Q4 2024 Ingersoll Rand Inc Earnings Call
Speaker Change: Hello and welcome to the Ingersoll RAND 2024 fourth quarter earnings call. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, please press star 1 on your telephone keypad. I would now like to turn the conference over to Matthew Fort, Vice President of Investor Relations. You may begin.
Speaker Change: Thank you, and welcome to the Ingersoll Rand 2024 fourth quarter earnings call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO, and Vik Kini, Chief Financial Officer.
Speaker Change: We issued our earnings release and presentation yesterday afternoon, and we will reference these during the call.
Speaker Change: Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today.
Speaker Change: 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 as discussed in our previous SEC filings.
Speaker Change: which you should read in conjunction with the information provided on this call.
Speaker Change: Please review the forward-looking statements on slide 2 for more details.
Speaker Change: In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website.
Speaker Change: On today's call, we will review our company and segment financial highlights and provide full year 2025 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.
Vicente Reynal: Thanks Matthew and good morning to all. Starting on slide three, the key to our financial durability is our economic growth engine, which helped us to deliver outperformance in 2024 with double-digit adjusted EPS growth and strong free cash flow margin despite a very dynamic global market.
Vicente Reynal: Looking towards 2025 we see continued growth underpinned by organic investments and plenty of runway for inorganic growth with over 200 active targets in the funnel.
Vicente Reynal: And, we also expect strong operational execution through the use of our competitive differentiator IRX.
Vicente Reynal: Most importantly, I want to thank all of our employees around the world for their contributions and always thinking and acting like owners of the company.
Vicente Reynal: On slide four, we're highlighting the differentiated compounded results delivered through our economic growth engine.
Vicente Reynal: With IRX underpinned by our innovative employee ownership model, we have created an increasingly durable financial profile with over 20,000 employees working towards our company's common goals.
Vicente Reynal: As shown on the page, over the cycle, we have either deliver or outperform our long-term investor day targets across all targets.
Vicente Reynal: On slide five, we continue to be a leader in sustainability, delivering financial performance while also doing good for the planet, our community, and our employees.
Vicente Reynal: On the left-hand side of the page, for the third year in a row, we were named to the Dow Jones Best-in-Class Indices, ranking number one in our industry and finishing in the top 1% of the Corporate Sustainability Assessment.
Vicente Reynal: Also, for the second year in a row, Incasurran was named to the A-list for our commitment to global environmental leadership by CDP.
Vicente Reynal: CDP's annual environmental disclosure and scoring process is globally recognized as the gold standard for corporate transparency.
Vicente Reynal: As you can see on the right-hand side of the page, with the ownership equity grants provided, and through the performance of the company to date, we have created approximately $700 million of incremental wealth for our employees.
Vicente Reynal: We strongly believe that the combination of our ownership mindset and creating a great place to work is a true catalyst for long-term performance.
Vicente Reynal: Moving to the next page, since the merger with Ingersoll RAN in 2020, we have transformed the company into a premier growth compounder. We reduced cyclicality through divesting our Clubcard and HPS businesses, and we have reinvested approximately $5.4 billion into accretive acquisitions focused on high-growth, sustainable end markets.
Vicente Reynal: Through this transformation, in just three years, we have nearly doubled our total addressable market both through acquisitions and with continued organic investments in product and service innovations.
Vicente Reynal: We believe that we're very uniquely positioned to grow our market share within the 67 billion dollars highly fragmented market through the combination of our innovative product portfolio, multi-channel, multi-brand strategy, and robust commercial and operational footprint, which is well positioned for the current dynamic macro environment.
Vicente Reynal: On the right-hand side of the page, I want to highlight that our M&A strategy remains unchanged, and that we will continue to be disciplined in our approach for M&A execution, creating shareholder value while further positioning ourselves in highly attractive end markets.
Vicente Reynal: Turning to slide 7, we continue to diversify our products and portfolios into high-growth, sustainable-end markets, and have expanded our total addressable market by approximately $12 billion in 2024.
Vicente Reynal: We acquired approximately $625 million in annualized revenue from 18 acquisitions at less than 14 times pre-synergy adjusted EBITDA multiple purchase.
Vicente Reynal: And currently, we have seven additional transactions at the LOI stage as shown on the right-hand side of the page.
Vicente Reynal: Since our Q3 earnings calls, we have closed on six companies, including channel acquisitions. We have added four new companies to the LOI stage and abandoned one transaction.
Vicente Reynal: Our M&A funnel remains strong, with over 200 companies currently in the funnel, and we expect to acquire an additional 400 to 500 basis points of annualized inorganic revenue in 2025, which will be incremental to our current guidance outlined later in this deck.
Vicente Reynal: On the next slide, having already closed on multiple transactions this year, we're off to a strong start to achieving our 2025 annualized inorganic revenue acquired target. On this page, we're highlighting three acquisitions which are highly aligned to our M&A strategy.
Vicente Reynal: Bolton and Nature, these acquisitions expand our capabilities in core technologies focused in high growth sustainable land markets.
Vicente Reynal: And with an average of less than 10 times pre-synergy adjusted EBITDA purchase multiple, we continue to demonstrate our disciplined approach to M&A and expect to meet a mid-teens ROIC on average for these deals by the end of the third year of ownership.
Vicente Reynal: I will now turn the presentation over to Vic to provide an update on our Q4 and full year 2024 financial performance.
Vic: Thanks, Vicente. Starting on slide 9, we delivered strong results through our competitive differentiator, IRX, despite a very dynamic global market.
Vicente Reynal: Total company orders and revenue improved sequentially, both of which finished largely in line with expectations.
Vicente Reynal: In our underpenetrated markets, which include Latin America, the Middle East, India, and APAC excluding China, we saw robust growth in both orders and revenue. These results underscore the focused investments for growth we continue to make in these markets.
Vicente Reynal: The company delivered third quarter adjusted EBITDA of $532 million, a 6% year-over-year improvement, and near-record adjusted EBITDA margin of 28%, a 50 basis point year-over-year improvement driven predominantly through gross margin expansion.
Vicente Reynal: Adjusted earnings per share was $0.84 for the quarter and $3.29 for the full year. We continue to deliver on our long-term investor day targets of double-digit EPS growth, finishing up 11% for the full year compared to 2023.
Vicente Reynal: Free cash flow for the quarter was $491 million, delivering a robust 26% free cash flow margin in the quarter.
Vicente Reynal: Total liquidity was $4.1 billion with $1.5 billion of cash on hand at quarter end, demonstrating the tremendous strength of our balance sheet.
Vicente Reynal: Turning to slide 10, for the total company, Q4 orders were up 8% and revenue increased by 4%.
Vicente Reynal: Booked a bill for the quarter was $0.95, finishing in line with our previous guidance of above one time in the first half and below one time in the second half.
Vicente Reynal: Total company adjusted EBITDA increased 6% from the prior year, expanding margin 50 basis points year over year, with corporate costs coming in at 32 million dollars for the quarter, which is down 15 million dollars year over year, due in large part to management incentive costs.
Vicente Reynal: Finally, adjusted EPS for the quarter finished $0.84 per share including a Q4 adjusted tax rate of 23.4 percent.
Vicente Reynal: On slide 11, for the full year, total company orders were up 4% and revenue increased 5%.
Vicente Reynal: Booked a bill, finished the year at $0.98, which finished largely in line with expectations.
Vicente Reynal: Total company adjusted EBITDA increased 13% year-over-year with adjusted EBITDA margin finishing at record levels of 27.9% up 190 basis points from the prior year.
Vicente Reynal: Corporate costs finished the year at approximately $155 million, which is down $18 million year-over-year. The year-over-year declines, once again, are largely attributable to a reduction in management incentive costs as compared to the prior year.
Vicente Reynal: Finally, full-year adjusted EPS finished at $3.29 per share, up 11% year-over-year, with a full-year adjusted tax rate of 22.2%.
Vicente Reynal: On the next slide, free cash flow for the quarter was $491 million, including CapEx, which totaled $35 million.
Vicente Reynal: Total company liquidity now stands at 4.1 billion dollars based on approximately 1.5 billion dollars of cash and 2.6 billion dollars of availability on our revolving credit facility.
Vicente Reynal: As Vicente mentioned earlier, we are targeting 400 to 500 basis points of annualized inorganic revenue acquired in 2025 and still have seven additional transactions currently under LOI.
Vicente Reynal: With over 200 companies currently in the funnel and our continued strength and free cash flow generation, we are confident in our ability to deliver on this target.
Vicente Reynal: Leverage for the quarter was 1.6 turns, which was a one-turn increase year-over-year and a 0.1 turn improvement sequentially versus Q3.
Vicente Reynal: As a reminder, the year-over-year increase in leverage was driven primarily due to the purchase of ILC Dover earlier in 2024.
Vicente Reynal: Specifically, within the quarter, cash outflows included $200 million deployed to M&A, as well as $71 million returned to shareholders through $63 million in share repurchases and $8 million for our dividend payment.
Vicente Reynal: I will now turn the call back to Vicente to discuss our segment results.
Vicente Reynal: Thanks, Vic. On slide 13, fourth quarter orders for ITS finished up 3% year-over-year and were approximately flat organically. Excluding the impact of China on the power tools and lifting business, Q4 organic orders grew low single digits.
Vicente Reynal: Revity finished down low single digits organically with the largest impact coming from our China business.
Vicente Reynal: Our ITS segment delivers solid year-over-year adjusted EBITDA margin expansion of 30 basis points on top of near record level margin from the prior year.
Vicente Reynal: For the full year, adjusted EBITDA margins finished at a record level of 30.2%, already meeting our 2027 targets three years ahead of schedule.
Vicente Reynal: Moving to the product line highlights. Compressor orders were up low single digits. Industrial vacuum and blower orders were up mid-teens, and power tools and lifting orders were down mid single digits.
Vicente Reynal: Highlighted here on our Innovation in Action is our new PureAir oil-free compressor.
Vicente Reynal: This product is a great example of Incasol brand's multi-channel, multi-brand strategy, providing an innovative, digitally-enabled, sustainable solution with a market-leading 14% energy efficiency improvement.
Vicente Reynal: With 100% oil-less technology, this product is perfect for applications which require FDA approval.
Vicente Reynal: Turning to slide 14, orders in PST were up 29% and revenue finish 24% year-over-year, largely driven by M&A.
Vicente Reynal: Fourth quarter organic orders finished slightly down year over year. However, it is important to note that we did see low single-digit organic order growth excluding the impact of China.
Vicente Reynal: PST delivered adjusted EBITDA of $107 million, which was up approximately 14% year-over-year, with a margin of 27.6%.
Vicente Reynal: The year-over-year decline in Q4 adjusted EBITDA margin was largely due to the impact of lower volumes in the aerospace and defense business within the ILC Dover business, as well as the flow-through related to organic volume declines primarily attributed to China.
Vicente Reynal: Important to note, the PST finished the full year at approximately 30% adjusted EBITDA margin despite the organic growth headwinds.
Vicente Reynal: I would also like to take a minute to review some key highlights within our ILC Dover business. In the fourth quarter, ILC Dover Lifescience Business grew revenue double digits, which demonstrated their continuing ability to deliver above-market growth.
Vicente Reynal: Also, I am pleased to announce that in December, we reached $150 million plus multi-year agreement for our Legacy Spacesuit business.
Vicente Reynal: This long-term deal has been incorporated in our 2025 guidance, and we remain optimistic about the opportunities for growth within the aerospace and defense business.
Vicente Reynal: For our PST Innovation in Action, we're highlighting a new diaphragm metering pump, which offers increased energy efficiency and 20% reduction in total cost of ownership.
Vicente Reynal: This is a perfect example of innovation, generating over $50 million of additional market opportunities in key markets that include water and wastewater.
Vicente Reynal: Moving to page 15, we're introducing our 2025 guidance. Total company revenue is expected to grow between 3% and 5%.
Vicente Reynal: We anticipate organic growth of 1-3%, where price and volume are split 75%-25%.
Vicente Reynal: FX is expected to be approximately a 2% headwind for the year.
Vicente Reynal: M&A is projected at $300 million, which reflects all completed and closed M&A transactions in 2024, as well as the acquisitions of SSI Aeration and Excelsior Blower Systems discussed earlier.
Vicente Reynal: Corporate costs are planned at 165 million dollars 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 $2.13 billion and $2.19 billion.
Vicente Reynal: At the bottom of the table, adjusted EPS is projected to fall within the range of $3.38 and $3.50, which is approximately up 5% at the midpoint.
Vicente Reynal: We anticipate our adjusted tax rate to be roughly 23%, net interest expense to be about $220 million, and CAPEX to be around 2% of revenue.
Vicente Reynal: On the right hand side of the page, we have included a 2025 full year guidance bridge showing the growth associated with the operational activity and the impacts associated with FX, interest income and expense, tax rate, corporate cost, and share count.
Vicente Reynal: On the next slide, we have provided some additional commentary regarding the phasing of our 2025 full-year guidance.
Vicente Reynal: So, let me touch on a few key highlights. We expect total revenue growth to be consistent across both the first and the second half of the year at approximately 3 to 5 percent.
Vicente Reynal: Consistent with what we have seen over the past few years, we expect sequential improvement throughout the year, with Q1 being the lowest quarter in terms of revenue.
Vicente Reynal: To put a finer point on Q1, we expect to see a very similar percentage decline in terms of revenue from Q4-24 to Q1-25 to what we saw in the prior year.
Vicente Reynal: What that should equal to is low single-digit total revenue growth in the first quarter.
Vicente Reynal: The 2025 facing of both our revenue and adjusted EBITDA remains consistent with prior years.
Vicente Reynal: And this is illustrated on the right-hand side of the page showing both our historical revenue and adjusted EBITDA facing since 2021 and our assumptions for 2025.
Vicente Reynal: Finally, we expect adjusted EPS to follow the adjusted EBITDA facing with a 46 to 54% split between the first and second half of the year.
Speaker Change: Turn to slide 17. Ingrid Soran is well positioned for strong operational performance in 2025.
Speaker Change: We remain nimble and we're prepared to pivot in what continues to be a very dynamic global market environment.
Speaker Change: We continue to differentiate Ingo Sorana's investment, delivering double-digit revenue and adjusted EBITDA growth on average since 2020.
Speaker Change: To our employees, I want to thank you again for your part in delivering another record 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.
Speaker Change: Today, our balance sheet remains stronger than ever, and we enter 2025 well-positioned to build upon our success today.
Speaker Change: With that, I'll turn the call back to the operator and open it for Q&A.
Thank you. If you would like to ask a
Speaker Change: Your first question comes from Mike Halloran with Baird. Your line is open.
Hey, good morning, everyone.
Morning, Mike.
Speaker Change: Hey, can we just talk a little about some assumptions embedded in guidance from a demand perspective? You know, essentially, how are you thinking about what the underlying demand cadence looks like through the year more qualitatively?
Speaker Change: Are you expecting any improvement in end markets, more stability? Thoughts on how you think the orders play out this year, and what kind of growth assumptions we're assuming as we move forward?
Speaker Change: Yeah, Mike, so kind of let me frame it this way, as we discussed in terms of total revenue facing, we're expecting to look very, quite similar to what we have seen historically.
Speaker Change: So, if you think about the total revenue on EBITDA, it is consistent with prior years. And then, you know, from an overall organic growth perspective, just as a reminder, price is approximately 70% of the total.
Speaker Change: And we can clearly control that, as you know. And the other 25% is coming in from positive volume.
Speaker Change: And for that, we continue to be highly encouraged by the many...
growth initiatives that we're driving such as
Speaker Change: the unpenetrated region acceleration that we talked about, various specific targeted new product development, and obviously our continued progress on recurrent revenue.
Speaker Change: When you think about this organic growth, it's expected approximately flat in the first half of the year, with approximately 4% growth expected in the back half of the year.
Speaker Change: And again, of that 4% back half, organic growth, approximately half of that.
Speaker Change: will be realized through pricing. So we're just talking about a 2% organic volume in that second half.
Speaker Change: And as I said, a lot of good organic investments that we're driving, and yes, comps also moderate in the back half of the year, which also helps.
Speaker Change: In terms of the regional perspective, when you think about it from a high-level growth assumption at the regional level, America is planned to be in the upper end of the low single digits.
Speaker Change: mainland Europe, planned towards the lower end of the low single digits, China assuming completely flattish, and then Middle East, India, and the rest of Asia is assuming the mid single digit range.
Speaker Change: Okay, and just a final point there, is there an assumption for end market improvement embedded in the guidance or is it relative stability from where we sit here today?
Thank you.
Speaker Change: relative stability from where we sit here today, yep. Okay, thanks for that. And then on the PST side, maybe just talk a little bit about the the margins in the quarter, a little worse than we were expecting, and how to think about that ramp as we work through this next year.
Speaker Change: Yeah, sure, Mike. This is Vic. I'll take that one. So, you know, in terms of within the quarter specifically, you know, two major drivers that we'd point out, I think we called out kind of during the prepared comments. First is specifically lower volumes as we kind of talked about within the ILC Dover aerospace and defense business. So you had, you know, the bit of the deleveraging you saw there with the lack of volume, you know, largely coming from the lack of, you know, the large, you know,
Speaker Change: spacesuit contract and things of that nature that we've talked about historically. The other piece is, you know, the impact from the organic volume declines, which is, you know, I'd say the largest driver of that is coming from China.
Speaker Change: Now, as we think about going forward, you know, I think we remain quite optimistic about the long-term, you know, margin profile and the ability to get to our kind of industrially targets of those mid-30s over time. You know, when you think about the drivers, first and foremost, as you've seen historically, one, we expect to continue to remain price-cost positive throughout every single quarter like you've seen historically.
Speaker Change: Two, we do have, you know, a pretty robust productivity funnel.
the three
Speaker Change: I'd say there has been some targeted restructuring that has been done.
Speaker Change: And then the other piece of the equation here is, as you would expect, now that we've kind of owned ILC Dover for a little over six months, you typically see a lot of that margin expansion as we start a lot of the integration activities, synergy activities, things like that, really ramp into the, you know, the, let's say, first year into the second year. And that's exactly what we're expecting to see as we move through 2025. So we would expect to see, you know, returning back to that 30% EBITDA margin profile as we progress through 2025. We feel pretty comfortable about the ability to control that margin profile going forward.
Thanks. Appreciate it, guys.
Thank you.
Speaker Change: The next question comes from Julian Mitchell with Barclays. Your line is open.
Speaker Change: Hi, good morning. Maybe just wanted to start with the orders, you know, it seemed that maybe they fell a touch light in Q4 versus what you had thought. Was that all related to China or anything else happening there?
and when we're thinking about the first quarter...
Thank you.
Speaker Change: I think organic sales year-on-year are down, you know, low single digits or so. Assuming a book-to-bill slightly above one for normal seasonality, are we thinking sort of flattish orders just mechanically for Ingersoll year-on-year in Q1?
Speaker Change: Yeah, Julian, so to answer the first question, yes, I mean, it was basically primarily driven by China. China was a bit softer than anticipated, driven largely by kind of timing on a couple of large orders that kind of making the overall company organic order growth essentially flat.
Speaker Change: I think it's important to know that also in Q4, I mean China book to bill was actually approximately one, which is encouraging. And also when you compare the first half of 2024 to the second half of 2024 for China in terms of orders,
Speaker Change: China was basically essentially moving sideways, which speaks to some stability.
Speaker Change: Also, as you heard, excluding China, we will have finished up low single digits in terms of organic orders in both segments, which speaks to the continued resiliency.
across the other regions despite this ever-changing dynamic environment.
Speaker Change: and I think looking forward in respect to to the timing of those large orders I mean
They're not gone, they're just kind of both sideways.
Speaker Change: We continue to see very good funnel momentum on these longer cycle projects, which is, they just haven't converted yet, but as we kind of enter 2025, that kind of bodes well. And the good news is the dialogue remains very, very active.
Speaker Change: Yeah Julian, on your second part of your question with regards to Q1, I think your read on the kind of organic revenue growth of, you know, down low single digits is in line with, that's within line with expectations.
Speaker Change: On the orders front, you know, I'll say we don't guide on orders externally, but, you know, as we've historically said, you know, this is, you know, a business that tends to be around one on a full-year basis, and sitting here today, I don't think we see anything materially different than what we've seen historically on the seasonality front.
Speaker Change: That's helpful, thank you. And then my second question, I just wanted to circle back on PST, how you're sort of thinking about the EBITDA margin cadence through 2025 and sort of general satisfaction with the ILC Dover performance?
Speaker Change: Hey Julio, maybe I'll start with the ILC and then let Vic talk about the margin cadence. I mean, ILC Dover continues to improve and do pretty well. I would say, you know, very happy with the life science businesses in ILC Dover that, you know, we continue to see double-digit revenue growth, which is in line with expectations but way above the market.
Speaker Change: We're also having a lot of very good cross-selling and revenue synergy opportunities.
Speaker Change: And, you know, I think the conversations go really well with some pretty large medical device customers that they're pulling us into conversations, not just as...
Speaker Change: and I see Dover but holistically as a total Lingus Oran and that's a recent event that just happened here over the past couple of weeks and that's continuing exciting to see.
Speaker Change: You know, we've done a lot of work at ILC Dover, including restructuring, as Vik mentioned. But now we're organized into three distinct P&Ls, including also some new leadership.
Speaker Change: in the P&L side. And this is driving a greater visibility and focus all around. Everything around, you know, the IRX implementation is going really well. Here at the end of the quarter, we're gonna have another session around what we call commercial excellence execution, which is another tool that we have in our toolbox of IRX. So I'll say, continue to pursue the good momentum and...
Very happy to see the continued performance on the business.
Speaker Change: Yeah, and Julian, on the margin front, you know, let me just take a step back and kind of calibrate. When we did our investor day, we kind of said that PST, we would expect approximately 100 basis points of margin expansion on an annual basis. And I think the reality and kind of what's baked in the guide here is actually slightly better than that.
Speaker Change: If you look at the full year for PST, we finished at 29.6% EBITDA margin. Obviously, you know, a slightly lower number than that here in Q4, but as we now kind of transition into 2025 with a lot of the factors that Vicente said, you know, the integration on the ILC Dover side, we would expect to see, you know, I'd say back kind of more in line with where you've seen historically, playing closer to that 30% range and sequentially improving, obviously the easiest comp being in Q4 of next year.
Thanks very much.
Thank you.
Speaker Change: The next question comes from Jeff Sprague of Vertical Research. Your line is open.
Jeff Sprague: Hey, thank you. Good morning everyone. Just with a touch base on the aerospace and defense business.
Speaker Change: I think obviously you bought ILC Dover for the life science business and that makes sense right and spacesuits kind of came along for the ride but
Speaker Change: But, you know, at the time, you did indicate you liked the business and may build and grow there. It seems like it's become more of a distraction than anything. So, really, my question is, would you actually—
Speaker Change: commit additional capital to these aero and defense-related businesses? Is there stuff in your pipeline, your funnel that plays into this space?
Speaker Change: Yeah, Jeff. So as you recall, we always said that the aerospace and defense was kind of an optionality both ways. One, clearly, to learn more about the space economy and the strong relationship that ILC Dover on that aerospace side has with many customers in that industry. And it has led to some kind of cross-revenue synergies with some of our other compressor businesses like Haskell.
Speaker Change: selling helium blanketing for some of the rocket shipment or rocket ships. Now, as we said the current optionality to your question in terms of the M&A, do we have anything in the funnel for the specific things? The answer to that is no.
Speaker Change: Okay, great. And then just on the on the four of the 500 BIPs of M&A impact, just wanted to be kind of clear on that. So that's sort of excluding any wraparound effect from what you did in 2024 and would just be the annualized impact of what might get accomplished in 2025.
Speaker Change: That is correct, yes. So we're saying that that four to five hundred SS points is incremental to what we have in the guidance.
Got it. Thank you.
Speaker Change: Yeah, Rob, I think you kind of faded away there for...
Speaker Change: So, I think your question really is just talk about China and kind of what we see there. You know, I think we see stability. I mean when you look at the order rates, first half to the second half, kind of fairly stable in the business.
Speaker Change: Also, when you kind of unpack China, there's some very good pockets of growth. I mean, we have some businesses like the blower and vacuum business that is actually growing organically at high single digits. So we're seeing that the investments we're making in kind of localizing some technology and some very targeted focus in some specific markets, it's seeing the payback of those investments into positive organic growth in China. So that's kind of the good news.
Speaker Change: I think in China in 2024, clearly, we were coming into a year that we had some very tough comps from 2023. I mean, 2023, the China team were growing at a pretty accelerated pace, driven by electric vehicle investment, battery, solar production, which obviously, that did not reoccur in 2024. And so, you know, I will say that the three times that I spent in China last year, I could see pretty...
progress in movement in terms of stability.
Speaker Change: So, I mean, the only thing I will add to that here, Rob, is that, as we said, we have been trying to also kind of pivot and reinvest.
Speaker Change: a lot of our energy and organic investments outside of China. And that's exactly what you're seeing with the commentary that we just made. I was just in Vietnam, I was in Australia as well a few weeks ago, and the momentum that we see in those countries based on the investments that we're making, it is very, very encouraging and very exciting to see the teams push through the initiatives as we see some of the growth move away from China and into some of those regions.
Speaker Change: The next question comes from Andy Kaplowitz of Citigroup. Your line is open.
Good morning, everyone.
Good morning, everybody.
Jeff Sprague: Vicente, it's interesting that you didn't speak about MQLs this quarter, maybe you want to get away from that, but can you give us an update on how your MQLs are looking? Last quarter you mentioned they were still up 12% year-over-year, 7% sequentially, but that lead times at MQLs were getting extended. Have they extended further, MQL still up, or maybe stepping back? How do you feel about your short cycle businesses outside of China?
Jeff Sprague: Yeah, no, good question there, Andy. And MQL activity remains strong. And if you finish the year up low double-digit, both in the fourth quarter and for the full year of 2024,
Jeff Sprague: So you continue to be encouraged by what we see on the MQL.
Jeff Sprague: And I would say that as we kind of move here, now, I would say also too that long-cycle pipeline, as we talked about historically, but we did not...
Jeff Sprague: verbally mentioned that here. I mean, the pipeline for that long cycle, it's also upload double digit for the full year 2024, which is also very encouraging. So, we're encouraged by the strong growth we saw in those MQLs and long cycle. Now, clearly, we spoke before about the elongation of decision making and things not happening as fast as historically has been. That continues to be the case. I will also say that, on a better news, the customer conversation
Speaker Change: Hosanovic, Anastasia Novoselic, Anatoly Fomenko, Martin Quiznovsky, Olaf Golomb, Karl Malek,
Speaker Change: Okay, Alright, Thanks, and then Andy I think almost touched on.
Speaker Change: Question that I was going to ask but it feels to me like you have sort of two competing targets here.
Speaker Change: Relative to margins, especially on PFS.
Speaker Change: PST, but also continuing to drive that 4% to 500 basis points of M&A.
Jeff Sprague: As you know well these M&A margins often come in a little bit lower at acquisition and so it just feels like those two goals are kind of at odds with each other and I'm curious how you sort of balance that as you think about hitting those PST margin targets in the mid <unk>.
Speaker Change: I know Greg good question on the receiver a couple of things I'll say notable acquisitions are margin accretive I want to highlight maybe wanting to PST segment called Adi.
Speaker Change: She was a high pressure pump that we acquire a couple of years ago. If you remember we acquired a business had like 50% EBITDA margins today is at like 60% EBITA margin. So I think it speaks to the power of what we can continue to do with great businesses are good solid margin that we can make them even better.
Speaker Change: So I will say that we balance our M&A approach is based on the on the quality of the business that we see from an end market perspective exposure that we can see high growth sustainable end markets with a margin profile that if it is not at that fleet average so that we can continue to.
Speaker Change: To improve so I will say that good blend.
Speaker Change: Even in our funnel today, we have a.
Speaker Change: And M&A portfolio of companies that could go into PSC that could look.
Speaker Change: That are basically at a higher margin than the fleet average BSP. So again, it's a.
Speaker Change: Yeah.
Speaker Change: I will say we look at.
Speaker Change: That consistently.
Speaker Change: And the fact is that is that not every business is going to be margin accretive.
Speaker Change: Got it okay. So those seven LOI is I should just assume a 50% EBITDA margin.
Speaker Change: Oh no no no.
Speaker Change: Great. Thanks.
Speaker Change: Okay.
Speaker Change: The next question comes from Chris Snyder with Morgan Stanley. Your line is open.
Chris Snyder: Thank you you mentioned a couple of bigger projects in China pushing to the right. In Q4 do you think that this was related to the U S election outcome and just the expectation that incremental tariffs are coming.
Chris Snyder: In that same vein has customer conversations in China changed following the election.
Chris Snyder: Yes, no great question, Chris specifically these projects no there were not related to the election.
Chris Snyder: This is.
Chris Snyder: When you go to China, I mean, China is becoming a pretty large from an EPC perspective engineering project in contracting companies.
Chris Snyder: And you had to do with end user technical specifications and kind of more conversations as to these projects.
Chris Snyder: That then require some of our critical technology. So in those cases, it was not related to through the election in terms of our overall <unk>.
Chris Snyder: Have we seen any anything further from.
Chris Snyder: China as related to the elections I will say no dramatic.
Chris Snyder: And keep in mind that <unk>.
Chris Snyder: January for China is kind of typically slow because of the Chinese new year and things of that nature or conversations with our team in China continued to be very positive as they think about what could be could happen here in 2025.
Chris Snyder: But nothing that we have seen.
Chris Snyder: Election wise related positive or negative.
Speaker Change: Thank you I appreciate that and then maybe following up with one for Beth.
Speaker Change: It sounds like this year, we're going to get that typical and revenue step down into Q1, usually that is accompanied by a sequential step down in margins on the lower volumes.
Speaker Change: Last year, we didn't get that so it feels like this Q1 margin comp as maybe particularly difficult.
Speaker Change: Should we expect margins to be down year on year in Q1 any color on that would be appreciated. Thank you.
Speaker Change: Yes, Chris let me start with your first comment in terms of and I think the Sanjay mentioned in our prepared remarks, the kind of normal sequential step down you see from Q4 to Q1, I think youre going to see a very similar.
Speaker Change: A level that you saw kind of prior year. So I think that's completely fair I think in the context of the margin profile.
Speaker Change: You're right, we kind of came into the year in 2024 relatively quite healthy margins I think that'll be our stiffest comp in the context of year over year. So.
Speaker Change: Should you expect to see meaningful margin expansion in Q1, no I wouldn't say that I would I would taper those expectations in that respect I do think though as you progress through the year and particularly as you get to the back half of the year and as I said earlier, clearly Q4, I think thats, where youll continue to see the step up in margin and I think the good news here is I think a lot of the same levers that have.
Speaker Change: Historically existed.
Speaker Change: And before our pricing productivity some of those targeted restructuring actions, which have already kind of occurred which means you're going to see them go into the into the run rate.
Speaker Change: As well as some of the the M&A synergies are all going to kind of come to bear and then maybe the other piece to mention here that we actually haven't mentioned yet is the progress on recurring revenue. We continue to be really pleased with the with the kind of the trends that we're seeing kind of across the board. We did see a nice pickup on recurring revenue kind of inline with.
Speaker Change: <unk> and as expected that comes with a bit of a margin premium. So you are seeing that largely on the ats side and that is definitely helping I'd say on the mix side as well as the margin profile.
Speaker Change: Thank you I appreciate that.
Speaker Change: Okay.
Speaker Change: The next question comes from Nicole <unk> with Deutsche Bank. Your line is open.
Speaker Change: Yeah. Thanks, Good morning, guys good morning, Nicole.
Speaker Change: Maybe just continuing that tariff on election question more from a cost perspective, I guess can you guys talk a little bit about the exposure that you have whatever you're willing to provide as a percentage of Cogs with respect to Mexico, Canada things that hasnt been an issue before.
Speaker Change: And then any plans to offset what we've already seen with respect to tariff actions.
Speaker Change: Yes, Nicole great Great question here. So let me just kind of kind of start high level.
Speaker Change: First and foremost let me just start by saying there is actually nothing in our guidance day explicitly with regards to what I'll call it incremental tariffs or any of the mitigation actions.
Speaker Change: As you know the tariff situation remains pretty dynamic, but we believe we're really well positioned I think to mitigate any of those impacts.
Speaker Change: So first of all most from an overall perspective, we're largely in region for the region from a manufacturing standpoint, which does insulate us a bit and and limits to kind of the overall.
Speaker Change: Impact of tariffs compared to others.
Speaker Change: That being said, we're not immune to tariffs maybe you can kind of size and I'll say first of all kind of the I'd say domestic U S kind of purchases from from China, specifically, it's a single digit percentage of cost of goods sold right. So relatively muted, but there is a little bit of impact there.
Speaker Change: As you would expect we have kind of what I'll call tiered mitigation plans ready to be executed in a very based on the severity of the tariffs.
Speaker Change: That does include I would say leveraging our global supply chain to shift certain third party procured materials to alternate sources based on the level of tariffs and then as you would expect the balance of tariff impact will be mitigated through pricing actions.
And I'll, just kind of a little bit of a reminder, we face a very similar situation back in 2021 timeframe soon after the merger and.
Speaker Change: You saw us we were able to navigate those waters pretty well, we stayed both dollar and margin accretive and positive kind of throughout the duration.
Speaker Change: And so overall, we feel pretty good about our ability to manage through the tariff impact and as you would expect we're continuing to monitor it pretty closely so.
Speaker Change: We feel pretty good kind of where we sit right now, but relatively limited and then specific to your question on Canada, and Mexico again, similar fairly fairly small impacts, but again same kind of routine we're going through from a China perspective, moving where needed and mitigating the balanced their price.
Speaker Change: Got it that was super helpful. Thank you Vivek and then Adam.
Speaker Change: <unk> can we just talk about what you guys are seeing with respect to you talked a lot about like the ILC Dover Lifesciences SaaS, what about the legacy Ingersoll Rand.
Speaker Change: Are you seeing that continued recovery play out on the Biopharma and life Sciences side. Thank you.
Speaker Change: Yes, Nicole I'll say on that on the legacy Ingersoll Rand medical business fairly stable.
Speaker Change: I don't want to say that.
Speaker Change: There has it has been or that we saw an acceleration here in the fourth quarter.
Speaker Change: And.
Speaker Change: So I'll say I'll call it out as being stable and you can actually see it even also fairly stable as you kind of move sequentially kind of Q3 to Q4.
So we'll see that that as we kind of move into 2025, that's kind of a bit of a good news as we kind of.
Speaker Change: Over call it a lot of those kind of tough comps and clearly we see.
Speaker Change: With a lot of our customers in that.
Speaker Change: And that life science tools segment, where we're the IR medical business kind of participate and unexpected too.
Speaker Change: No nothing.
Speaker Change: As we look into 2025, we don't have unexpected V.
Speaker Change: V shaped recovery in our guidance at all for that business, we actually decided to keep it in the same vein as fairly stable and kind of immediate recovery.
Speaker Change: Thanks for sending I'll pass it on.
Speaker Change: Thank you.
Speaker Change: The next question comes from Nigel Coe of Wolfe Research. Your line is open.
Nigel Coe: Good morning, and thanks for the question.
Speaker Change: We've been dancing around the margin questions.
P S T.
Speaker Change: I wanted to know could you maybe see a bit more specific in terms of that.
Speaker Change: For PST margins back above 30%.
Speaker Change: I'm wondering based on your <unk> comments about that Q Mchugh do we do we sort of start the year at a similar level in 2017% range and then ramp from there.
Speaker Change: Any kind of first half second half comments would be helpful.
Speaker Change: Yeah, Nigel I'll take that one so I think the expectation here is in.
Speaker Change: Whether it be first half or <unk>, I think it's a little bit better than the exit rate you saw in Q4.
Speaker Change: Right.
Speaker Change: And that probably closer to that upper Twenty's realm is kind of where you should expect PST in total to play and then youll see some kind of slight sequential ramp from there.
Speaker Change: So again do we expect to see like I kind of mentioned before our Investor day targets on a full year basis were approximately 100 basis points, we actually expect to do better than that on a full year basis, and I'll say it'll start.
Speaker Change: You know a little bit more kind of muted as we kind of begin the year, but should as frankly as the the comp on ILC Dover kind of happens mid year. In June you should see that kind of be a bit of more of an inflection point back into the second half of the year.
Speaker Change: Okay.
Speaker Change: And then just maybe.
Speaker Change: Spending on Nicole's question about <unk>.
Speaker Change: The kind of what are you seeing under the Hood.
Speaker Change: I think you called out double digit growth 10% growth.
Speaker Change: And the life Sciences portion.
Speaker Change: Have you seen in 2025, maybe just.
Between A&D and life Science 25.
Speaker Change: For the life Science, we continue to see continued momentum as we as we expect out here.
Speaker Change: In terms of kind of long term expectations of that low double digit to high single digit flows and that remains largely on track.
Speaker Change: As we sit here today.
Speaker Change: And that has to do due to the end market exposure.
Speaker Change: <unk> life science side of the business is exposed to which is kind of a more of a biopharma as it relates to high potency API, which are related to GOP. One as one example, or also the.
Speaker Change: The gene therapy treatment that personalized immuno treatments that are happening that we see also acceleration of that so I think that's kind of what we'd like is are there kind of exposed to some pretty good markets and up and come on at a very good position.
Speaker Change: On that side.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Nathan Jones of Stifel. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Nathan.
Speaker Change: Maybe we could.
Speaker Change: Start with an update on some of the things you talked about last quarter I think on some of these projects you were talking about.
Speaker Change: Tight capacity on engineering site preparations as kind of being holding back.
Speaker Change: Some of those projects moving forward, maybe just start with an update on that.
Speaker Change: Yes, I will.
Speaker Change: Or is it as a.
Speaker Change: I mean, not a dramatic change from freeing up capacity.
Speaker Change: Now.
Speaker Change: I think the key thing that I do think it change is I may with one of our customers I think it was the last week of December.
Speaker Change: It's actually a week of December 20th and basically that customers spoke about that in the end user to these customer.
Speaker Change: It was basically re leasing.
Speaker Change: The procurement, which then translates into eventually getting some of these orders.
Speaker Change: When I was in Australia kind of similar thing I spend time with one of the customers that are.
Speaker Change: I had one of those large projects and again same thing is just not getting canceled but conversations are definitely happening more and more often.
Speaker Change: So I would say that that's kind of a dramatic or not a dramatic change, but the improvement is the conversations are really happening.
Speaker Change: But is it is it now rapidly accelerating and everything kind of freeing up and going gangbusters.
Speaker Change: That's not the case, but again positive with the conversations and the fact that none of the projects have been canceled and matter of fact, some of them are kind of moving in the right direction.
Speaker Change: I guess a follow up question on that as it relates to U S policy.
Speaker Change: There's obviously been a lot of noise around tariffs and what's happening and what's now happening and uncertainty does tend to keep people's hands in their pockets when it comes to making capital investments I think probably more outside of the U S.
Speaker Change: That impact is unknown today is that kind of uncertainty around what U S policy impacts might be in places like Europe, China, Canada, Mexico.
Moving some of those projects should be it further to the right with that uncertainty people sitting around kind of waiting to see what happens with the U S with U S policy.
Speaker Change: Yes.
Speaker Change: Sorry.
Speaker Change: Not much has changed in terms of in terms of in terms of that.
Speaker Change: To be honest.
Speaker Change: And what are the data points that we track is clearly these MQ oil activity, which is a.
Speaker Change: There's like almost like a dynamic way to understand how customers are behaving in terms of there.
Speaker Change: Sire to purchase patterns.
Speaker Change: And that has not changed.
Speaker Change: So and we watch that daily and weekly and the continued momentum that we see on customers about trying to understand so they can make decisions that continue to be firm.
Speaker Change: Fairly robust as we even continue here so so no.
Speaker Change: At least nothing of significance that we have seen that the that the U S policy is creating.
Speaker Change: A movement, one way or the other.
Speaker Change: What do you need to say as a catalyst to get <unk>.
Speaker Change: They can get these projects moving forward at a better rate and thanks for taking my questions.
Yes.
Speaker Change: I think it kind of varies project by project to be honest. So I think it's difficult to kind of pinpoint to a specific.
Speaker Change: Specific point I mean, the customer that I made a reference here at the end of December.
Speaker Change: Things got released in that case because of some of the.
Speaker Change: Energy polices in the U S and the customer the end customer feeling more comfortable with the standards of the new administration.
Speaker Change: If I can talk about I know their EPC customer in Europe, a very large one that that the sole reason has been these capacity constraint of engineering and we continue to work with them as a matter of fact, we actually are putting some of our engineers to help.
Speaker Change: That customer to kind of get things moving.
Speaker Change: But.
Speaker Change: I will say kind of various vary project to project or customer to customer.
Speaker Change: Thanks for taking my questions. Thank.
Speaker Change: Thank you Nathan.
Speaker Change: The next question comes from David Raso with Evercore ISI. Your line is open.
David Raso: Hi, Thank you very much on the organic sales guide you said, 75%.
David Raso: Going to be price right. So one 5%, but then you alluded to the pricing in the second half of the year is going to be 2%. So I was just curious the acceleration that you're expecting in pricing where are you seeing that and is that a mid year price increase or something about the backlog.
David Raso: And then you're layering on maybe prices to start this year, just trying to get a sense of why we see pricing accelerating as the year goes on.
David Raso: David you hit it right on the head.
Can attributed to some of the mid year kind of pricing actions that typically happen now we don't we don't have one uniform date for every business in terms of when they take pricing actions and in fact in given the environment. There have been many instances, where you're taking multiple pricing actions through the course of the year, but what I would attribute it to is some of the planned in your pricing actions across the.
David Raso: <unk>.
David Raso: And the expectation of that kind of coming into.
David Raso: Into the P&L, it's also worth noting that that phasing in kind of that expectation of a little bit healthier price in the back half is actually a fairly consistent comment between both segments.
David Raso: Okay. That's interesting. Thank you so much I appreciate it.
David Raso: Yeah.
Speaker Change: The next question comes from Andrew Buscaglia of BNP Paribas. Your line is open.
Andrew Buscaglia: Hey, good morning, guys.
David Raso: Morning.
David Raso: I just wanted to focus on M&A.
David Raso: Minute.
David Raso: So you get this pipeline.
Speaker Change: And kind of along the lines of the questions Nathan was asking to.
David Raso: Do you see a year setting up where.
David Raso: Some uncertainty might influence the types of deals that move forward and do you see more kind of singles and doubles small deals rather than any sort of <unk> type acquisition moving across.
Uh-huh, yes, absolutely I mean, I would categorize basically our pipeline to be more along the lines of the bolt on side in nature and.
David Raso: And clearly we're leveraging the current geopolitical dynamic environment across the world as a way to continuously push.
David Raso: These are family owned companies due to moving to a transaction.
Why keep worrying in and be in a situation, where there's a lot of uncertainty in that that continues to tick.
David Raso: Tim will pretty well so yeah.
David Raso: Think about those.
David Raso: For our companies in the funnel is similar to the ones that we announced today.
Today in the on the prepared remarks of Ssi Airasia aren't Excelsior lower end torsion Ebola same kind of bolt on size and nature of great technologies.
David Raso: That continued to be purchased at a great multiple and provide incremental addressable market for us.
David Raso: Okay, Yes.
David Raso: And as it pertains to our Dover thinking with M&A I know, there's kind of like a new platform you intend to probably add on to are there are there other deals in that kind of life Sciences Arena, you see in that pipeline.
David Raso: When do you plan to get into kind of Adjacencies with medical consumable consumables selling in med Tech and maybe less so for our life sciences application, but for other medical applications.
David Raso: Yes, it's Angela I, just wonder if I can so on some of the some of the.
David Raso: Our company that we haven't Eli two of them are in the life science.
David Raso: Side of the business and again bolt on in nature.
David Raso: And.
David Raso: Good additions.
David Raso: They go through to the team. So that shows you how quickly we were able to gravitate and and find some good transactions in terms of Adjacencies.
I mean, we have a medical device kind of side of the business also on that IFC business.
David Raso: Which we sell to a metric.
David Raso: Medical device companies and it's all around componentry.
David Raso: <unk> highly specialized components I think we've talked about.
David Raso: Click on injection molding or silicone extrusion.
David Raso: Componentry that as kind of a highly specialized that can then get attached to a lot of our pump and then sell it as a package so I think more and more yes.
David Raso: We have a funnel of companies that I kind of look in that nature.
David Raso: Nothing in the LOI phase, but something some technologies that we're looking at.
Speaker Change: Okay got it. Thank you. Thank you.
Vincent de: This concludes the question and answer session I'll turn the car T CEO Vincent de <unk> for closing remarks.
Speaker Change: Thank you Sarah.
Speaker Change: I want to say thank you all for your interest and I think as Iran, and a very special thanks to all of our employees, who I know many of them are listening to the call and continue to think and act like owners that you are to continue to drive another strong performance in 2005, so with that conclude the call and have a great day.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].