Yeah sure Mike I mean, I think you said it very well I mean, I think what we what we continue to see that we get excited about the book and term business remains pretty strong in the business, which you could call. It a short cycled side of the business.

And then you know what we saw here in the corner of the joke.

And then as we think about the the segments Ips for example, Ips is expected to grow revenue still a low double digit including the impact of M&A and M. As a reminder, I mean think about that tough comp where do three of those year. We grew with 19% organically. So that's kind of what are we talking about those dotcoms, but we still see a good line of sight to buy 100 basis.

Going to the margin expansion and ideas M. P. S. D expect it to grow them in single digits and as a reminder, that's on top of 20 per cent growth in Q3 of 2022 Ah Ah more just to be expected back again into that 30 per cent level, Oh baby, though.

That's very helpful. Thank you and then.

Just secondly.

You know when you're thinking about the sort of some white orders and backlog trajectory from here across those businesses are we thinking sort of orders a flattish organically year on you and the bad cough and then the sort of backlog you know maybe starts to drift down a bit <unk>.

Surely just as those lead time, shorten and and so it's sort of customers can adjust that or there's a little bit.

Yeah, I'd say you know Julia Yeah may not very clearly, we don't specifically guide in order to but but again as a reminder to three per year is probably one of the tougher comps four orders.

As I recall acute three last year was roughly 14% organic.

Order growth momentum so very solid in terms of the backlog I'll say you know, we do anticipate backlog to drift down a little bit on there that are in the back half as we mentioned in the past I mean, the normal cadence four orders is typically a book to build greater than one in the first half the two larger or longer projects and broken in the first half a house.

Being I'm looking at a second happy and kind of live them on one due to those larger orders kind of getting shipped most predominantly in the fourth quarter.

You know, having said that as a reminder, I think the past nine quarters out of 10 quarters, We had a book to build of greater than one so which obviously speaks again to the to the to the comps that we're seeing here but.

That makes sense, thanks very much thank.

Thank you.

And your next question comes from the line, Jeff sprang with vertical research. Your line is open.

Hey, good morning, everyone wants a.

Good morning, thank the subject.

But with a little bit more you know when you were talking about demand and Ikea. Some professors in particular, you know you noted reassuring in N E. S. G. I guess on E. S. You said, you're wanting to kind of energy efficiency sort of investments and retrofit but.

Isn't that the case and be can you just elaborate a little bit on what you're seeing in those two buckets.

Yeah I guess.

They can only you saw that Ah oil oil frequent presser outpacing the growth and that was kind of high twenties, a momentum that we saw on the on the oil free so very very exciting to see that one of the core strategies that that we launched a continues to actually see some fruit and growth.

In terms of <unk>, Yeah, I mean, we continue to see that these energy savings Ah again based on the return on investment that we have conversations with customers at Philly's restaurant, they didn't quite well and and so that that momentum continues are are you know a few earnings ago. We spoke about the air audits that we're doing with <unk>.

To do that you know.

Faster clip than than ever before and that's really driving a lot of good Ah leading Ah data points for us as we see kind of moving forward and from a reassuring yeah. It's kinda, whether whether you think about reassuring companies expanding capacity or reallocating their supply chains more locally like I talked about also.

Nearshoring, because clearly Mexico, we're seeing a lot of expansion through as well and we have a very strong team as well in Mexico, there that Israeli capturing some good good momentum too as well, but this this these restarting is happening here in the U S. We see it that's why we opened reopened Buffalo at the time, but we also see it in India and we see it in China as well so.

We see a good momentum of companies really investing in the core technologies any particularly here the the compressor systems.

And and maybe you could give us a little color on service to Sunday.

Would imagine of our customers are going through the.

Process that creates quite an opportunity for service and stickier service detachment on the back and where are you at now on services per cent of revenues and and how is that growing.

Absolutely Ah Ah Ah, Germany, and I'm, particularly you know the statistics that we that we said before it is at roughly.

These are audience.

We see kind of 70, 30, 70% leading to new equipment, but 30 per cent, leading to actually incremental service revenue.

And and you know we've seen good momentum in terms of we spoke a lot about care in the package care solutions. The team in North America continues to really accelerate that and we're seeing now better momentum as well in our team in Europe and also Anthemion Asia. So yeah. This continues to be very front and center in our straw.

Something I think you've touched on China, APAC orders and presses a mid teens I think thats comping mid teens, and so I know you called out and kind of like a job. The team has done there is is there any particular.

And market strength in China, that's adding that I think we've seen trying to be a drag elsewhere and industrials and then just in general unless you can expand on the market position, they're in the broader effort should do it. Thank you.

I think you know there's definitely something in larkins at strategically where we're going after more pronounced than others, because we're seeing the growth and those you can think about electric vehicles battery productions, lithium mining and things like that but a lot of that.

You are very well fed up too as well like it kind of continues to change and markets and I think the ability for us to people that from one end market that has seen some growth to the other and market. There is starting to see this burst of growth that is what I think is very core to what the team very minimally is doing in addition to that you know I think what's exciting is the the.

The the combination of the garner Denver, and Ingersoll Rand company, where the team in China is leveraging a lot of the kind of call. It legacy Garner Denver products or blowers, and the vacuums to really accelerate growth and that you know as you saw on July five how we see these organic revenue jgr up 17% Ah on this kind of Corp.

Product line in technology, So as I say, yeah. The team is firing on all cylinders. This morning, as I was driving and I was actually chatting with our our leaders in China. He is actually was actually he.

He was with the team at our innovations enter in China, and ER doing doing a review of their new product technologies and he was leaving Super inspire unexcited. So again, it's just a good team performance and are very happy with how the team continues to navigate these talk environment in China.

Excellent. Thank you.

[noise] and the next question comes from the line of Anticapitalist switch Citigroup. Your line is open.

You can wanting everyone brandy.

Could you give us a little more color into the dynamics of your compressors, where their strength in the sense that I think historically, you've had 20 per cent long cycle versus you know 80 per cent you. It cycles. The lung Cinco business currently I'm, a stronger than short cycle and one in and markets. If you could give us some details are driving the most girls right now.

Yeah, I'd say I mean, I would say maybe not a dramatic change I mean, maybe instead of being 80 20, it could it be 70 30 potentially.

Yes.

But not not in such a dramatic kind of what kind of what kind of way. So so what's a good good momentum on on on the long and the short I think what we're very happy with the performance of the oil free you know on free, which which tends to be a higher level of technology Ah more difficult for others to to kind of.

Penetrates, though we still see these as a named market and a and a product line that we see continued momentum for for for for growth. As we are continuing to to you know take more chair in a good way.

It's helpful and then it looks like it's just a tweak but I think you actually lowered your incremental margin before of course of the year to 35% versus 35 to 40 per cent previously despite you, beating merging Q2 and I would imagine place Christmas concert anything is getting better in the second half versus the first down so could you give us some more color into what you're seeing there.

But one that we're very excited about for the future. So again when you put those two in perspective, that's probably the the meaningful portion there and you know as we've always said, we're going to continue to invest in the business and I mean, that's the center said, whether it be Ah in Asia, or you know anywhere else around the world, where we're going to continue to invest in growth resources to drive outperformance from an organic growth person.

Effective as we look for it. So you know I think that's the way we kind of look at it in totality, but again nothing in terms of a meaningful change in our opinion from kind of where we've been operating or prior guidance.

I appreciate it because.

Angel.

And your next question comes on the line and I come home with Wolf Research. Your line is open.

Oh good morning, good morning.

Thanks, Thanks for the question.

Just wanted to maybe just take a different crank-up. The second half Martin question. I think you you you you talked about three Q look and look to keep which makes sense that feels like the guy doesn't embed much of a kick up in full cue and nobody fool huh.

You know substantially higher on voting. So just wondering you know what would you what are you expecting fool Fool Q Amendment My Mouth's Room's next please correct me, but it does feel like we we don't have much of a seasonal uplift and pool cue.

Sure Yeah. So now that I think the way you have described to Q3 is correct. You know if you think about I T. S. You know as I sent the earliest that I think I T. S will look fairly comparable too cute too now that being said that still would embed a nice margin expansion on a year over year basis, and we would expect on.

P. S T side for margins to kind of get back to that 30 per cent level, specifically Ah in Q3 now on the queue forced out of the equation you know whether you're looking from a total company perspective or the individual components I think it's actually going to be fairly comparable that you've seen historically you know seasonally is the strongest quarter and the year. That's no different so you will see a slight season.

Uptick from Keith Q4, but there is you know incremental margin expansion and included in the queue for God I would say, it's not dramatically different than our prior guide in that respect and you know the one thing that probably note here is we look and you know we got it from the questions about it you know earlier in terms of the cadence kind of like what you said before we're still I think continue to remain prudent.

On you know the back have expectations for the queue for on the volume side and I think we would still acknowledge that is probably the single source of potential upside to the guide as we sit here thinking specifically about organic volume in Q4.

Okay. Okay. So that's that's the and then you know vacuum digging into the weeds, but here, but the the vacuum trends remain you know pretty strong.

You know, there's no compressor, but I think a couple of cocoanuts, but a weakness in industrial vacuum not not just send me the little said a little bit of weakness in industrial.

And ER you know, you'll obviously not seen that so have you seen any signs of weakness developing and any any of you in markets and is there a reason why vacuum uncompressed with decoupled, just just curious though.

Yeah, and I shall I will say that you know the industrial vacuum is kind of what we call a rough vacuum when you look at the total market segmentation of that.

And I will say that we have more bigger spectrum of technologies, you know, whether it's crew vacuum you know a votary rotary vein liquid ring. So we will say that we have not only great technology, but also good brands in terms of what we're seeing in the market say stability from from from.

What we're seeing you could argue that sometimes the industrial vacuum place slightly different the way the industrial compressors will play Ah So industrial vacuum many times, we'll play and chemical processes or petrol came and things like that things of that nature, but but in our view, we're very happy I'm very pleased with what the team again.

To do from a self-help initiative here on driving new technologies I mean, we spoke about some of the technology again, not only on that slide five on what China is doing but now there's also a new technology as the other team in Europe are lunch into as well to start capturing the even more sure. So I'll say that are very very pleased with the performance of the payments right wing.

And that's gonna become a Thanksgiving.

[noise] and the next question comes from the lineup Joe Ritchie with Goldman Sachs. Your line is open.

Hey, good morning, guys.

He just maybe a song along Ah you know Nigel questions around.

Sense of weakness I know that you're you're seeing you know really good order trends across their businesses, but I.

There's a real focus right now.

[noise] you know companies that are Cid, stopping and prosper channels and so maybe just send you a shorter cycle businesses just meat.

Talk to US about you know whether you see any kind of risk any pieces of your business today on on from a channel perspective.

Yeah, I'll say you know maybe I'll start with the the two big book is obviously Ips on PSP.

The idea aside a load of a product actually then my euros via the product we have and the idea is is really customize those specific applications Ah. So it's very difficult to kind of all at least on our technology.

Really have stock of those compressors and the shelves are is based basically high working capital for the distribution channel Ah network that we have so so we don't see much of that at the same time, you know we had a very loyal channel and we have access and visibility to what level of inventory they have.

On the best decide if they will be the one that maybe plays a little bit more on what we call the national distribution.

I shall industrial distribution list, particularly in the U S here and on those we track very.

On a monthly kittens saline and say aloud. So we haven't is humility, how much we're sailing through these channel and how much of that generally selling out.

So at least we get disability with the level of of inventory that is somewhat available in the shelf and whether it is getting destocking or or overstock, and we're always proacting, they're trying to prevent the overstocking Ah. It's the situation that we just don't like to be entangled with so so I think we say.

I think we've been fairly proactive from that perspective to making sure that we're watching those trains carefully nothing of material of note that we're seeing in terms of major destocking Ah, but again it has to do because there was not a lot of overstocking Ah as well so.

That helps but that's maybe a little bit of color there.

No. That's that's that's great I figured as much but but that had to ask the question, but that's helpful colored, but that day and and I guess the the following question really kind of wanted to maybe dig into this opportunity.

Well free hydrogen compressor opportunity, yeah, maybe talk a little bit more about what the opportunity is there then specifically you know what what the applications are today.

Yeah, I mean, I'll say this is a very very exciting opportunity and one that you know these are we have now an engineer engineering center inside in our facility in India, where we're now consider it to be one of the only India companies any of the other has the capability of actually testing a hydrogen compress.

Systems and hygiene is gonna be we think good growth Victor in the market in India. So we're happy to be the first and we're happy to be the ones with the largest a lab and technology Center in India. At this point in time, which is reason why on the prior earnings call. We spoke about the expansion that we're doing.

In terms of market sightseeing I mean, I think I would say, it's still early stages from the perspective, we don't want [laughter] with numbers that I mean, obviously, if you kind of trust what market dynamics.

Dynamics are saying these are kind of a huge market Ah, but we're not we're not going to sites in here on these calls I think on the investor. They will definitely give you a little bit more cola on this one but again. This is one super exciting opportunity that you know technology that the team in India was able to develop and actually work Ah pretty closely with a with a with a with a company.

In in Europe to develop something really unique and in these cases, we weren't the only company that could achieve the performance requirement that that it was required by this technology company. So again it speaks volumes to the investment that we continue to make in R&D and continue investments that we're making in technologies that that we think will play well for us in the future.

Awesome, Thanks, guys yeah.

And your next question comes from the line of Chriss Snyder would you be asking your line is open.

Oh. Thank you so cute too really soon strange across all all three Geography's and then I understand that comps are obviously getting a good deal tougher and into the back half of the year in price contribution is easing, but when you look at these three geography is there.

Any one or any place where you see demand softening on the leading edge.

I mean, I think Chris.

No that are <unk> are demonstrating are showing.

Where are we even as we look at your into the amount of early days in July .

The the there continues to be that sustained momentum, but then we were seen in the in the second quarter from a <unk> perspective, so nothing that that we will highlight of specifically and market or or maybe she said regional view that has seen a dramatic.

Klein again, I think it's tough confidence we're going through the third quarter I think if I remember the idea is America themes, I mean really hefty a double digit like close to 30 per cent growth in orders Q3 of US here. So I mean, those are difficult comps that we talk about but having said that I mean I think.

When you think about it in perspective, we have been posting a double digit revenue organic rules for like nine out of 10 quarters Ah. So that's kind of what we're talking about popcorn cause what he ended up being continues to perform a executing and control what they can control it.

Yeah, No I appreciate that obviously with constant trying to sometimes separate like demand from road. So appreciate appreciate all that color then I guess kind of following up on the you know in private quarters, you guys talked about basically flat backlog year on year year, you know build and the person that burn in the backyard.

I know and I know, that's still generally the trajectory but.

Do you still look snuck not to add any backlog throughout the year, even even if we no burn a little off.

Like the main cause you're running a little bit better than expected for six months ago. Thank you.

Yeah, I I of course I think.

Right now our expectations fairly consistent with what we've kind of message before and you're absolutely right. When he came into the air we did expect backlog to be you know a largely flat as we look towards the end of the year, but we didn't explicitly say that book to bill above one in the first half build backlog and then you'd see that kind of drift down I think it's a Sunday I mentioned earlier in the second half of the year and that's very consistent with I'd say.

Typical cadence are typical seasonality and you know based on what we're seeing now given the level of backlog, but also kind of the the expectations from her seat in the second half of the year I don't think anything's changed in that respect to the point that was set before I do think there continues to be an opportunity on the organic volume side, particularly probably more in the queue for side of the equation maybe is the upside the guide.

But in terms of backlog being flat ear and you know at the end of the year compared to where we started I think that's still a a fairly good fairly good expectation at this point in time.

Thank you I appreciate that mhm.

And your next question comes from the line of Joe Oh, Diane with Wells Fargo. Your line is open.

Hi, good morning, Thanks for taking my questions.

Hi, So so first just just just another one on on Backcast, but the the the price and volume dynamic within organic it seems like the way the back half a set up between the quarters. We're looking at a pretty similar organic growth three Q in Fork you just curious in terms of kind of pricing comps.

And you know if if what we're thinking about at this point is that it's it's really volume growth in the background.

Yeah, Joe the way I would probably think about it in terms of the back half I I do think if you look on a you know like we said Q3 will look fairly similar to cute too, particularly on the I T. S side, if you're thinking about revenue in bottom line I think the way to think about it. If you want I kind of think about the two quarters individual I think the organic growth side will probably be a little bit healthier in Q3, and Q4 remember Q4.

Last year, we had an exceedingly strong end of the year, particularly in I T S.

You know I think I T S. Q for organic sales growth was in excess of 20 per cent. So you know again aside from the kind of timing between the quarters.

To your point, we do expect to see pricing continued to I'd say normalize it back have a lot of that is just frankly due to the timing of when we took price increases in the prior year. So you know we are now lapping that and you know we would expect to see price continued to kind of ramp down on a sequential basis, but barely can sit very consistent with what.

We said you know in terms of our original Guy I don't think anything has really changed on that and and then you know again on the volume side. You know again volume. We've continued just slightly uptake our volume expectations for the back half each of our success of you know guide. This guidance note. There's no difference and we you know with the backlog hopefully there's some opportunity out.

Perform there as we think about Q4.

Got it and then the Sunday I think you know.

Response to kind of rubs question was interesting on the ability to to pivot to growth.

Gross and.

Just in terms of the you know the the internal approaches to identifying that growth and how you tried to sort of position in advance of it. So it's not so much a chasing the puck such as being well positioned for for anticipating that and kind of how far out that goes I mean, what we can think about what you're doing today in terms of what you anticipate for growth.

How far out it is.

Yeah, I know I love that question you know because we have we have a team I mean, I think about it I mean for US. The team is like a dream of one but we have we have two people actually here sitting in a corporate offices that we're <unk>. We're currently on a license like 100 flaws micro trends.

And these are kind of trends oversee early indicators of potentially becoming you know good vectors of growth. So so that's one Avenue house. So early Ah. We're looking at these new potential trends I mean give you. An example can be lithium battery recycling Ah clearly with a load of the production on electric vehicle and lithium battery production.

And they're going to come a time that batteries will need to recycle. So we're already looking at the technology that we can incorporate in those and finding the early stage development processes, where we can actually incorporated a load of our technologies and products. So.

And to think about it I mean, we have about 100 of those kind of micro trains at any point in time, where we're analyzing and then we're leveraging our demand generation team to get close and closer to those customers deliver matter understand Ah how can we help and participate on those on those and the trains that that's just one example of how early we can do it in.

And then obviously as you go to a country like China I mean, the team every year, we'd reassess the end markets that we expect to see at higher growth and then we paid with resources and technologies and again demand generation to be able to to start attacking those early indications that we're seeing.

Very helpful. Thank you yeah.

And as a reminder, if you would like to ask a question. Please press start and a number one on your telephone keypad.

Our next question comes from the line called the Blob switch don't you think your line is open.

Yeah, I think it's good money guys unethical.

Most of mine had been answered Tonight, but I guess, one thing that I wanted to take into it since I think there's concern among investors about potential swelling in Europe . So I mean, it sounds like everything from your commentary is going pretty wild there, but if we could just dig into that a little bit and what you're seeing things.

Yeah, because I I'll say you know continues to see a good good good good good momentum, but again I think I always I'd like to put it in perspective in terms of the self help Ah that were driving ourselves is not it doesn't mean that the that the total market is actually seeing.

Seeing the same momentum as we are seeing it I mean, we're definitely outgrowing the market by a lot of the phone because they were doing on these kind of victor's of grilled that we're finding and whether it is and friends are going after how can our technology is help with nuclear facilities on revamping that or you know in Germany, how you know whether LNG or the high.

I understand things and Sunday, Yeah mechanical.

And there are no further questions at this time Mister Ronaldo I'll turn the call back over to you.

Yeah. Thank you I I, just would like to add my banking and acknowledging again all of our employees for their hard work being hip enough to deliver on another record quartering cycling in in queue to.

We're counting on on the on our team to continue to execute we're counting that that we know that I R. X continues to be our differentiator and probably ranks as we said is rooted in our unique ownership model. So again, thanks for listening to recall and appreciate it. Thank you.

And this concludes today's conference call you may now disconnect.

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