Q4 2023 Ingersoll Rand Inc Earnings Call

Operator: Good morning, and welcome to the Ingersoll-Rand Q4 2023 earnings call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise.

Good morning, and welcome to the Ingersoll Rand Q4, 2023 earnings call.

Please note that this call is being recorded.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, simply press star one again.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Or withdraw your question simply press Star one again.

Operator: I will now turn the call over to Matthew Fort, Vice President of Investor Relations. You may begin your conference. Thank you, and welcome to the Ingersoll-Rand 2023 4th Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations, and joining me this morning are Vicente Reynal, Chairman and CEO, and Vic Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will reference these during the call. Both are available in the Investor Relations section of our website. In addition, a replay of this conference call will be available later today.

I will now turn the call over to Matthew for Vice President of Investor Relations You May begin your conference.

Thank you and welcome to the Ingersoll Rand 2023 fourth quarter earnings call I'm, Matthew for Vice President of Investor Relations.

Matthew: Joining me. This morning are besides here at all chairman and CEO and <unk> Chief Financial Officer, We issued our earnings release and presentation yesterday afternoon, and we will reference during the call.

Matthew: Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today.

Matthew Fort: 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 detail. In addition, in today's remarks, we will refer to certain non-GAAP financial measures.

Matthew: 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.

Matthew: Please review the forward looking statements on slide two for more details.

Matthew: 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 web site.

Matthew Fort: 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 full year 2024 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 Vicente.

Matthew: On today's call, we will review our company and segment financial highlights and provide full year 2024 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 Sanjay.

Vicente Reynal: Thanks, Matthew. And good morning to all. And we'd like to begin by acknowledging and thanking our employees for their hard work in helping us deliver another record year in 2023. We finished the year on a high note with strong fourth quarter and full year results despite the constantly changing macroeconomic environment. Our 2023 performance reinforces the impact our employee ownership mindset has on Ingersoll-Rand. I would also like to welcome our new employees from our recent acquisition of Friuler, whom I had the chance to visit last week in Italy.

Sanjay: Thanks, Matthew and good morning to all and we'd like to begin by acknowledging and thanking our employees for their hard work in helping us deliver another record year in 2023.

Sanjay: We finished the year on a high note with strong fourth quarter and full year results. Despite the constantly changing microeconomic environment.

Our 2023 performance reinforces the impact our employee ownership mindset has for Ingersoll Rand.

Sanjay: I will also like to welcome our new employees from our recent acquisition of Brio later.

Sanjay: I had the chance to leases last week in Italy, I was very impressed by the entrepreneurial and technological spirit.

Vicente Reynal: I was very impressed by the entrepreneurial and technological spirit that has made this company grow at an impressive organic CAGR of 15% over the past three years. Starting on slide three, in 2023, we demonstrated again how we continue to outperform against our long-term investor day commitments with double-digit growth in revenue, adjusted EBITDA, adjusted EPS, and free cash. As we move to 2024, demand remains solid, and while macroeconomic and geopolitical uncertainties continue to be at the top of everyone's mind, we remain agile and focused on what we can control. IRX is our competitive differentiator, and combined with our ownership model, we remain confident in our ability to meet our commitments.

Sanjay: Maintenance company grow at an impressive organic CAGR of 15% over the past three years.

Sanjay: Starting on slide three in 2023, we demonstrated again, how we continued to outperform against our long term investor day commitments with double digit growth in revenue adjusted EBITDA, adjusted EPS and free cash flow.

Sanjay: As we look to 'twenty 'twenty four demand remained solid and while macroeconomic and geopolitical uncertainties continue to be at the top of everyone's mind, we remain agile and focused on what we can control.

Sanjay: <unk> is a competitive differentiator and combined with our ownership model, we remain confident in our ability to execute on our commitments.

Vicente Reynal: We recently held our Investor Day this past November, and I'd like to spend a few minutes providing a couple of important highlights that we presented. On slide four, we highlighted how we deliver compounding results through our economic growth engine. With the use of IRX, we have created an increasingly durable financial profile, underpinned by our employee ownership model.

Sanjay: We recently held our Investor day, this past November and I'd like to spend a few minutes, providing a couple of important highlights that we presented.

Sanjay: On slide four we highlighted how we deliver compounding results through our economic growth engine.

Sanjay: With the use of <unk>, we have created an increasingly durable financial profile underpinned by our employee ownership model.

Vicente Reynal: Since 2016, we have transformed the company into a premier growth compounder. We have reduced cyclicality through divesting our club car and HBS businesses and reinvested approximately $2.3 billion into accretive acquisitions focused on high-growth, sustainable air markets. Today, our balance sheet is stronger than ever, and we enter 2024 well-positioned to build upon our progress today. Moving to the next page, we show how we are uniquely positioned to grow market share within the $55 billion of highly fragmented addressable markets we currently play. The combination of our product portfolio, multi-channel, multi-brand strategy, massive installed base, and unmatched commercial and operational footprint provides an exceptional foundation for continued market share growth, both organically and inorganically. On slide 6, we demonstrate how we remain committed to delivering financial performance while also doing good for the planet and our community.

Sanjay: Since 2016, we have transformed the company into a premier growth compounded we have reduced cyclicality through divesting our club car <unk> businesses and reinvested approximately $2 $3 billion into accretive acquisitions focus on high growth sustainable end markets.

Sanjay: Today, our balance sheet is stronger than ever and we enter 2024, well positioned to build upon our progress to date.

Sanjay: Moving to the next page we show how we are uniquely positioned to grow market share within the $55 billion of highly fragmented addressable markets. We currently play.

Sanjay: The combination of our product portfolio multichannel multi brand strategy massive installed base and unmatched commercial and operational footprint provides an exceptional foundation for continued market share growth both organically and inorganically.

Sanjay: Thanks, Thanks, we demonstrate how we remain committed to delivering the financial performance. While also doing good for the planet and our community.

Vicente Reynal: On the left-hand side of the page, we have some very exciting news to share. S&P Global recently announced that Ingersoll-Rand ranked first in the world within our industry, up from number two in the prior year. Also, Ingersoll-Rand was named to the A-list for its performance in tackling climate change and commitment to global environmental leadership by CDP. CDP's Annual Environmental Disclosure and Scoring Process is globally recognized as the gold standard for corporate transparency.

Sanjay: On the left hand side of the page, we have some very exciting news to share.

Sanjay: S&P Global recently announced that Ingersoll Rand ranked first in the world within our industry for number two in the prior year.

Sanjay: Also Ingersoll Rand was named to the a list for its performance in tackling climate change and commitment to global environment leadership by GDP.

Sanjay: <unk> environmental disclosure and scoring process is globally recognized as the gold standard for corporate transparency.

Vicente Reynal: Finally, as shown on the right-hand side of the page, we continue to make progress towards our aggressive 2030 goals, and we're already well on our way to achieving them. On slide seven, we show the catalyst for the progress, which is a highly engaged employee base combined with an ownership mindset. And, as shown on the left-hand side of the page, our employee satisfaction is over 600 basis points higher than the industry average. We believe our employee ownership model drives this increased employee engagement. And as illustrated on the center of the page, we have created a massive economic opportunity for our employees and their families that has been life-changing for many, as expressed in the quotes from some of them. All of this leads us to the next slide.

Sanjay: Finally, as shown on the right hand side of the page, we continue to make progress towards our aggressive 2030 goals and we're already well on our way to achieve them.

Sanjay: On slide seven we show the catalyst for the progress, which is a highly engaged employee base combined with an ownership mindset.

And as shown on the left hand side of the page our employee satisfaction is over 600 basis points higher than the industry average.

Sanjay: We believe our employee ownership model drives the increase employee engagement.

Sanjay: And as illustrated on the center of the page, we have created a massive economic opportunity for our employees and their families. There has been life changing for many as expressed on our quotes from some of them.

Sanjay: One of these leads us to the next slide where.

Vicente Reynal: Well, you can see that the combination of all these factors executed through our economic growth engine is evidence that our model provides durable, long-term performance. Additionally, our portfolio is positioned to capitalize on global megatrends such as sustainability, digitalization, and quality of life. We expect to leverage our organic growth enablers to deliver, on average, mid-single-digit organic growth through 2027. And as you can see, we outperformed this commitment again in 2023, delivering 10% year-over-year organic revenue growth. In 2023, we will also deliver 6% of in-year growth from M&A. The combined organic and inorganic growth of 16% far exceeds our low double-digit growth commitment.

You can see that the combination of all these factors executed through our economic growth engine is evidence that our model provides durable long term performance.

Sanjay: Our portfolio is positioned to capitalize on global megatrends, such as sustainability digitalization and quality of life.

Sanjay: We expect to leverage our organic growth enablers to deliver on average mid single digit organic growth through 2027.

Sanjay: And as you can see we outperformed as committed men again in 2023, delivering 10% year over year organic revenue growth.

Sanjay: In 2023, we also deliver 6% of in year growth from M&A.

Sanjay: The combined organic and inorganic growth of 16% far surpassed our low double digit growth commitment.

Vicente Reynal: And not only did we surpass our growth targets, but we also exceeded our margin expansion initiatives, generating 170 basis points of adjusted EBITDA margin expansion and again, surpassing our long-term targets for this metric. With IRX as our competitive differentiator and over 400 Impact Daily Management sessions or IDNs across our company each week, Our high-performance culture encourages a strong focus on execution. In 2023, we deliver adjusted EPS growth of 25% and a free cash flow margin of 18%. These results prove that we are a premier durable growth compounder.

Sanjay: And not only the way surpassed our growth targets, but we also exceeded our margin expansion initiatives generating a 170 basis points of adjusted EBITDA margin expansion and again, surpassing our long term targets for this metric.

Sanjay: With <unk>.

Sanjay: Our competitive differentiator and over 400 impact daily management sessions or IBM across our company each week are.

Sanjay: Our high performance culture encourages a strong focus on execution.

Sanjay: In 2023 we delivered adjusted EPS growth of 25% and a free cash flow margin of 18%.

Sanjay: These results prove that we are a premier durable growth compounded.

Vicente Reynal: On slide nine, today we're on track or ahead of schedule in delivering the 2025 targets set at our previous investor date. We have set new aggressive targets for 2027, and our results give us confidence in delivering those targets that are on average over the cycle. Turning to slide 10, M&A continues to be at the forefront of our capital allocation strategy. We invested over $450 million across 13 acquisitions in 2023. These acquisitions have been market-leading products and technologies, while accelerating our addressable market with close adjustments. As of today, we currently have 10 transactions under LOI.

Sanjay: On slide nine to date, we're on track or ahead of schedule in delivering the 2025 target set our previous Investor day, we.

Sanjay: We have said new aggressive targets for 2027 long term financial on our results give us confidence in delivering those targets that are on average over the cycle.

Turning to slide 10, M&A continues to be at the forefront of our capital allocation strategy.

Sanjay: We invested over $450 million across 13 acquisitions in 2023.

Sanjay: These acquisitions have been both market leading products and technologies.

Sanjay: While accelerating our addressable market with close Adjacencies.

Sanjay: As of today, we currently have 10 transactions under LOI or.

Vic: Our M&A funnel remains strong and continues to be over five times larger than it was at the time of the RMP. We expect an additional 400 to 500 basis points of annualized inorganic revenue to be acquired in 2024. The 10 transactions currently under LOI are similar in size and nature to the bolt-on deals we have done over the past few years. However, outside of these 10 LOIs, we still have a couple of deals in the funnel where the purchase price exceeds $1 billion. I will now turn the presentation over to Vic to provide an update on our Q4 and full year 2023 financial performance. Thanks, Vicente.

Sanjay: Our M&A funnel remains strong and continues to be over five times larger than it was at the time of the RMB.

Sanjay: We expect an additional 400 to 500 basis points of annualized inorganic revenue to be acquired in 2020 for the.

Sanjay: The 10 transactions currently under LOI are similar in size and nature to the bolt on deals we have done over the past few years.

Sanjay: However outside of these <unk>, we still have a couple of deals in the funnel, where the purchase price exceeds $1 billion.

Sanjay: I will now turn the presentation over to Vic to provide an update on our Q4 and full year 2023 financial performance.

Vic: Thanks, So Sanjay on slide 11, we finished the year strong in Q4 through a balance of commercial and operational execution fueled by IRS. Despite the constantly changing macroeconomic environment.

Vic: On slide 11, we finished the year strong in Q4 through a balance of commercial and operational execution fueled by IRX despite the constantly changing macroeconomic environment. Total company organic orders and revenue increased 3% and 4% year-over-year, respectively. We remain encouraged by the strength of our backlog, which is up over 8% year-over-year. This provides us with a healthy backlog to execute on entering 2024 and gives us conviction in delivering our full year 2024 revenue guidance. The company delivered an adjusted EBITDA of $501 million in the fourth quarter.

Vic: Total company organic orders and revenue increased 3% and 4% year over year, respectively.

Vic: We remain encouraged by the strength of our backlog.

Vic: Which is up over 8% year over year.

Vic: This provides us with a healthy backlog to execute on entering 2024 and gives us conviction in delivering our full year 2020 for revenue guidance.

Vic: The company delivered fourth quarter, adjusted EBITDA of $501 million.

Vic: A 19% year-over-year improvement and adjusted EBITDA margins of 27.5%, a 160 basis point year-over-year improvement and a 100 basis point improvement sequentially from Q3. Free cash flow for the quarter was $552 million, and for the year, we delivered nearly $1.3 billion of free cash flow with an 18% free cash flow margin and a 105% conversion to adjusted net income. Total liquidity of $3.6 billion at quarter end was up Our net leverage continues to improve both year-over-year and sequentially. At 0.6 turns, we are 0.2 turns better than the prior year and 0.3 turns better than the prior quarter. Turning to slide 12, for the total company, on an FX-adjusted basis, Q4 orders and revenue both grew 11%. Total company adjusted EBITDA increased 19% from the prior year. The ITS segment margin increased 260 basis points, while the PST segment margin was flat year-over-year. And corporate costs came in at $47 million for the quarter. Finally, adjusted EPS for the quarter was up 19% to $0.86 per share. The adjusted tax rate for the quarter was 20.7%, with the full-year adjusted rate finishing slightly above 22%.

19% year over year improvement in adjusted EBITDA margins of 27, 5%, a 160 basis point year over year improvement and a 100 basis point improvement sequentially from Q3.

Free cash flow for the quarter was $552 million and for the year, we delivered nearly $1 3 billion.

Vic: Our free cash flow with an 18% free cash flow margin and 105% conversion to adjusted net income.

Vic: Total liquidity of $3 $6 billion at quarter end was off approximately $400 million sequentially.

Vic: Our net leverage continues to improve both year over year and sequentially.

Vic: 0.6 turns we are at 0.2 turns better than prior year, and 0.3 turns better than prior quarter.

Vic: Turning to slide 12 for the total company on an FX adjusted basis, Q4 orders and revenue both grew 11%.

Vic: Total company adjusted EBITDA increased 19% from the prior year. The Ics segment margin increased 260 basis points, while the PST segment margin was flat year over year.

And corporate costs came in at $47 million for the quarter.

Vic: Finally, adjusted EPS for the quarter was up 19% to <unk> 86 per share.

The adjusted tax rate for the quarter was 27% for the full year adjusted rate, finishing slightly above 22%.

Vic: On slide 13, total company full-year orders grew 8% and revenue increased 17%, both on an FX adjusted basis. Total company adjusted EBITDA increased 25% from the prior year. The ITS segment margin increased 240 basis points, while the PST segment margin increased 130 basis points. Corporate costs finished the year at $173 million, driven by continued investments to support growth in areas like demand generation and IOT, as well as the impact of incentive compensation adjustments. Lastly, adjusted EPS for the year was up 25% to $2.96 per share. Moving on to the next slide, free cash flow for the quarter was $552 million, including CapEx, which totaled $30 million.

On Slide 13 total company full year orders grew 8% and revenue increased 17% both on an FX adjusted basis.

Total company adjusted EBITDA increased 25% from the prior year.

The Ats segment margin increased 240 basis points, while the PST segment margin increased 130 basis points.

Vic: Corporate cost finished the year at $173 million driven by continued investments to support growth in areas like demand generation and Iot as well as the impact of incentive compensation adjustments.

Vic: Lastly, adjusted EPS for the year was up 25% to $2 96 per share.

Vic: Moving on to the next slide free cash flow for the quarter was $552 million, including Capex, which totaled $30 million.

Vic: Total liquidity now stands at $3.6 billion based on approximately $1.6 billion of cash and $2 billion of availability on our revolving credit facility. Leverage for the quarter was 0.6 turns, which was a 0.2 turn improvement year over year. And in 2023, we will return $295 million to shareholders through share repurchases and dividends. Specifically, within the quarter, cash outflows included $130 million in share repurchases, $39 million deployed to M&A, and $8 million for our dividend payment.

Vic: Total liquidity now stands at $3 $6 million based on approximately $1 6 billion of cash and $2 billion of availability on our revolving credit facility.

Vic: Leverage for the quarter was 0.6 turns which was a zero point to turn improvement year over year.

Vic: And a 2023 and returned $295 million to shareholders through share repurchases and dividends spin.

Vic: Specifically within the quarter cash outflows included $130 million in share repurchases $39 million deployed to M&A.

Vic: An $8 million for our dividend payment.

Vic: M&A remains our top priority for capital allocation, and we continue to expect M&A to be our primary use of cash as we look ahead. I will now turn the call back to Vicente to discuss our segment. Thanks, Rick.

Vic: M&A remains our top priority for capital allocation and we continue to expect M&A to be our primary use of cash as we look ahead.

Vic: I will now turn the call back to the center to discuss our segments.

Speaker Change: Thanks, Rick on Slide 15, our industrial technologies and service segment delivered solid year over year organic revenue growth of 5%.

Vicente Reynal: On slide 15, our industrial technologies and service segment delivered solid year-over-year organic revenue growth of 5%. Adjusted EBITDA increased 26% year-over-year, with an adjusted EBITDA margin of 30%, up 260 basis points from the prior year, with an incremental margin of 48%. We also delivered sequential margin expansion of 120 basis points from Q3 to Q4. It is important to note that we have already achieved our 2025 high 20s adjusted EBITDA margin target for ITS, which is a full two years ahead of schedule. We continue to see solid demand for our products, with organic orders also up 5%. Moving to the product line highlights, compressors were up low double digits in orders and up mid single digits in revenue. Industrial vacuum and blower orders were down low double digits in orders but up low double digits in revenue. The order decline was mainly driven by prudently debooking an order from an electric truck manufacturer in Europe that had some battery supply issues.

Speaker Change: And EBITDA increased 26% year over year with an adjusted EBITDA margin of 30% up 260 basis points from prior year with an incremental margin of 48%.

Speaker Change: We also delivered sequential margin expansion of 120 basis points from Q3 to Q4.

Speaker Change: It is important to note that we have already achieved our 2025 high Twenty's adjusted EBITA margin target for Ics.

Speaker Change: Which is a full two years ahead of schedule.

Speaker Change: We continue to see solid demand for our products with organic orders also up 5%.

Moving to the Brooklyn highlights compressors, we're up low double digits in orders and up mid single digits in revenue.

Speaker Change: Industrial vacuum and blowers were down low double digit and orders booked up low double digits in revenue.

Speaker Change: The order decline was mainly driven by prudently de booking an order from an electric truck manufacturer in Europe that had some battery supply issues. However, with prospects are starting to look better for these manufacturer in 2024.

Vicente Reynal: However, the prospects are starting to look better for this manufacturer in 2024. Also, it is important to highlight that core product lines continue to show strong momentum on a two-year stack, excluding FX and also excluding the recent acquisitions of SPX Air Treatment and Roots Blower. On a two-year stack, compressor orders were up mid-teens, and revenue was up high-20s. Industrial vacuum and blower orders were up low double digits, and revenue was up mid-30s. As a reminder for additional detailed information on product lines and regional splits, we have moved the chart which was previously included on this page to slide 21 in the appendix. In the innovation in action section, we're highlighting a new compressor with advanced two-stage technology. This product is a great example of how Ingersoll-Rand is providing an innovative, digitally enabled, sustainable solution with a 17% energy efficiency improvement versus the competition. Turning to slide 16, organic revenue in the precision and science technology segment was approximately flat year-over-year. The PST team delivered adjusted EBITDA of $94 million, which was up approximately 2% year-to-year with a margin of 30.1%. However, organic orders were down 1.6% driven by the live science business.

Also it is important to highlight by core product lines continued to show strong momentum on a two year stack, excluding FX and also excluding the recent acquisition of SPX or treatment and routes lower.

On a two year stack compressors orders were up mid teens and revenue was up high twenties.

Speaker Change: Industrial vacuum of lower orders were up low double digits and revenue was up mid thirties.

Speaker Change: As a reminder for additional detailed information on product lines and regional splits we have more of a chart, which was previously included on this page to slide 21 in the appendix.

Speaker Change: For our innovation in action section, we're highlighting a new compressor with advance to stage technology.

This product is a great example, on how Ingersoll Rand is providing an innovative digitally enable sustainable solution with a 17% energy efficiency improvement versus the competition.

Speaker Change: Turning to slide 16 organic revenue in the precision and science technology segment was approximately flat year over year.

Speaker Change: The BSA team deliver adjusted EBITDA of $94 million, which was up approximately 2% year over year with a margin of 31%.

Speaker Change: Organic orders were down one 6% driven by the life science businesses.

Vicente Reynal: We see organic orders growth stabilizing, and we remain positive about the underlying health of the PST business. In fact, PST, excluding the life science businesses, has seen positive organic orders and revenue growth in 11 out of the last 12 quarters. In addition, short-cycle orders in the industrial businesses were up mid-single digits in Q4.

Speaker Change: We see organic orders growth is stabilizing and we remain positive about the underlying health of the <unk> business.

Speaker Change: In fact, PMT, excluding the life science businesses has seen positive organic orders and revenue growth in 11 out of the last 12 quarters.

Speaker Change: In addition, short cycle orders in the industrial businesses were up mid single digits in Q4.

Vicente Reynal: Overall, the PST segment remains on track to meet our long-term Investor Day growth commitment. For our PST Innovation in Action, we're highlighting our Aero Piston Pump System. This is a perfect example of leveraging both I2V and demand generation to pivot an existing product line into a high-growth, sustainable end market. In the past 12 months, we have already taken $7 million in orders with a leading OEM solar panel producer, which has the potential for $1 million in annualized aftermarket revenue. As we move to page 17, we're introducing our 2024 guidance. Total company revenue is expected to grow between 5% and 7%, with first half growth of 4% to 6% and second half growth of 6% to 8%. We anticipate organic growth of 2% to 4% where price is approximately two-thirds and volume one-third.

Speaker Change: Overall, the P&C segment remains on track to meet our long term investor day growth commitments.

Speaker Change: For our BSD innovation in action, we're highlighting our arrow based on pump system.

Speaker Change: This is a perfect example of leveraging both ITV and demand generation to <unk>, an existing product line into a high growth sustainable end market.

Speaker Change: Over the past 12 months, we have already taken $7 million in orders with a leading OEM solar panel producer, which has the potential for $1 million in annualized aftermarket revenue.

Speaker Change: As we move to page 17, we are introducing our 2020 for guidance.

Speaker Change: Total company revenue is expected to grow between 5% to 7%.

Speaker Change: For the first half growth of 4% to 6% in the second half growth of 6% to 8%.

Speaker Change: We anticipate oriented growth of 2% to 4% where price is approximately two thirds and volume one third.

Vicente Reynal: FX is expected to contribute approximately 1% of a tailwind for the year, of which the impact will be realized relatively evenly throughout the year. M&A is projected at $160 million, which reflects all completed and closed M&A transactions in 2023, as well as the acquisition of Frio Letter. Corporate costs are planned at $160 million and are expected to be incurred evenly per quarter throughout the year.

Speaker Change: FX is expected to contribute approximately 1% of a tailwind for the year.

Speaker Change: Of which the impact will be realized relatively evenly throughout the year.

Speaker Change: M&A is projected at $160 million, which reflects all completed and closed M&A transactions in 2023 as well as the acquisition of free related.

Speaker Change: Corporate costs are planned at $160 million.

Speaker Change: And are expected to be incurred evenly per quarter throughout the year.

Vicente Reynal: Total adjusted EBITDA for the company is expected to be in the range of $1.915 billion and $1.975 billion. At the bottom of the table, adjusted EPS is projected to fall within the range of $3.14 and $3.24, which is approximately 8% at the midpoint. We anticipate the adjusted tax rate to be roughly 23%, gross interest expenses to be about $155 million, and capex to be around 2% of revenue. On the right-hand side of the page, we have included a 2024 full-year guidance bridge showing the growth associated with both operational activity and the impact associated with corporate cost, interest income, and expenses, effects, share count, and changes in the adjusted tax rate. And based on the above guidance, adjusted EPS growth is expected to be between 6 and 9%.

Speaker Change: Total adjusted EBITDA for the company is expected to be in the range of $1 91, 5 billion and $1 975 billion.

Speaker Change: At the bottom of the table adjusted EPS is projected to fall within the range of $3 14.

Speaker Change: And $3 24.

Speaker Change: Which is approximately up 8% at the midpoint.

Speaker Change: We anticipate adjusted tax rate to be roughly 23% growth interest expense to be about $155 million and capex to be around 2% of revenue.

Speaker Change: On the right hand side of the page. We have included the 2020 for full year guidance bridge, showing the growth associated with both operational activity and the impact associated with corporate costs interest income and expenses FX share count and changes in the adjusted tax rate and.

Speaker Change: And based on the above guidance adjusted EPS growth is expected to be <unk>.

Speaker Change: Two 9%.

Vicente Reynal: As we sit here in mid-February, we would like to provide some commentary on Q1. We expect our normal systematic growth to return in 2024 from a revenue perspective, which means that Q1 will be the lowest revenue quarter of the year. In addition, as a reminder, Q1 has a very tough comp, as we delivered 20% organic revenue growth in Q1 of 2023. As a result, we anticipate organic revenue growth to be flattish to slightly up for a quarter with continued year-over-year margin expansion. Turning to slide 18, as we wrap up on today's call, I want to reiterate that Ingersoll-Rand is in a solid position. We continue to deliver record results. And both our long-term and 24-month guidance is reflective of our performance to date and our increasingly durable financial profile. To our employees, I want to thank you again for another excellent finish to the year. We deliver strong results by demonstrating our commitment to meeting our financial targets and executing our economic growth engine through the use of IRX. Thank you for your hard work, resiliency, and focused action.

Speaker Change: As we sit here in mid February we would like to provide some commentary on Q1, we.

We expect our normal seasonality to return in 2024 from a revenue perspective.

Speaker Change: Which means that Q1 will be the lowest revenue quarter of the year.

Speaker Change: In addition, as a reminder, Q1 has a very tough comp as we delivered 20% organic revenue growth in Q1 of 2023.

Speaker Change: As a result, we anticipate organic revenue growth to be flattish to slightly up for the quarter with continued year over year margin expansion.

Speaker Change: Turning to slide 18, as we wrap up today's call I want to reiterate that Ingersoll Rand is in a solid position.

Speaker Change: We continue to deliver record results.

Speaker Change: And both are long term and 24 guidance is reflective of our performance to date and are increasingly durable financial profile.

Speaker Change: Two employees I want to thank you again for another excellent finish to the year we.

Speaker Change: We delivered strong results by demonstrating our commitment to meeting our financial targets and executing our economic growth engine through the use of <unk>.

Speaker Change: Thank you for your hard work resiliency and focus actions.

Operator: These results show the impact you each have as owners of the company. Our balance sheet is as strong as ever, and with our disciplined and comprehensive capital allocation strategy, we remain resilient and have the capacity to deploy capital to investments with the highest return as we continue our track record of market outperformance. We remain nimble, continue to monitor the dynamic market conditions, and we're prepared for the challenges that may come. And with that, I'll turn the call back to the operator and open it for Q&A. Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star 1.

Speaker Change: These results show the impact you will each have as owners of the company.

Speaker Change: Our balance sheet is as strong as ever and with our disciplined and comprehensive capital allocation strategy, we remain resilient and have the capacity to deploy capital to investments with the highest return as we continue our track record of market outperformance.

Speaker Change: We remain nimble and continue to monitor the dynamic market conditions and we're prepared for the challenges that may come.

Speaker Change: And with that I'll turn the call back to the operator and open it for Q&A.

Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Please press star one.

Michael Patrick Halloran: Your first question comes from Mike Halloran with Baird. Please go ahead. Thank you. Good morning, everyone.

Speaker Change: Your first question comes from Mike Halloran with Baird. Please go ahead.

Michael Patrick Halloran: Thank you good morning, everyone. Good morning.

Vicente Reynal: Good morning. So, let's start with where you ended there on the guidance piece, you know, certainly appreciate all the context and help to understand the relatively normal seasonality, but maybe you could just talk about what you're embedding from an underlying assumption perspective when it comes to, you know, the broader environment, broader end markets. Is this a year where you just see relatively sequential stability? Any specific pockets you're concerned about or where you see opportunities for acceleration? Less of an Ingersoll-specific question, meaning, I mean, you have a lot of drivers that you can use to boost growth relative to whatever the end markets are doing or just an end market specific question about the environment. Yeah, Mike, so maybe I'll kind of give you a perspective here on how we think about it by region first. I will say that in America, as suspected, we're seeing much better momentum. I will say mainland Europe; I want to say America, I mean, not only the U.S., but also Mexico and South America, where there's a lot of good progress going on with the teams down there.

Michael Patrick Halloran: So let's start with where you ended there on the guidance piece you know certainly I appreciate all the context and help them.

Michael Patrick Halloran: Understand the relatively normal seasonality, but maybe you could just talk to what you're embedding from under the underlying assumption perspective, when it comes to the broader environment broader end markets is this a year, where you just see relatively sequential stability.

Michael Patrick Halloran: Any specific pockets, you're concerned about or where you see opportunities for acceleration Lesvos Ingersoll specific question meeting and do you have a lot of drivers that you can use to.

Boost growth relative to whatever the end markets are doing or just an end market specific and in an environment question.

Michael Patrick Halloran: Yeah, Mike So maybe kind of give you a perspective here on how we think about it by region first I will say that in America as expected, we're seeing a much better momentum I.

Michael Patrick Halloran: I will say mainland Europe, I want to say Americas, Let me not only a U S would've been also Mexico, and South America, where there is a lot of good programs going on with the teams.

Vicente Reynal: Mainland Europe remains relatively stable. I was just in Europe last week and really saw the momentum from some good pockets of growth that we're seeing. But I'll call it more stable. I'll say broader Middle East and India, you know, very, very good momentum. I mean, particularly in India, and you've seen that we have made quite a few investments in India too, not only from an inorganic perspective but also organically. And I'll say that APAC, Asia-Pacific, is the one that has the most headwinds, specifically, I'll say here in the I mean, we saw strong double-digit organic revenue growth in the first half of 2023 in Asia-Pacific, mainly driven by China.

Michael Patrick Halloran: Down there.

Michael Patrick Halloran: Online Europe remains relatively stable.

Michael Patrick Halloran: I was just in Europe last week, and really solid momentum from some good pockets of growth that we're seeing but I will say it.

I'll go in more stable.

Speaker Change: I'll say.

Speaker Change: <unk>.

Speaker Change: Middle East and India.

Very also very good momentum, particularly in India.

Speaker Change: And you've seen that we have got quite a few investments in India to us well not only from an inorganic perspective, but also organic.

Speaker Change: And I'll say that APAC Asia Pacific is the one that has the most headwinds specifically ill say here in the first half of the year and is driven mainly by tough comps I mean, we saw a strong double digit organic revenue growth in the first half of 2023 in Asia Pacific, mainly driven by China and at this point in time, I mean, China is motor market that.

Vicente Reynal: And at this point in time, I mean, China is not a market that we call it that is perhaps booming. We're not immune to that, but we expect to outperform the market there, too, as the teams have proven that they could do that even in 2023. So that's kind of from a regional perspective. I'd say from an end-market perspective, nothing that I would call out to be highly differentiated in a sense.

Speaker Change: We call it that is perhaps booming.

Speaker Change: We're not immune to that but we expect to outperform the market there too as well as the teams have proven that they could do that even in 2023. So that's kind of from a regional perspective, I would say from an end market perspective, nothing that I would call out to be highly differentiated in the sense. As you have seen those always people to these high growth sustainable end markets.

Vicente Reynal: As you have seen us always pivot to these high-growth, sustainable end markets; we gave you one very good example here with the Arrow Piston Pump. This is a legacy product line that we kind of reinvigorated, and reutilized I2V as a way to relaunch the product. And with the use of demand generation, we were able to position that product line into a very good growth end market for photovoltaic sales. So I say, I say, Mike, I think the playbook continues to be the same: be agile, very nimble, leverage demand generation and IRX as a way to continue to grow. No, that doesn't make sense.

Speaker Change: We gave you one very good example, here with arrow based on pump.

Speaker Change: The legacy product line that we've kind of reinvigorated.

Speaker Change: We utilize <unk> as a way to relaunch the product and with the use of demand generation, we were able to position that product line into a very good growth.

Speaker Change: And market on photovoltaic sales.

Speaker Change: Sales so.

Speaker Change: So I think I'd say, Mike I mean, I think that playbook continues to be the same be agile very nimble leveraged demand generation and <unk> as a way to continue to out execute.

Michael Patrick Halloran: And then a follow-up on the life science side, you know, the one area of PSCT that, you know, like a lot of folks is seeing some headwinds here. You listen to what the bigger players in the industry are saying, there's more stability front half, improvement back half, at least modest. Is that similar to what your expectations are from a recovery curve at this point? That's kind of what we think as well, Mike, you know, maybe bottoming out here, as we kind of come into the first half, and then seeing sequential improvement, I don't say, I mean, not in an exponential way. I mean, there's no, there's not that pent up demand. But I will say in a very logical way to get back to the good growth that these end markets should continue to see over the long term. I appreciate it, everyone. Thanks. Your next question comes from Julian Mitchell with Barclays. Please go ahead. Hi, good morning.

Speaker Change: No that makes sense and then a follow up on the life science side.

Speaker Change: The one area of PSC to you, there's like a lot of our folks and seeing some headwinds here you listen to what the bigger players in the industry are saying, there's more stability from half's improvement back half at least modest is that still under what your expectations are from a recovery curve at this point.

Speaker Change: Kind of what we think to as well.

Speaker Change: Mike.

Speaker Change: Again.

Speaker Change: As you said, maybe bottoming out here as we kind of come into the first half and then seen a.

Speaker Change: Sequential improvement I don't say.

Speaker Change: And an explanation away I mean, theres no theres no about pent up demand, what I will say in a very logical way to get back to the good growth that these end markets should continue to see over the long term.

Speaker Change: Great I appreciate everyone. Thanks, Thank you Mike.

Speaker Change: Your next question comes from Julian Mitchell with Barclays. Please go ahead.

Julian Mitchell: Hi, good morning.

Julian Mitchell: Just, first off, just wanted to look at the sort of cadence through the year, perhaps first off. So, based on what you said, is it fair to assume that the first quarter is about 21% of earnings for the year, and when we're looking at kind of incremental margins, you call out that high 30s figure for the year, is that kind of fairly steady across both segments as we move through 2024. Yeah, Julian, this is like, I'll take the first part of your question.

Julian Mitchell: First off just wanted to look at the sort of cadence through the year, perhaps first off so based on what you said is it fair to assume sort of first quarter is about 21% of <unk>.

Julian Mitchell: Earnings for the year.

Julian Mitchell: And when we're looking at kind of incremental margins you called out that high thirties figure for the year is.

Julian Mitchell: Is that kind of fairly steady across both segments.

Julian Mitchell: As we move through 2024.

Julian Mitchell: Yes, Julien this is Mike I'll take the first part of your question and I'll, let the centre it probably talk on the margin front.

Vic: And I'll let Vicente talk on the margins. I think the phasing, generally, I think you're right in that you're in the right ballpark. Maybe another way to say it here is, if you look at the phasing in a manner that's consistent with, you know, I'd say revenue and earnings delivery, as we saw in 2023, I think you'd be, you know, in the right ballpark in terms of our expectations here for 2024. And then, you know, in terms of the incremental margin piece, maybe I'll get started or... Yeah, no, I I mean, I think the way I think about that incremental margin, I mean, think about that... You know, 35 to 40% incremental margin, and when you look at the main buckets, I would say the first bucket of that improvement or good incremental margin comes from the initiatives that we always do, the I2B, price, very good continued growth momentum in the aftermarket, particularly recurring revenues.

Michael Patrick Halloran: Thank the phasing.

Speaker Change: Generally I think youre right.

Michael Patrick Halloran: Ballpark, maybe another way to say it here is if you look at the phasing in a manner, that's consistent with I would say revenue and earnings delivery as we saw in the in 2023, I think you'd be in the right ballpark in terms of our expectations here for 2024.

Michael Patrick Halloran: And then in terms of the incremental margin piece, maybe you haven't started or.

Michael Patrick Halloran: I can tell you that.

Michael Patrick Halloran: I think the way the way to think about that incremental margin I mean think about that.

Michael Patrick Halloran: 25% to 40% incremental margin and when you. When you look at the main buckets I would say that first bucket of that improvement or incremental margin comes in from the initiatives that we always do have the ITV price very good continued growth momentum on the aftermarket, particularly the recurring revenues the second bucket will be.

Vic: The second bucket will be around the prior M&A improvement activities that we have always spoken about. The third bucket is, you probably saw in some of the appendix, that we did some proactive restructuring at the end of 2023. This is kind of part of our ongoing commitment to always be proactive and nimble. And the last, fourth bucket I will say in terms of these margin improvements is around corporate cost. You saw corporate costs going down roughly $13 million or so. That's helpful.

Around the prior M&A improvement activities.

Michael Patrick Halloran: We have always spoken about.

Michael Patrick Halloran: The third bucket is price.

Michael Patrick Halloran: On some of the vendors that we have made some proactive restructuring at the end of 2023.

Michael Patrick Halloran: This is kind of part of our <unk> continued to be proactive and nimble and in the last fourth bucket I will say in terms of these margin improvements around corporate costs, you saw corporate costs going down.

Michael Patrick Halloran: Roughly $13 million or so.

Vicente Reynal: Thank you. And just, you know, as we're starting out the year, looking at orders, naturally, the sort of volatile quarter to quarter, you know, reflecting what you said about a sort of a tough Asia environment in the first half of the year and sort of very tough order comps, do we think about orders being down perhaps in the first quarter, year on year, and then you pick up after that as the comps and perhaps Asia get better? So we typically don't guide on orders for the year or on a quarterly basis, but we do definitely expect orders to be up sequentially from Q4 to Q1 on an absolute dollar basis. And the way we think about it, too, as well, is that we typically book above one on a book-to-bill in the first half, due typically to larger, longer-cycle projects being booked, and then below one in the second half, and we don't anticipate 2024 to be any different. That's great! Thank you. Thanks, Julian.

That's helpful. Thank you and just.

Michael Patrick Halloran: So we're starting out the year.

Michael Patrick Halloran: Looking at orders naturally theres been sort of volatile quarter to quarter.

Michael Patrick Halloran: It looks like and what you said on a sort of a tough <unk>.

Michael Patrick Halloran: Asia environment in the first half of the year and sort of very tough orders comps do we think about kind of orders being down perhaps in the first quarter year on year and then you then you pick up after that as the comps and perhaps Asia get better.

Michael Patrick Halloran: So we typically don't guide on the orders for the year on a quarterly basis, but we will definitely expect orders to be up sequentially from Q4 to Q1.

Michael Patrick Halloran: On an absolute dollar perspective, and the way, we think about it too as well is that we typically book above one on a book to Bill in the first half you typically do typically to larger longer cycle projects being booked and then below one in the second half.

Michael Patrick Halloran: But we don't anticipate 2020 for it to be any different to that.

Speaker Change: That's great. Thank you.

Speaker Change: Thanks, Julien Thank you.

Jeff Sprague: Thank you. Your next question comes from Jeff Sprague with Vertical Research. Please go ahead. Hey, thanks. Good morning, everyone.

Speaker Change: Your next question comes from Jeff Sprague with vertical research. Please go ahead.

Jeff Sprague: Hey, Thank you good morning, everyone.

Vicente Reynal: Hey, Vicente, can we just come back to life sciences for a moment and level set us here now after, you know, kind of a couple tough years? What percent of PST is that business now? And do you actually expect it to return to growth in 2024? So the life science business is roughly 25% to 30% of the PST segment today. And I think as we think about going into the second half, that's when we expect that to be getting back to normal growth.

Jeff Sprague: Any percentage you would just come back to life Sciences for a moment and just.

Jeff Sprague: Level set us here now after kind of a comp.

Jeff Sprague: A couple of tough years, 1% of TSP is that business now and.

Jeff Sprague: Do you actually expect it to return to growth in 2024.

Jeff Sprague: So that the life science business is roughly 25% to 30% of the of the of the PFD segments today.

Jeff Sprague: And I think as we think about going into the second half is when we expect that to be.

Getting back to a normal growth.

Speaker Change: Right and then just thanks for the guidance on <unk>.

Vic: And then just thanks for the guidance on price versus volume. Please give a little bit of color on what you're expecting, just kind of the price/cost equation as we move through the year and maybe particularly in ITS. Yeah, Jeff, this is Vic. I'll take that one.

Speaker Change: Rice versus volume can you just give a little bit of color on what you're expecting just kind of the price cost equation.

Speaker Change: As we move through the year, and maybe particularly in Etfs.

Yes, Jeff this vivek I'll take that one I think simply stated here I don't think youre going to see anything dramatically different than what <unk> seen historically, meaning.

Vic: I think simply stated here, I don't think you're going to see anything dramatically different than what you've seen historically, meaning, you know, we expect to generate approximately 2% price on a full year basis, and we would expect to be both dollar and margin positive, from a price cost perspective, each quarter of 2024. So again, nothing different in terms of that equation as we move to the year. And obviously, ITS, you know, being the bigger segment, clearly, that comment pertains to ITS as well as PST as well. Great, thank you. Your next question comes from Rob Wertheimer with Melius Research. Please go ahead.

Vivek: We expect.

Vivek: Approximately 2% price on a full year basis, we would expect to be both dollar and margin positive from a price cost perspective each quarter.

Vivek: <unk> 2024, so again.

Vivek: Nothing different in terms of that equation as we move through the year and obviously.

Being the bigger segment, clearly that comment pertains to Ics as well as PST as well.

Speaker Change: Great. Thank you.

Speaker Change: Your next question comes from Robert Wertheimer with Melius Research. Please go ahead.

Robert Wertheimer: Hi, Thanks actually one more question on life Science I mean, we've seen you guys use demand generation and just direct to outgrow top markets in China, and maybe maybe Europe last year.

Rob Wertheimer: Thanks. Actually, one more question on life science. I mean, we've seen you guys use demand generation and just IRX to outgrow tough markets in China and maybe Europe last year. Has that been a factor in life science?

Robert Wertheimer: Has that been a factor in life Sciences is there anything different in that market to the constrained.

Vicente Reynal: Is there anything different in that market that constrains it? And then I wonder if you could just kind of compare market dynamics for you and life sciences to some of the other companies and industrials we've seen in the long drag. What does the recovery look like? Is there a bounce back? Has there been a decline?

Robert Wertheimer: I'm wondering if you could just kind of compare market dynamics for you in life Sciences and some of the other companies in industrials, we've seen in long drag what does the recovery look like is there a bounce back has there been a destocking maybe just explain the sales dynamic there. Thank you.

Vicente Reynal: I mean, maybe just explain the sales dynamic there. Thanks. Yeah, Rob, I'll say life science is, and I think you were referring to particularly in China, they have seen similar declines as the balance of the life science businesses and biopharma-related markets. And I would say for the balance of our Chinese exposure, it isn't that much different than the impact we have seen on the ITS side, with the one item of note to call out, perhaps CPEX, a business that is more impacted But that being said, I mean, we're excited with the prospect of CPEX in China. And one example of that is, you know, again, pivoting to better end markets. So, for example, CPEX took the same product and relaunched that to move away from the water market and move more into lithium battery production with a very unique proposition without having to reconfigure that product too much. So, I think we just continue to do that. I mean, basically, how do we continue to be agile and very nimbly move from one end market to the other without having to reconstruct the product line?

Robert Wertheimer: Yeah.

Yes, Rob I'll also had in our life Sciences and.

And I think you were referring to particularly in China.

Robert Wertheimer: I mean, they have seen similar declines like the balance of the life sciences businesses and Biopharma related markets.

Robert Wertheimer: And I would say for the balance of our China exposure it isn't that much different than the impact we have seen on the <unk> side.

Robert Wertheimer: With the one item of note to call out, perhaps <unk> of that business that is more impacted by the water market.

Robert Wertheimer: But that being said I mean, we're excited with the prospect of <unk> in China.

Robert Wertheimer: And one example of that is again built into better end markets. So for example, the <unk> took the same product and relaunched that mono wafer under water market and more and more into a lithium battery production with a very unique proficient with or without having to reconfigure that product are much. So so I think we just continue to now.

Robert Wertheimer: I mean, basically how do we continue to agile.

Robert Wertheimer: I am very nimbly move for one end market to the other without having to reconstruct the.

Vicente Reynal: And then, I beg your pardon, a little, oh, sorry, no, no, go ahead, yes, I beg your pardon, yeah, so it was a little bit of both. So it was like, does demand generation, has demand generation or other tools allowed you to outgrow the decline in, you know, life sciences? And then maybe, just maybe it's the same question as Jeff asked in a way, but does the other side of this look like a bounce back? Or does it just look like a return to normal growth? I don't know whether, you know, D-Stock or whatever at your customers has led to below-normal sales and you kind of pop back up in 25 or whether you just resume normal growth. I will stop there.

Robert Wertheimer: The product lines.

Speaker Change: And then pardon sorry.

Speaker Change: Sorry.

Speaker Change: Go ahead.

Speaker Change: Thank you Brian.

Speaker Change: So there was a little bit too. So it does demand generation has demand generation or other tools allowed you to outgrow declining in life Sciences, and then maybe just maybe it's the same question as Jeff asked away, but does the other side of this looked like the bounce back or does it just looked like a return to normal growth I don't know whether.

Speaker Change: Destock or whatever your customers has led to below normal sales to kind of pop back up in 'twenty five or whether you just resumed normal growth I will stop there sure I know you have a great.

Rob Wertheimer: Sure. No, yeah, great. To the first question, absolutely, demand generation is really helping us tremendously because, you know, our products can be applicable to pretty much any end market, and we're being very selective. And with demand generation, we can really reach this highly fragmented customer base in a very cost-effective way, very quickly, very quickly, and then provide a better solution to our customers underneath. Call it energy efficiency, water efficiency, digitalization, all these topics that we think are important. For the second question, we kind of, the way we think about it is more normal.

The first question on the absolutely the demand generation is really helping us tremendously.

Speaker Change: Because.

Speaker Change: Thinking about I mean, our products can be applicable to pretty much any end market and we're being very selective and with demand generation. We can really reach these highly fragmented customer base in a very cost effective way very rapid very quickly.

Speaker Change: <unk> provide a better solution to our customers underneath call it energy efficiency water efficiency digitalization. All these all this telematics that we think are important.

Speaker Change: For the second question.

Speaker Change: We kind of the way, we think about it as more normal.

Vicente Reynal: We don't expect this massive bounce back. If that happens, clearly upside, but the way we like to view it is more normal. Your next question comes from Andy Kaplowitz with Citigroup. Please go ahead. Good morning, everyone. Hey, Andy.

Speaker Change: Don't expect this massive bounce back.

Speaker Change: If that happens clearly upside for the way, we like to view it as more normal.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Andy Kaplowitz with Citigroup. Please go ahead good morning, everyone.

Andrew Kaplowitz: Hey, Andy.

Sandy I think you had an increase in your allies in Q4 to 10 I think from four last quarter are you seeing the M&A market open up a little bit more is this more your team just finding more deals and those couple of deals that you mentioned that over 1 billion do you see the larger deal market opening up which is still difficult to get those larger ones over the finish line.

Andrew Kaplowitz: Vicente, I think you had an increase in your LOIs in Q4 to 10, I think, from four last quarter. Are you seeing the M&A market open up a bit more? Or is this more your team just finding more deals?

Vicente Reynal: And those couple of deals that you mentioned that are over a billion dollars, do you see the larger deal market opening up, or is it still difficult to get those larger ones over the finish line? So, I would say that, yes, I mean, M&A, we feel that it continues to open up. And again, I'll put it in perspective that these 10 transactions in the LOI are similar in size and nature to the bolt-on deals that we have done over the past few years. And, you know, these 10 LOIs are also sole source, meaning we have been proactively talking to the family about them and have built some incredible relationships.

Speaker Change: So that is all.

I will say that yes, I mean, the M&A, we feel there continues to open up.

Speaker Change: And again I'll put it in perspective.

Sandy: But that at least 10 transactions in the in the LOI are similar in size and nature to the bolt on deals that we have done over the past few years.

Sandy: And these standalone eyes are also sole source, meaning we have been proactively.

Sandy: Talking to the to the family on and have to built some incredible relationships. This is exactly what happened with their free alere acquisition through as well which are.

Vicente Reynal: This is exactly what happened with the Friolair acquisition too, as well, which, you know, I've been in contact with the founder named Luigi. So, but, again, outside of these 10 LOIs, we still have a couple of those deals in the funnel where the purchase price exceeds a billion dollars. So, yes, there's still, I mean, timing of that, obviously, difficult, but we still have a couple of those in our funnel. I will also tell you that, you know, we actually also walked away from one of those billion dollar purchase price transactions, which again speaks to the prudence and the discipline of our continued model. That even after, you know, six to nine months of continued diligence, we decided that it was just not the best case for us to proceed. So, we remain highly disciplined in this environment, and we see just a lot of good opportunities out there. Very helpful.

Sandy: I've been in contact with our founder.

Sandy: <unk>, so, but so again outside of just analyzed we still have a couple of those deals in the funnel where purchase price exceeds $1 billion. So yes. They are still I mean timing of that always a difficult, but we still have a couple of those in our funnel I will also tell you that we actually it actually also we walked away from one.

Sandy: Those $1 billion purchase price transactions.

Sandy: Okay again speaks to the prudency and the discipline of our continue modal but even after.

Sandy: Six to nine months of continued diligence, we decided that it was just not the best case for us to proceed.

Sandy: We remain highly disciplined in this environment and we see just a lot of good opportunity together.

Speaker Change: It's very helpful. And then can you give us more color in terms of the end markets seating answered the question before but if I look at Americas and EMEA.

Andrew Kaplowitz: And then can you give us more color, you know, in terms of the end markets, you answered the question before, but if I look at Americas and EMEA, you know, pretty continued, durable growth. Is it more than 20% of your business that's longer cycle, you know, larger compressors are more of the short cycle stuff that's supporting your growth? And what do you think the sustainability of the two markets is?

Speaker Change: Continued durable growth is it more the 20% of your business that's longer cycle and a larger compressors as more of the short cycle stuff.

Speaker Change: That's supporting your growth and what do you think the sustainability of the two market says.

Vicente Reynal: Yeah, I think we think that maybe over the past couple of years, it was a lot more on the longer cycle. Now, you know, perhaps as you can continue to see PMIs do better, is that, you know, shorter to medium cycles will continue to see maybe better momentum. So inflecting, we see some of that already here, and you saw, we spoke about that, particularly, let's say even PST, on that we said, you know, the industrial shorter cycle of missing digits year to year, and then also sequentially.

Speaker Change: Yes, I think we think that that maybe over the past couple of years. It was a lot more on the longer cycle, we see now.

Speaker Change: Perhaps you cannot continue to <unk> do better is that bad.

Speaker Change: Shorter to medium cycle will continue to see maybe a better momentum. So inflicting we see we see some of that even already here and so we spoke about that particularly let's say you are in PSD.

Speaker Change: Although we said the industrial shorter cycle of up mid single digits year over year, and then also sequentially. So so I think yes, I mean, I will say that our teams continue to stay pretty agile in days.

Vicente Reynal: So, I think, yeah, I mean, I will say that our teams continue to stay pretty agile in these, in continuing to pursue energy efficiency in the compressors. With our story around how we can save a tremendous amount of energy, that is a very good theme that continues to be out there. The theme around reshoring, very strong, continues to be the case in countries like Mexico or even South America. But so, I think the same, the same themes are still happening that we've been talking about for the past couple of years. I appreciate the color.

Speaker Change: In continuing to pursue energy efficiency and the compressors.

Speaker Change: With our story around how we can save tremendous amounts of energy that is a very good thematic there continues to be out there.

And the thematic around reassuring very strong continues to be the case in countries like Mexico, or even South America, but.

Speaker Change: So I think that the symptomatic are still happening that we've been talking about for the past couple of years.

Speaker Change: I appreciate the color. Thanks, guys, yes. Thank you.

Nigel Coe: Thanks, guys. Your next question comes from Nigel Coe with Wolf Research. Please go ahead. Thanks, good morning, everyone. Happy Friday.

Speaker Change: Your next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe: Thanks, Good morning, everyone.

Nigel Coe: Happy Friday.

Vicente Reynal: So all the big questions, I think have been asked, but maybe just give us a bit of color on what you've seen in China. Looks like that was down in the quarter. So maybe just quantify that and kind of like what's your sort of base case view on China. And then perhaps, as part of that, First half versus second half, it looks like core growth is flat at 2% in the first half of the year and then we're going to lift to the mid-single digits in the back half of the year. Is that simply easier competition, or are we seeing some acceleration, I don't know, maybe in China or perhaps in life sciences, any color on that?

Nigel Coe: So all of the big questions I think had been asked but maybe just give us a bit of color on what you're seeing in China looks.

Speaker Change: It looks like that was that.

Nigel Coe: It was down in the in the quarter. So maybe just quantify that and kind of like what's your sort of base case view on China, and then perhaps as part of that.

Nigel Coe: So as tough as the second half it looks like core growth plus 2% in the first half of the year and then we're going to lift the mid single digits in the back half of the year is that simply easier comps.

Nigel Coe: We've seen some acceleration I don't know maybe in China will perhaps in life sciences any any color there.

Vicente Reynal: Yeah, I mean, so China. I was actually in China a few weeks ago, earlier in January with the team, and we were doing a pre-celebration of the Chinese Happy New Year, so, but in addition to just reviewing how the business is performing, and to keep that in mind, I think, I think over the past six to nine months, I've been to China now three or four times.

Nigel Coe: Yeah.

Speaker Change: I was actually in China, a few weeks ago earlier here in January with the team.

Speaker Change: And we were doing a pretty celebration of the Chinese happy new year. So but in addition to reviewing how the business is performing and to keep that in mind I mean, I was I think over the past six to nine months I've been to China now three or four times. So I think I just wanted to add we continue to stay really close to to understand how our teams continue to control.

Vicente Reynal: So I think it's just one that we continue to stay really close to understand, you know, how our teams continue to control what we can control. So from an orders perspective, yeah, I mean, China in the fourth quarter was down mid-single digits, but keep in mind that this is on top of like a low double-digit orders growth that they saw in Q4 2022. So again, I think on a two-year stack, they still saw, you know, high single-digit order momentum, which is pretty impressive when you consider everything that is going on in China today. I would categorize the environment in China this time that I went to as much better than what I saw in 2023, in the sense that there seems to be teams re-energized about maybe what's happening in terms of the stimulus and how the teams continue to leverage our technology into other end markets where they see some good pockets of growth.

Speaker Change: We can control.

Speaker Change: So from an orders perspective, yes, I mean, China in the in the fourth quarter was down mid single digits, but keep in mind that this is on top of like a low double digit.

Orders growth that they saw in Q4 of 2022. So so again I think on a on a two year stack they still saw high.

Speaker Change: Single digit order momentum, which is pretty impressive when.

Speaker Change: When you consider everything that is going on in China today, I look at their eyes.

Speaker Change: The environment in China. This time that I went through much better than what I saw in 2023.

Speaker Change: And the fans that there seems to be a teens reenergize above maybe what whats happening in terms of the stimulus and how the teams continue to leverage our technology into other end markets that they see some good pockets of growth. So I was very encouraged to see how the team continues to navigate.

Vic: So I was very encouraged to see how the team continues to navigate that difficult market by being very nimble and agile in terms of pivoting to those areas of good growth. Yeah, Nigel, on the second part of your question about the kind of growth cadence first half to second half, yeah, probably a couple of factors I'd point to, one being, first and foremost, we do walk into the year with a, you know, still healthy backlog, including, you know, a good percentage of that that's longer cycle in nature. So that obviously gives us some good visibility into the back half of the year when a lot of those projects tend to naturally ship. And then, yes, I do think there's a lot of truth in the statement you made about clearly, you know, comps getting a little bit more moderate in the back half of the year. You know, kind of across the board, but you know clearly, whether it be China, as well as the life sciences side of the equation in the PST business.

Speaker Change: Difficult market by being very nimble and agile in terms of pivoting to those areas of good growth.

Speaker Change: Yes, Nigel on the on the.

Nigel Coe: The second part of your question about the kind of the growth cadence first half for second half probably a couple of factors I would point to one being first and foremost we do walk into the year with.

Nigel Coe: Still healthy backlog, including a good percentage of that that's longer cycle in nature. So that obviously gives us some good visibility into the back half of the year when a lot of those projects tend to have more naturally ship and then yes I do think there is a there is a lot of truth in the in the statement you made about <unk>.

Clearly comps get a little bit more moderate in the back half of the year.

Nigel Coe: Kind of across the board, but clearly whether it be China as well as the life Sciences side of the equation on the PSD business. So I think it's a couple of different factors, but.

Nigel Coe: Again, like we said before we think the the phasing of delivery of revenue and earnings is actually very consistent and 24 versus what you've seen historically.

Vic: So I think it's a couple different factors. But, you know, again, like we said before, we think the phasing of delivery of revenue and earnings is actually very consistent in 24 versus what you've seen historically. My follow-up question is that the strength of European compressor orders is remarkable considering what's going on in the economy there. So if you had to rank order these three Scope 1 emission targets, what would they be?

Speaker Change: That's great color.

Speaker Change: And as is.

Speaker Change: Is that the strength in European compressor orders is remarkable considering what's going on in the economy. There. So if you had to rank order. These three scope one emissions targets cbot pricing.

Speaker Change: Hi, Angie prices would be.

With the IRS on some of that but if you had to rank those three what would you say is the most important factor.

Vicente Reynal: CO2 pricing and high energy prices, and obviously IRX on top of that, but if you had to rank those three, what would you say is the most important factor? I would say high energy prices and scope one, which are interrelated, one with the other two. But yes, I'd say high energy prices are number one, scope one in terms of targets that many of the companies have put out there, and then the third will be around CO2. Great, thanks for attending. Your next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Hey guys, good morning. Morning Joe.

Speaker Change: I will say.

Speaker Change: High energy prices scope, one, which I ran kind of are interrelated one way through one without the other one and.

Speaker Change: But yes, I'd say high energy prices number one.

Speaker Change: <unk> in terms of targets.

Speaker Change: Many of the companies have put out there.

Speaker Change: And then the third would be around the <unk>.

Speaker Change: Great. Thanks, Thank you.

Speaker Change: Okay.

Speaker Change: Your next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie: Hey, guys. Good morning, good morning, Andrew.

Joe Ritchie: Hey, so a nice sense of the year, obviously incremental margins were great.

Joe Ritchie: Hey, so a nice end to the year. Obviously, incremental margins were great. You know, you hit your margin targets two years ahead of time. So you think about this IPS business now, and I know that you have this incremental margin target for the year of 35 to 40. I guess I'm just curious, like how much of that do you think is volume-dependent at this point?

Joe Ritchie: No you hit your margin target two years ahead of time.

Joe Ritchie: So you think about this Ips visits now and I know that you have this incremental margin target for the year of 35 to 40, I guess I'm just curious.

Joe Ritchie: How much of that would you say is volume dependent at this point I know <unk> is all about continuous improvement, but just your ability to deliver continued margin expansion if the volumes.

Vicente Reynal: I know IRX is all about continuous improvement, but just your ability to just deliver continued margin expansion if the volumes, you know, ultimately turn out to be weaker than expected. Joe, I say that, I mean, even when you think about our guidance, I mean, it just shows that, you know, lower growth, but still generating that very good margin, and that's driven by, you know, the activities that we have done, you know, call it I2B, also price, and even aftermarket. So, I think those are three core initiatives that we have continued to do really well. We always said that, you know, the ITS was very well ahead because that was part of the integration between Gartner Denver and IR on how we did those three initiatives prioritize there, but I can tell you, I mean, the PST team, like, even two weeks ago, they had, like, a worldwide I2B event, and it was just highly, highly encouraging to see how our new leader is just driving that type of methodology into a segment that, in the past, you know, they did it, but not in a way that we'd like that to be done.

Joe Ritchie: <unk> turn out to be weaker than expected.

Joe Ritchie: Joe.

Joe Ritchie: I'd say that I mean, even.

Joe Ritchie: When you think about our guidance I mean, it just sounds that lower growth, but still generating by very good margin and thats driven by.

Joe Ritchie: The activities that we have on <unk>.

Joe Ritchie: Also a prize and even after market. So I think those are three core initiatives that we have continued to do really well, we always said that the Ips was very well ahead, because I was part of our integration between Gardner Denver and IR on how we did those three initiatives prioritize there what I can tell you I mean, the BSD team like even.

Joe Ritchie: Two weeks ago, they had like a worldwide <unk> event and it was highly highly encouraging to see how our new leader is just driving that type of methodology into a segment that in the past.

Joe Ritchie: They did it but not in a way that we like we like that to be done and in addition, I think what you saw here in the fourth quarter as we took some proactive surgical what we call surgical restructuring at the end of the year and again Thats a prudency for us to continue to protect the P&L. So I think thats.

Vicente Reynal: And in addition, I think what you saw here in the fourth quarter is that, you know, we took some proactive surgical, what we call surgical restructuring at the end of the year, and again, that's prudence for us to continue to protect the P&L. So, I think that's, you know, controlling what we can control and taking the actions to ensure that we can deliver that solid margin improvement. That's helpful, Vicente. And look, it sounds like you've been on the road, road trotting for the last several weeks.

Joe Ritchie: Controlling what we can control and taking the actions to ensure that we can deliver that.

Joe Ritchie: Solid margin improvement.

Speaker Change: That's helpful. Dan look it sounds like you've been on the road.

Speaker Change: Hello Friday in Alaska. The last several weeks I am curious just from a regulatory standpoint are there any or any kind of change in regulation that you guys are seeing across any particular region that might be impacting your business or could impact your business going forward in the next call. It next 12 to 24 months.

Speaker Change: I mean, nothing that I'll say, a significant dramatic change that is new.

Speaker Change: I mean, we know about clearly the energy efficiency standards that are coming into effect by the further above and in the U S.

Vicente Reynal: I'm curious, just from a regulatory standpoint, are there any kind of changes in regulations that you guys are seeing across any particular region that might be impacting your business or could impact your business going forward in the next, we'll call it, you know, next 12 to 24 months? I mean, nothing that I would say of significant dramatic change that is new. I mean, we know clearly about the energy efficiency standards that are coming into effect by the federal government in the U.S.

Speaker Change: There is some refrigeration standards that are that will drive basically our air treatment business.

Speaker Change: I would view it in a positive way.

Speaker Change: Driven first in Europe, and then in the U S as well.

Speaker Change: But those are kind of known that we have known for a little while but theyre not deal.

Speaker Change: Okay, great. Thanks, guys. Thank you.

Speaker Change: Your next question comes from Steve Volkmann with Jefferies. Please go ahead.

Vicente Reynal: There are some refrigeration standards that will drive basically our air treatment business, and I would view that in a positive way, driven first in Europe and then in the U.S. too as well. But those are kind of known standards that we have known for a little while, but they're not, Okay, great.

Stephen Edward Volkmann: Hi, Good morning, guys. Thanks for taking the question maybe.

Stephen Edward Volkmann: Maybe just a couple of longer term ones here, just kind of going back to orders and backlog now that the world is sort of normalizing again over some period should we expect backlog to decline or do you think it's kind of at the at the rate that it should be going forward.

Joe Ritchie: Thanks, guys. Thank you. Your next question comes from Steve Volkmann with Jeffries. Please go ahead. Hi, good morning guys.

Speaker Change: Yes, I would categorize that so good news is that clearly we are still pretty high backlog, which incur.

Stephen Edward Volkmann: Thanks for taking the question. Maybe just a couple of longer-term ones here, just kind of going back to orders and backlog. Now that the world is sort of normalizing again, over some period, should we expect backlog to decline? Or do you think it's kind of at the rate that it should be going forward? Yeah, I'll categorize that.

Speaker Change: Encouraging to see.

Speaker Change: I think over time, perhaps he has he will get normalized.

Speaker Change: But again I think that when we think about the business. If we continue to get these book to Bill of one of approximately one that we continue to expect to see here in 2024, I think <unk> seem to be continuing at a pretty higher level than what we have done historically.

Vic: I mean, so the good news is that clearly, we're still pretty high on the backlog, which is, which is encouraging to see. I think over time, perhaps, yes, it will get normalized. But again, I think that when we think about the business, that if we continue to get this book to bill of one, of approximately one, that we continue to expect to see here in 2024, I think backlogs seem to be continuing at a pretty higher level than what we have done historically. And the other thing I would say there is, you know, with the amount of, as I said, with some of the longer cycle projects, we do fundamentally feel So I think that you have seen a little bit of a structural change in the composition of the backlog as compared to historical times.

Yeah, great. Okay, great, Yes, yes, I'd say there is with.

Speaker Change: With the amount of as I said with some of the longer cycle, we do fundamentally feel that compared to years in the past. There is just a higher amount of our backlog that's the longer cycle projects, which then clearly leads to the level of backlog you have now so I think thats, what you have seen a little bit of a structural change in the composition of the backlog as compared to more historic times.

Speaker Change: Got it okay. Thanks, Vic and then switching gears a little bit companies that are acquisitive and sort of have this flywheel that you guys have.

Speaker Change: You know occasionally something comes over the transom that isn't quite what you thought it was going to be you may have.

Speaker Change: A little disappointment in some piece of some business or something so I'm just curious any any lessons learned anything like that happening and.

Vicente Reynal: Okay, thanks, Vic. And then switching gears a little bit, companies that are acquisitive and sort of have this flywheel that you guys have, occasionally something comes over the transom that isn't quite what you thought it was going to be, and you may have a little disappointment in some piece of some business or something. So I'm just curious, any lessons learned, anything like that happening?

Speaker Change: More importantly should we expect some level of divestitures to be kind of part of this machine as we go forward.

Speaker Change: Yes, David I'll start on that.

Speaker Change: <unk> seen us now since the since the merger done done over 40 transactions and obviously not all of them had been 100% the same.

David: But what we would say here is and we've acknowledged before probably the ones that maybe or maybe slightly below expectations. Comparatively speaking are probably the ones, where I Rx and that integration process probably didnt.

Stephen Edward Volkmann: And more importantly, should we expect some level of divestitures to be kind of part of this machine as we go forward? Yeah, Steve, I'll start on that. So, you know, you've seen us now since the merger. We've done over 40 transactions. And, you know, obviously, not all of them have been, you know, 100% the same.

David: <unk> get embedded from day, one if not before so if the lesson learned here is we've got a playbook.

David: Whether it's an <unk> acquisition of our PST acquisition, we're going to continue to deploy that playbook on the IRS cycles, we fundamentally view that as the catalyst for success in terms of the integration and really embedding those businesses within the core.

Vic: But what we would say here, and we've acknowledged this before, probably the ones that maybe, you know, were maybe slightly below expectations, comparatively speaking, are probably the ones where IRX and that integration process probably didn't get integrated, you know, from day one, if not before. So if the lesson learned here is, you know, we've got to playbook, whether it's an ITS acquisition or PST acquisition, we're going to continue to deploy that playbook on the IRX side because we fundamentally view that as the catalyst for success, in terms of, you know, the integration and really embedding those businesses within the core. Yeah, I mean, the only thing that I will add to that as well is that, I think we said this before, but, you know, my staff meeting, which happens, typically, on Fridays, it's run as an IDM, part of the IRX.

Speaker Change: Yes, and the only thing that I would add to that I was wondering I.

Speaker Change: I think we said this before but my staff meeting, which happens typically on Fridays. It's Ron is on IDM part of the <unk> and one of the areas of focus is basically we have a dashboard of all the M&A that are getting integrated.

Speaker Change: We can clearly see if there is any issues our gaps and that was an implementation, though we made a few.

Speaker Change: Quite a few months ago I can say 18 months ago as we saw maybe some.

Speaker Change: Businesses that were not properly integrated so I think it's just part of that is we expect continued improvement good evolution and and having the news travels fast so that we can react.

Speaker Change: Of course, correct, if something is not going the right way.

Speaker Change: Great. Thank you guys.

Speaker Change: Your next question comes from Chris Snyder with UBS. Please go ahead.

Vic: And one of the areas of focus is basically we have a dashboard of all the M&As that are getting integrated, where we can clearly see if there are any issues or gaps. And that was an implementation that we did a few, you know, quite a few months ago, I'm going to say 18 months ago, as we saw maybe some businesses that were not properly integrated.

Chris Snyder: Thank you I wanted to also ask on the M&A engine and maybe a more high level. One. So so revenue in 2024 is going to be about 40% above 2021.

Chris Snyder: Does that make it more difficult for the company to add this 4% to 500 basis points of M&A contribution every year and does it change anything around the process of doing so.

Vicente Reynal: So, I think it's just part of that, as Vic said, continuous improvement, good evolution, and having the news travel fast so that we can react and, of course, correct if something is not going the right way. Great, thank you guys. Your next question comes from Chris Snyder with UBS. Please go ahead.

Chris Snyder: Just as the numbers have again, I guess gone, 40% bigger versus three years ago to keep that same run rate. Thank you.

Chris Snyder: Thank you. I wanted to also ask about the M&A engine and maybe a more high-level one. So revenue in 2024 is going to be about 40% above 2021. Does that make it more difficult for the company to add this 400 to 500 basis points of M&A contribution every year? And does it change anything around the process of doing so, just as the numbers have, again, I guess, gotten 40% bigger over three years ago to keep that same run rate? Thank you. Yeah, Chris, I would say that, I mean, it's become more difficult.

Chris Snyder: Yes.

Speaker Change: Yes, Chris I will say that I mean has it become more difficult I will say that when you think about it back in 2021, I think our addressable market backend that investors a with any way. We said it was maybe about 25.

It was $25 5 billion.

Speaker Change: And you saw our most recent investor day, our addressable market being 55 billion. So so clearly when we make an acquisition. We look at it also from the perspective of are we able to increase the addressable market by increasing the addressable market. We're doing it in a highly fragmented market that gives us a greater pool of transactions to be able to be acquired so we're always very thoughtful on how we on these kind of flywheel on the.

Speaker Change: And Janet just to being one that is just not there is an ongoing engine that can continue to grow.

Vicente Reynal: I would say that when you think about it, back in 2021, I think our addressable market, back in investors' day, we said it was maybe, what, $25 billion? $25 to $30 billion. And you saw on our most recent investors' day that our addressable market is $55 billion. So clearly, when we make an acquisition, we look at it also from the perspective of, are we able to increase the addressable market? And by increasing the addressable market, we're doing it in a highly fragmented market that gives us a greater pool of transactions to be able to be acquired. So we're always very thoughtful on how we, on this kind of flywheel on the M&A engine, just to be one that is just not, it's an ongoing engine that can continue to grow. And I think that, in terms of statistics and data points, that's why we track the number of transactions by tollgate and with probability.

Speaker Change: And I think thats in terms of statistics and data points Thats why we track a number of transactions by by by total gave them where the probability. So I think of the cadence of that M&A, it's pretty solid.

Speaker Change: And in terms of change in the process I mean, nothing that I will say has been dramatic change we continue to always make some tweaks and improvements like I think about a year ago. We spoke about how we look at about 100 micro trends and that leads into new M&A transactions that we can actually possibly do so we're always trying to we will continue to evolve.

Speaker Change: <unk> or.

Speaker Change: Our process to make it better on an ongoing basis, so changing the process, yes, because we are always continuing continually improving the way we do things.

Speaker Change: Yes.

Speaker Change: Appreciate that and then maybe just a follow up on productivity and efficiency of the business. Obviously margins have been really strong here. The last three to four years do you feel like the efficiency of manufacturing has returned to pre COVID-19 levels, obviously, theres a lot of disruption coming out of the pandemic, which I am.

Vicente Reynal: So I think the cadence of that M&A is pretty solid. And in terms of change in the process, I mean, nothing that I will say has been a dramatic change. We continue to make some tweaks and improvements. Like I think about a year ago, we spoke about how we look at about 100 microtrends, and that leads into new M&A transactions that we can actually, possibly, do. So we're always trying to continue to evolve our process to make it better on an ongoing basis. So changing the process, yes, because we are always continually improving the way we do things. I appreciate that.

Speaker Change: There was a headwind to margins in some capacity do you feel like that is fully back at this point. Thank you.

Speaker Change: I mean I.

Speaker Change: I don't think so only because I think still there is a little bit of supply chain disruption here and there to happens right.

Speaker Change: So giving you for example, I mean the.

Speaker Change: The situation with the with the Red Sea situation in the Panama Canal I mean, a lot of that create supply chain disruption, we as a company that we are so global and being so.

Chris Snyder: And then maybe just to follow up on productivity and efficiency of the business. Obviously, margins have been really strong here for the last three to four years. Do you feel like the efficiency of manufacturing has returned to pre-COVID levels? You know, obviously, there's a lot of disruption coming out of the pandemic, which I'm sure was a headwind to margins in some capacity. Do you feel like that is fully back on track at this point?

Speaker Change: So good in terms of assembly anytime with all supply chain disruption it creates inefficiencies in the factory. So it's I would say that it is not back to the normal stability that we have seen maybe three frequently that's my view and I think also we're pretty critical Chris in terms of Ohio.

Speaker Change: Wanted to continue to improve our factories and our operations does that is that lean mindset that of continuous improvement that always view that hey, we're always have to do better than what we did in Nevada.

Vicente Reynal: Thank you. I mean, I don't think so, only because, I mean, I think there's still a little bit of supply chain disruption here and there that happens, right? And so giving you, for example, the situation with the Red Sea, the situation in the Panama Canal, I mean, a lot of that creates supply chain disruption, and we, as a company that is so global and so good at terms of assembly, any kind of supply chain disruption creates inefficiencies in the factory.

Speaker Change: Thank you I appreciate that thank you.

Speaker Change: Your next question comes from Joe O'dea with Wells Fargo. Please go ahead.

Joe Ritchie: Hi, good morning.

Joe Ritchie: <unk>.

Wanted to just start on the growth algorithm and if we think about a couple of points of price and a point of volume and just how you're thinking about the overall macro and the type of <unk>.

Joe Ritchie: Growth that you have kind of underlying on the volume side really just trying to understand how how much demand generation is embedded and in this initial guide is that does.

Vicente Reynal: So I would say that it is not back to the normal stability that we have seen maybe pre-COVID. That's my view. And I think also we're pretty critical, Chris, in terms of how we want to continue to improve our factories and our operations. Is that lean mindset of continuous improvement that always views that, hey, we always have to do better than what we did in the past?

Joe Ritchie: Is that one point of volume reflective of outgrowth or or is there potential sort of upside on the demand generation side of things.

Vicente Reynal: Thank you. I appreciate that. Your next question comes from Joe O'Day with Wells Fargo. Please go ahead. Hi, good morning.

Yes, Jonathan maybe I'll start with that one I think we always view that theres upside on the on the demand Gen side and frankly, even on the volume side. Let me, let me kind of unpack that a little bit I think I think it was that I mentioned earlier.

Josh Pokrzywinski: I wanted to just start with the growth algorithm. And if we think about a couple points of price and a point of volume, and just how you're thinking about the overall macro and the type of growth that you have kind of underlying on the volume side, really, you know, just trying to understand how much demand generation is embedded in this initial guide, you know, is that one point of volume reflective of our growth? Or, or is there, you know, potential sort of upside on the demand generation side of things? Yeah, Josh. May I start with that one? I think we always view that there's upside on the demand generation side and, frankly, even on the volume side. Let me kind of unpack that a little bit.

Joe Ritchie: Look at the regional trends here with Prime America is it kind of at the top of the stack EMEA relatively more stable in APAC, which is largely China for us probably facing the most headwind at least as we enter the year, that's kind of the balanced equation that we looked at as we thought about the the growth algorithm. As you said now that being said, we entered the year with a healthy backlog solid backlog.

Joe Ritchie: Demand.

Joe Ritchie: Without question is part of the equation here and clearly we would say not too dissimilar from frankly, even years past.

Joe Ritchie: There is upside opportunity in the context of the guide or in the context of the year. It really it really probably more so if it comes that organic volume piece, probably more so into the as the year progresses. So again I don't think the equation for us is dramatically different than <unk> seen historically, but we are conscious and taking into consideration some of the regional trends that we're seeing particularly as we enter the year and we're going to.

Vic: I think Vicente mentioned earlier, you know, when you look at the regional trends here, you know, with probably America as kind of at the top of the stack, EMEA relatively more stable, and, you know, APAC, which is, you know, largely China for us, probably facing the most headwinds, at least as we enter the year, you know, that's kind of the balanced equation that we looked at as we thought about the growth algorithm, as you said. Now, that being said, you know, we enter the year with healthy backlog, solid backlog, you know, demand generation without question is part of the equation here, and, you know, clearly we would say not too dissimilar from, frankly, even years past, you know, if there's upside opportunity in the context of the guide or in the context of the year, it really probably more so becomes that organic volume piece, probably more so into the, you know, as the year progresses.

Joe Ritchie: To monitor those and pulse those as we get through the quarter and into second quarter and the back half of the year.

Joe Ritchie: Understood.

Joe Ritchie: Then on <unk> margins in the 30% in the fourth quarter.

Speaker Change: Could kind of unpack that a little bit and bridging that sequential improvement from <unk> to <unk> and then also just to clarify it sounds like the 35% to 40% Incrementals applies to both segments and so it's not like that exit rate sets up a tough incremental comp I'm not sure. If there was any restructuring.

Speaker Change: That sort of hit the Ics side or if that was more on the PST side, but just some details there would be helpful.

Speaker Change: Yes, sure maybe I'll take those in pieces here.

Vic: So, again, I don't think the equation for us is dramatically different than you've seen historically, but, you know, we are conscious of taking into consideration, you know, some of the regional trends that we're seeing, particularly as we enter the year, and we're going to continue to monitor those and pulse those as we get through the quarter and into the second quarter and the back half of the year.

Speaker Change: If my memory serves me correctly went from about <unk>.

Speaker Change: 28, 8% EBITDA margins to about 30% a little over 100 basis points sequential margin expansion from Q3 to Q4 I point to a couple of things here one.

Speaker Change: Frankly.

Speaker Change: The revenue and volume levels tend to pace of the year a lot of our productivity measures are tied to volume. So when you see a heavier shipment quarter like you saw in Q4 as compared to Q3, you should expect things like some of the productivity measures. The ITV to follow I'd say, that's probably one of the single biggest drivers I think price cost continued to remain quite positive and overall just strong solid.

Vic: And then on ITS margins and the 30% in the fourth quarter, if you could kind of unpack that a little bit and bridge that sequential improvement from 3Q to 4Q. And then also, just to clarify, it sounds like the 35 to 40% incremental applies to both segments. And so it's not like that the exit rate sets up a tough incremental comp. I'm not sure if there was any restructuring that sort of hit the ITS side or if that was more on the PST side, but just some details there would be helpful. Yeah, sure; maybe I'll take those in pieces here.

Speaker Change: As we exited the year the other thing that I think we continue to see good.

What I would say momentum on is the is the aftermarket side.

Speaker Change: And that really sets up nicely even during the Investor day, we indicated that aftermarket as well as the recurring revenue side of the equation is a big focal point for us and we would expect to continue to see that not only ramp as we think about the next few years, but also that being margin accretive in the overall equation. So again I think thats, probably the way that we think about the equation in terms of.

Vic: So, if my memory serves me correctly, it went from about 28.8% EBITDA margin to about 30%, so a little over 100 basis points sequential margin expansion from Q3 to Q4. I'd point to a couple things here. You know, one, you know, frankly, as revenue and volume levels tend to pace through the year, you know, a lot of our productivity measures are tied to volume. So when you see a heavier shipment quarter, like you saw in Q4 as compared to Q3, you should expect things like some of the productivity measures, the I2B to follow. I'd say that's probably one of the single biggest drivers.

What kind of drove Q Q4, specifically now in terms of the whole.

Speaker Change: Incrementals and how we think about 2020.

Speaker Change: For like we said, 35% to 40% is the kind of the overall average.

Speaker Change: Think about it here is it is probably a plane.

Speaker Change: Maybe towards the lower end of that probably in the <unk> realm, PST, obviously, probably has a little bit more outsized opportunity, but I think that also goes to the fact that we said that while we are pleased with PST delivering 30% EBITDA margins.

Speaker Change: The full year of 2023, we know that that business can get up into that mid <unk> realm, and as such there should be a little bit more of an outpaced opportunity. So there's a little bit of puts and takes there as well as the center I mentioned earlier, a little bit of upside on the corporate cost as we think year over year. So.

Vic: I think price cost continued to remain quite positive, and, you know, overall, just strong, solid execution as we exited the year. The other thing that I think we continue to see good, you know, what I'd say momentum on is the aftermarket side, and that really sets up nicely even during investor day. We indicated that, you know, aftermarket as well as the whole recurring revenue side of the equation is a big focal point for us, and we would expect to continue to see that, not only ramp as we think about the next few years, but also that being margin accretive in the overall equation. So, again, I think that's probably the way that we think about the equation in terms of what kind of drove Q4 specifically.

Speaker Change: Hopefully that kind of gives you a little bit of a sense of how we're thinking about the airplane itself out.

Speaker Change: Yes, all helpful. Thank you.

Speaker Change: Thanks, Ken.

Speaker Change: Nathan.

Go ahead.

Speaker Change: Good morning, everyone. Good morning Nathan.

A couple of fairly now our questions.

Nathan: I wanted this strategic.

Nathan: Additions you've made in M&A has been to add drawing to the portfolio. So I was just hoping to get an update on.

Speaker Change: The benefit that youre, saying that revenue synergies that you're generating there whether or not you think that portfolio is built out or it is still an opportunity.

Speaker Change: To add more of that capability.

Speaker Change: Yes Nathan.

Nathan: It's definitely a very exciting addition to <unk> and you have seen that we made quite a few acquisitions on that I mean, not only the SPX flow treatment side.

Vic: Now, in terms of the whole, you know, incrementals and how we think about, you know, 2020, you know, for, like we said, 35 to 40 percent is kind of the overall average. The way I probably think about it here is, you know, ITS is probably playing, you know, maybe towards the lower end of that, you know, probably in the 30s realm.

Speaker Change: <unk> wise, we acquired <unk>, we acquired a couple years ago and now <unk> two as well and then in China. Even also one year and the reason why is because air treatment is very good from the perspective of being attached to a compressor. If you think about the attachment rate it.

Vic: PST, obviously, probably has a little bit more of an outsized opportunity, but I think that also goes with the fact that we said that while we're pleased with PST delivering 30 percent EBITDA margins in the full year of 2023, we know that business can get up into that mid-30s realm, and as such, there should be a little bit more of an outpaced opportunity. So, there's a little bit of puts and takes there, as well as, as Vicente mentioned earlier, a little bit of upside on the corporate cost, as we think year over year. Hopefully, that kind of gives you a little bit of a sense of how we're thinking about the airplane itself.

Speaker Change: It should be like 70% attached to a compressor so clearly.

Speaker Change: That's.

Speaker Change: In terms of <unk>.

Speaker Change: <unk> have a metric that we use with our teams is exactly that what is your attachment rate. When you say a compressor or how often are you attaching that air treatment through through that and add that that definitely drives some good growth momentum and then to think about it too as well air treatment is roughly 50% of aftermarket. So it generates a very good solid aftermarket so the.

Speaker Change: <unk> of those two factors, we like it a lot.

Speaker Change: And then the third component and the third item of why we like it is because you can actually optimize energy efficiency is much better when you have the combination of the compressor on the air treatment talking to each other in a common way and being remotely connected and then fine tuning that connectivity. So so I think as a multiple levers of strategic growth that we see on the driver.

Vic: Yep, all very helpful. Thank you. The next question comes from Nathan Jones, D4, go ahead. Good morning, everyone. Good morning, Nathan and Edmund.

Nathan Hardie Jones: A couple of fairly narrow questions. I know one of the strategic additions you've made to NMMA has been to add drawing to the portfolio. So I was just hoping to get an update on the benefits that you're seeing there, revenue synergies that you're generating there, whether or not you think that portfolio is built out, or it's still an opportunity to add more of that capability. Yes, Nathan, it's definitely a very exciting addition, and you have seen that we made quite a few acquisitions on that. I mean, not only the SPX flow air treatment side, OxiWise we acquired, Holtec we acquired a couple of years ago, and now Friolair too as well, and then in China, even Hanyan. And the reason for this is that, you know, air treatment is very good from the perspective of being attached to a compressor. If you think about the attachment rate, it should be like 70% attached to a compressor. So clearly, that's, you know, in terms of a KPI or a metric that we use with our teams, exactly that. What is the attachment rate? When you see a compressor, how often are you attaching that air treatment to it?

Speaker Change: Portfolio.

Speaker Change: Okay.

Speaker Change: Our next question comes from David Lewis.

David Lewis: Go ahead.

David Lewis: Please go ahead.

David Lewis: Okay.

David Lewis: Yeah.

David Lewis: David Raso your line is open.

David Raso: Hi, sorry about that just a couple of quick questions or clarification.

David Raso: On the M&A comment I thought I heard the word incremental four to 500, but you really have two to two 5% of acquired revenues booked that'll flow through this year.

David Raso: Was that truly four to 500 above what's already booked or just getting up to the framework of four to 500 basis points of acquired revenues.

Speaker Change: Clarify that yes, David let me take that so I think.

David: Pieces here. So you obviously have the carryover.

David: As well as the <unk>.

Speaker Change: <unk> acquisition, so you see in our guidance.

Speaker Change: $160 million of revenue contribution that's the carryover and the completed to date, obviously, you would expect to book.

Speaker Change: To close more acquisitions as the year goes by but embedded in the guide is that 160, the comment about 4% to 500 would be the acquisitions that we expect to make in the year and the annualized revenue contribution. So for all the deals that we expect to make here based on the funnel and all the comments of a sentiment we would expect that to be four to 500 basis.

Vicente Reynal: And that definitely drives some good growth momentum. And then to think about it too, air treatment is roughly 50% of the aftermarket. So it generates a very good, solid aftermarket. So as a combination of those two factors, we like it a lot. And then the third reason why we like it is that you can actually optimize energy efficiency much better when you have the combination of the compressor and the air treatment talking to each other in a common way and being remotely connected and then fine-tuning that connectivity.

Speaker Change: Points on an annualized basis. So you should take those kind of two statements separate from each other but again I think the short answer here is we expect to continue to operate well in line with our stated economic growth engine, how you've seen us operate in years past.

Vicente Reynal: So I think there's multiple levers of strategic growth that we see in this driver portfolio. Your next question comes from David Raso with Core Sci. Please go ahead. David Raso, your line is open.

Speaker Change: Thank you I just wanted a clarification on that and on the call out to that.

Speaker Change: <unk> truck manufacturer in Europe on the vacuum and blowers order weakness.

Speaker Change: You made a comment like zinc prospects are improving potentially for that to get it just so I'm clear do you think that order to come back on the books was assumed to be of some size must be $230 million or so not small is that is it can come back on the books.

David Raso: Hi, sorry about that. I just have a couple quick questions. A clarification... On the M&A comment, I thought I heard the word incremental four to five hundred, but you already have two to two and a half percent of acquired revenues booked that will flow through this year. Was that truly four to five hundred above what's already booked or just getting up to the framework of four to five hundred basis points? Acquired Revenue, David, let me take that. So I think I'll take them in pieces here.

Speaker Change: Yes, let me let me let me take the first part of that all of a sudden to answer.

Speaker Change: The way I would describe it is interestingly enough we booked it in Q4 of 23 and the original order happened to have come in Q4, 2002, so interesting enough it kind of it hit us about that both in the quarter as well as the comp as I said I'll, let Joe speak to the prospects going forward.

Vic: So you obviously have the carryover as well as the through layer acquisition. So you see in our guidance the approximately $160 million of revenue contribution. That's the carryover and the acquisitions completed to date. Obviously, we would expect to book and close more acquisitions as the year goes by. But embedded in the guide is that $160 million.

Joe: Going forward is that I mean.

Joe: We're still in touch with them I mean, basically they had a situation where the battery supplier went bankrupt.

And that led to these truck manufacturer and not being able to produce the trucks.

Joe: Needless to say, what we're seeing now is that it's been acquired the asset have been acquired.

Vic: The comment about 4 to 500 would be the acquisitions that we expect to make in the year and the annualized revenue contribution. So for all the deals that we expect to make here based on the funnel and all the comments that Vicente made, we would expect that to be 4 to 500 basis points on an annualized basis. So you should take those two statements separate from each other.

Joe: Have a great technology I mean this is for the last mile delivery trucks in Europe, which is very highly needed.

Joe: And so the conversations continue to happen, which obviously means.

Joe: There could be some good prospects here as we go into 2024.

Speaker Change: Okay. Thank you very much.

Speaker Change: Yeah.

Speaker Change: No.

Vicente Reynal: But again, I think the short answer here is we expect to continue to operate well in line with our stated economic growth engine and how you've seen us operate in years past. Thank you.

Speaker Change: The blade.

Speaker Change: Please go ahead.

Speaker Change: Thanks, Good morning, guys. Thanks for squeezing me in here at Goldman.

Speaker Change: Maybe just starting with the free cash question. So conversion of about 100%. So all the Capex plans. How are you guys thinking about working capital for 2024.

Vic: And on the call out to that EV truck manufacturer in Europe on the vacuum and blower order. You made a comment like prospects are improving potentially for that again. Just so I'm clear, do you think that order could come back on the books? Because it seemed to be of some size, must be $20, $30 million or so, not small. Is that something that can come back on the books?

Speaker Change: Sure.

Speaker Change: Yes, I think Nicole I think broad strokes here, we still see an opportunity here I think is this is the long and short of it. While we were pleased with our kind of exit momentum heading out 23, particularly on the inventory side, which was a very much a source of cash in the quarter, we frankly still sit at elevated levels comparatively speaking to.

Speaker Change: I'd say, the pre supply chain dynamics and things of that nature. So I think that's definitely an opportunity as well as I'd say some of the just core I'll just call it blocking and tackling whether it'd be just kind of the collections and things of that nature fair to say that we still have a component of our portfolio whether it be parts of the PST organization as well as a lot of summer.

Vicente Reynal: Yeah, let me take the first part of that and I'll let Vicente answer it. The way I would describe it is, interestingly enough, we de-booked it in Q4 of 23, and the original order happened to have come in Q4 of 22. So, interestingly enough, it kind of hit us on both ends, both in the quarter as well as the comp.

The bolt on M&A that is not in the shared service environment, which obviously for US is a big catalyst of working capital improvement. So you put that altogether I think thats still lends itself as a good source of opportunity for 'twenty four and beyond.

Vicente Reynal: Vicente, I'll let you speak to the process going forward. Yeah, and the process going forward is that, I mean, we're still in touch with them. I mean, basically, they had a situation where the battery supplier went bankrupt, and that led to this truck manufacturer not being able to produce the trucks. Needless to say, what we're seeing now is that it's been acquired, the assets have been acquired, and they have great technology. I mean, this is for the last mile delivery trucks in Europe, which is very highly needed.

Thanks, Nick and then just it doesn't it looks like you guys have any buybacks in the guidance based on the share count outlook. So how are how is your view on potential buyback activity. In 2024. Thank you. Yes. That's correct. We did not have any incremental buybacks as part of the guidance now that being said I think the way you should expect us to operate here in 2024 is similar.

Speaker Change: The prior year's meaning a requisite amount approximately we've always said approximately $250 million is probably a good proxy and a placeholder in terms of expectations for the year, but you are correct that is not formally in the guidance. Thanks.

Nicole DeBlase: And so, the conversations continue to happen, which obviously means that there could be some good prospects here as we go into 2024. Okay, thank you very much. Your final question comes from Nicole DeBlase with Deutsche Bank. Please go ahead. Yeah, thanks. Good morning, guys.

Speaker Change: Thanks, Nick.

Speaker Change: There are no further questions at this time I will now turn the call back to Ingersoll Rand and CEO Vicente Marino for any closing remarks.

Vic: Thanks for squeezing me in here. Maybe just starting with a free cash question, so conversion of 100 percent, saw the CapEx plans. How are you guys thinking about working capital for 2024? Sure.

Vicente Marino: Thank you Breanna and as we wrap up here I just wanted to pass one more thank you to our employees, who continue to think and act like owners because they are owners of the company and it's very exciting to see as I travel around the world.

Vic: Yeah, I think, Nicole, I think, you know, broad strokes here, we still see an opportunity here. I think that's the long and short of it. You know, while we were pleased with our kind of exit momentum heading out of 23, particularly on the inventory side, which was a very much a source of cash in the quarter, we frankly still sit at elevated levels, comparatively speaking, to, you know, I'd say, you know, the pre-supply chain dynamics and things of that nature. So, you know, I think that's definitely an opportunity, as well as, I'd just call it, blocking and tackling, whether that be just kind of the collections and things of that nature. Fair to say that we still have a component of our portfolio, whether it be, you know, part of the PST organization, as well as a lot of some of the bolt-on M&A that's not in the shared service environment, which, So, put that all together, I think that still lends itself as a good source of opportunity for 24 and beyond.

The high level of engagement and energy that we have across our organization I think our economic growth engine.

As power bi that momentum on the ownership mindset and leveraging our IRI. So again very encouraged very happy and to see the performance and look forward to another good.

Speaker Change: Year here in 2024, thank you.

Speaker Change: This concludes today's conference call you may now disconnect.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Vic: Okay, thanks, Nick. And then just, it doesn't look like you guys have any buybacks in the guidance based on the share count outlook. So, how, how, what is your view on potential buyback activity in 2024? Thank you. Yep, that's correct. We do not have any, I'd say, incremental buybacks as part of the guidance. Now, that being said, I think the way you should expect us to operate here in 2024 is similar to the prior years, meaning, you know, a requisite amount, approximately, we've always said approximately $250 million is probably a good proxy and a placeholder in terms of expectations for the year. But you are correct, that is not formally in the guidance.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Vic: Thanks, Bex. There are no further questions at this time. I will now turn the call back to Ingersoll-Rand's CEO, Vicente Reynal, for any closing remarks. Yeah, thank you, Brianna. And as we wrap up here, I just want to pass one more thank you to our employees who continue to think and act like owners because they are owners of the company. And it's very exciting to see, as I travel around the world, the high level of engagement and energy that we have across our organization. I think our economic growth engine is powered by that momentum for the ownership mindset and leveraging our IRA.

Speaker Change: [music].

Speaker Change: Thank you.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Vicente Reynal: So again, very encouraged, very happy and to see the performance and look forward to another great year here in 2024. Thank you. This concludes today's conference call. You may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??? ??? ??? ???

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.