Q1 2025 Ingersoll Rand Inc Earnings Call
Speaker Change: Hello and welcome to the Ingersoll Rand Q1 2025 earnings call. All lines have been placed on you to prevent any background noise.
Speaker Change: Thank you, and welcome to the Ingersoll Rand 2025 First 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.
Speaker Change: We issued our earnings release in presentation yesterday afternoon, and we will reference these during the call. Both are available on the Investor Relations section of our website.
Speaker Change: In addition, a replay of the conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties as discussed in our previous SEC filings, 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 GAP and our slide presentation and in our earnings or lease. Both of which are available on the Investor Relations section of our website. Thank you very much.
Speaker Change: On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q&A session, we have to each caller keep to one question and one follow up to allow time for other participants.
Vicente Reynal: Thanks, Matthew. I'm good morning to all. Starting on slide three, we're off to a strong start in Q1. As we deliver 10% total orders growth with a book to bill of 1.1 times.
Vicente Reynal: Additionally, organic orders increased by 3.3%, and we deliver a record Q1 free cash flow of $223 million.
Vicente Reynal: We remain encouraged, as April orders continue to show stability finishing in line with expectations.
Vicente Reynal: We continue to focus on controlling where we can control, staying agile and leveraging IRX to offset all non-tariff impacts.
Vicente Reynal: On V4, I want to spend a minute highlighting why in this current environment our in-region for region footprint provides us with a competitive advantage.
Vicente Reynal: We have built a footprint that allows us to serve our customers with a wide range of technologies via an in-region for region model.
Vicente Reynal: This, in combination with our proprietary demand generation tool, has a very well-position to take market share in this environment by serving our customers locally with technologies and solutions that offer the highest ROI.
Vicente Reynal: Turn to Slide 5, our durable financial profile, combined with our strong cash flow generation, provides us with multiple levers to drive out of creation.
Vicente Reynal: Our capital allocation strategy remains unchanged with M&A continuing to be our top priority.
Vicente Reynal: As a reminder, our M&A strategy is center around making smaller bolt-on acquisitions that complement existing technologies.
Vicente Reynal: And with a highly fragmented addressable market of approximately $57 billion, we believe there are still plenty of opportunities for
Vicente Reynal: or 9 deals currently on their L.O.I. and the more than 200 companies currently in the acquisition
Vicente Reynal: which are mainly in-reinfor region and are also primarily internally sourced.
Vicente Reynal: As part of our balance, capital allocation strategy, our board has authorized an additional $1 billion of share of repurchases, bringing our total value authorization to $2 billion.
Vicente Reynal: These provide us with optionality for outsides, opportunistic shares for purchases over that short and medium term.
Vicente Reynal: We remain confident in our long-term value creation and we'll leverage our strong casual generation to continue our focus on bolt-on acquisitions as well as your buybacks.
Vicente Reynal: But this point in time, we're expecting to execute up to $750 million of share repurchases by the end of 2025.
Vicente Reynal: Even with these accelerated shared repurchase activity, we continue to be committed to our expected 400-500 basis points of annualized inorganic gravity to be acquired in 2025.
Vicente Reynal: Moving to the next page, we're highlighting two additional transactions that were closed during the month of April.
Vicente Reynal: Boltony nature, these acquisitions expand our capabilities in court technologies, focusing high growth, sustainable and markets.
Vicente Reynal: With both acquisitions at nine times or less, pre-scenergy adjusted EB-Tum purchase multiples. We continue to demonstrate our discipline approach to M&A, and expect to meet and meet Team's ROIC for both deals by the end of the third year of ownership.
Vicente Reynal: We're off to a strong start towards achieving our 2025 annualized inorganic revenue targets with six transactions already closed this year at a weighted average purchase multiple of approximately nine times.
Vicente Reynal: and will now turn to a presentation or to Vic to provide an update on our Q1 financial performance.
Vik Kini: Thanks, Vicente. Starting on slide seven, organic orders got off to a strong start of 3.38% year-to-year with the book to Dale of 1.10.
Vicente Reynal: We were pleased with the organic order performance across both segments, as specifically with an ITS, which saw organic order growth within all three regions.
Vicente Reynal: Aftermarket revenue finished at 38% of total revenue, which was off 110 basis points year-a-rear.
Vicente Reynal: The 6% growth in aftermarket revenue underscores the focused efforts and progress we continue to make on aftermarket and recurring revenue.
Vicente Reynal: The first quarter finished largely in line with expectations for revenue, adjusted EBDA, and adjusted EPS.
Vicente Reynal: It's important to note that approximately $15 million in revenue initially anticipated to be recognized within the first quarter has been deferred to the second quarter due in large part to customer requests.
Vicente Reynal: Additionally, we continue to make reckless investments for growth in the business which did impact our year over year margin profile.
Vicente Reynal: The company delivered first quarter adjusted the EBITDA of $460 million with an adjusted EBITDA margin of 26.8%.
Vicente Reynal: Adjusted earnings for share with 72 cents for the quarter, and free cash flow for the quarter with a Q1 record of $223 million.
Vicente Reynal: Total liquidity was $4.2 billion with a net leverage of 1.6 times demonstrating the tremendous strength of our balance sheet, which we believe enables value creation optionality in volatile environments like the one we are currently facing.
Vicente Reynal: Turning to slide 8, for the company, total Q1 orders were up 10% and revenue increased by 3%.
Vicente Reynal: Booked a bill for the quarter with a robust 1.10 times showing great momentum.
Vicente Reynal: and Total Company Adjustment with Flat, compared to the prior year. [inaudible]
Vicente Reynal: Corporate cost came in at $36 million for the quarter, and finally adjusted EPS for the quarter finish in $0.70 per share, including a Q1 adjusted tax rate of 22.6%.
Vicente Reynal: On the next slide, free cash flow for the quarter was $223 million, including tap-ex, which totaled $34 million.
Vicente Reynal: Total liquidity now stands at $4.2 billion based on approximately $1.6 billion of cash and $2.6 billion of availability on our revolving credit facility.
Vicente Reynal: As Vicente mentioned earlier, we're off to a strong start towards realizing our 2025 commitment of 400 to 500 basis points of annualized inorganic revenue acquired in 2025.
Vicente Reynal: Leverage for the quarter was 1.6 turns, which was a 0.9 turn increase year-veer and flats sequentially versus Q4 2024.
Vicente Reynal: As a reminder, the urelier increase in leverage was driven primarily due to the purchase of ILC Dover in June of the prior year.
Vicente Reynal: Specifically, within the quarter, cash outflows include $163 million deployed to M&A, as well as $18 million dollars returned to shareholders through $10 million in charity purchases and $8 million for our given in payment.
Vicente Reynal: I will now turn the call back to Vicente to discuss our segment results
Vicente Reynal: Thanks, Vic. On slide 10, first quarter orders for ITS finished up 6% year-to-year with the Book the bill of 1.1 times.
Organic order is grew 3.5%. [inaudible]
Vicente Reynal: It's important to note that we saw organic orders growth across all regions, including Asia Pacific, and we remain encouraged by the market activity we're seeing in China.
Vicente Reynal: Revenue finished down to percent. We continue to be encouraged by the growth in recurring revenue which was up double digits year-to-year.
Vicente Reynal: I'll just leave it to margins, the client year-to-year, driven by the flow through of organic volume, the expected diluted impact from recently acquired companies and continued commercial investments for growth in the business.
Vicente Reynal: Moving to the product line highlights, compressor organic quarters were up made single digits.
Vicente Reynal: Industrial vacuum employer, organic orders were up low single digits and power tools and lifting organic orders were up low single digits.
Vicente Reynal: I'd like to hear in our Innovation to Action section is an example of our innovative value process or I2V.
Vicente Reynal: The North American compressor team harmonized core components that caused multiple offerings of our oil lubricated product, driving a 23% reduction in total cost.
Vicente Reynal: This is one example of how we continue to see gross margin improvement opportunities, even with technologies that have been in our portfolio for a while.
Vicente Reynal: Turn to slide 11, Q1 orders in PST were up 28% year-to-year and up mid-single digits sequentially from Q424 to Q125.
Vicente Reynal: Organic orders finish up 3% and it's important to note that we saw organic orders growth in both the precision technologies and light science businesses.
Vicente Reynal: Revenue finished up 23% year-to-year, driven by M&A, and finished down 3% organically.
Vicente Reynal: BST Deliver Adjusted Evita of $106 million, which was up approximately 16% year-to-year with the margin of 29.1%.
Vicente Reynal: A just a little bit of margins, improve 150 basis points sequentially and finish in line with expectations.
Vicente Reynal: For PSD Innovation and Action, we're highlighting a great I2V solution for CPEX progressive cavity pumps.
Vicente Reynal: This new solution optimizes the maintenance process for the replacement of key consumable components, reducing critical downtime for our customers and improving margins by 10%
Vicente Reynal: And as a reminder, Tipex was a company we acquired with mid-teens imita margins and in less than three years, we improved that to PSD fluid average. And as you can see from this example, we continue to find ways to increase value in both to the customer and to the financial profile of the business.
Vicente Reynal: As we move to slide 12, I wanted to provide an update to the potential terrorist impact on our business and how we're meeting it in it.
Vicente Reynal: Starting on the left side of this slide, based on announced tariff rates as they tend to date, our in-year exposure for tariff is approximately 150 million dollars.
You can see the tariff rates outline on the slide.
Vicente Reynal: And it is worth noting that the approximate $150 million estimate also includes the secondary impact of tariffs, which refers to price increases who are anticipating largely from our domestic US suppliers who are procuring components from outside the US. [inaudible]
Vicente Reynal: On the right hand side of the page, we're showing the mitigation actions that we have currently deployed and which are well underway.
Vicente Reynal: Starting first with pricing actions, we have taken a multi-step approach with list price actions across our impacted businesses,
Vicente Reynal: Based on these pricing actions, we expect to offset the impact of tariffs one for one.
Vicente Reynal: In addition to pricing actions, we have launched a tariff war room to operationalize our tiered supply chain mitigation plans.
Vicente Reynal: And these include operational and or routing changes, adding its own right manufacturing locations, supply chain relocation of existing supplier production, to alternative manufacturing locations, and leveraging the global supplyways to source from new suppliers.
Vicente Reynal: It is worth noting that many of these actions will take some time to fully implement, so we're not expecting a material impact from these actions in year, but will continue to utilize IRX to drive these actions to completion in an accelerated manner.
Vicente Reynal: On slide 13 regarding our current guidance, we decided to take a prudent view by maintaining total revenue consistent with prior guide despite the tailwinds we're seeing from...
Vicente Reynal: A strong start in organic orders through April , incremental pricing actions to mitigate the impact of tariffs, FX tailwinds, and incremental revenue from recently completed acquisitions.
Vicente Reynal: In order to maintain total revenue, we're including a contingency in organic volume as outlined on the table.
Vicente Reynal: We're taking that contingency in volume, a normal flow through, which creates a change in adjusted ebita and adjusted eps also shown in the table.
Vicente Reynal: For the rest of the components of our full-year guide, 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: Finally, our guidance does not include the impact of any anticipated share purchases we spoke about, or incremental M&A which we expect to complete over the balance of the year.
Vicente Reynal: At the bottom of the flag, we have also added commentary regarding the current market indicators we track which continue to show good signs.
Vicente Reynal: MQLs were up double digits in Q1 2025 and remained strong in April . Large, long-cycle, final activity continues to be robust with projects continuing to progress through the official making process.
Vicente Reynal: and April others have continued to show stability and in line with expectations.
Vicente Reynal: While we are operating in a dynamic environment, business conditions remain solid and we're encouraged by the organic order growth we saw in Q1 and the continuum momentum we have seen in April . [inaudible]
Vicente Reynal: We're focused on controlling what we can control, and our teams continue to execute very well.
Vicente Reynal: We remain committed to leveraging our robust balance sheet to strategically deploy capital and dry value for our shareholders of our shareholders.
Vicente Reynal: And finally, on Flight 14, as we wrap up this portion of the call, I would like to highlight that we remain nimble but are prepared to pivot in what continues to be a dynamic global market environment.
Vicente Reynal: We will continue to leverage our robust global in-region for region manufacturing capabilities and pivot towards opportunistic end markets remaining aggressive and focused on taking share regardless of the micro-conditions.
Vicente Reynal: We have multiple levers to deliver sureholder value which differentiates Ingersoll-Ram as an investment.
Vicente Reynal: To our employees, I want to thank again for your part in delivering another strong quarter. Remain focus on controlling what we can control, and stay in agile through the use of IRX.
Vicente Reynal: With that, I will turn the call back to the operator and open it for Q&A.
Speaker Change: Thank you. If you would like to ask a question, please press star one on your telephone keypad. Again, we ask that you please limit yourself to one question and one follow-up. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you.
Speaker Change: Your first question comes from Mike Halloran with Beard. Your line is open.
Hey, good morning everyone.
Good morning, Mike. Good morning, Mike.
Speaker Change: So, you know, the last comments on the guide, I just want to make sure we're on all on the same page here. Essentially, could you bridge previous guide to current guide?
Speaker Change: It seems like you are taking the organic volume assumptions down.
Speaker Change: But it's more precautionary as opposed to anything you're seeing today from an order-trained backlog, etc. And so maybe you could just break that out and how you think about the volume price confirm the precautionary effects and just kind of walk through those moving pieces. Thank you very much.
Speaker Change: We could have increased that guide in the sense that tear pricing goes up 2% in incremental growth. When you look at a combination of FX and MNA and I'll say FX as of the end of March,
Speaker Change: The combination of effects as the at the end of March and MNA should have given us another two points of growth.
Speaker Change: which we believe is both prudent and also the risk in the year. And I'm holding the total revenue
Speaker Change: helpful. And then a two-fold question. Can you just talk to any nuance you're seeing on the short cycle businesses or so long cycle businesses?
Speaker Change: More on the ITS side there, and then on the PST side, you know, you've had positive orders for what, four quarters or so at a row now.
At what point does that turn to positive organically?
I'm the revenue manager. [inaudible]
Speaker Change: Yeah, like in terms of the short and long cycle, I will say we saw a very good balance on both. As you remember, we have spoken a lot about NQLs being off double digits for also a couple quarters.
Speaker Change: But the elongation of decision-making was taken longer and also on the long cycle.
Speaker Change: We also highlighted in the previous quarters too as well that, and the same thing now, is that-
Speaker Change: and that we're seeing it on both. I say as we say it and you can also understand the slides, NQL's in the first quarter and also through April , continue to be very positive, double digit, and also a long cycle continues to be fairly robust.
Speaker Change: Not only in terms of the total size, but in terms of projects that were adding on.
Thank you. Bye.
You're in the PSU question.
Vik Kini: Yeah, hey, Mike, this is Vic. So, yeah, I think first of all to your point, I think similarly we're encouraged by the momentum we've been seeing on the PST side.
Vik Kini: I think a couple of comments, I think we made in the upfront comments here that we did see organic growth on both components of PSD, so both the precision technology side as well as the life sciences. And so that life sciences is really referring to the piece of that that's organic is the legacy we call it being in the medical business.
Vik Kini: So, you know, obviously that has had probably the most challenging comps for a period of time. I don't think we'd say we've seen a, you know, necessarily an inflection point fully yet, but we are encouraged that we're seeing a little bit of, you know, a return to organic growth. So I think we're encouraged here about kind of what we're seeing going forward. And that, you know, that will lead to, you know, better growth momentum as we move, particularly into the back half of the year, which would also help the margin profile as well.
Speaker Change: I really appreciate it guys, thanks for all my help. Thank you.
Speaker Change: The next question comes from Julian Mitchell with Barclays. Your line is open.
Julian Mitchell: Yes, good morning. Just wanted to start the morning. Just wanted to start with the organic growth outlook. So as you said, it seems like...
Julian Mitchell: Trends year to date in orders have been as you thought there's some sales sort of moving around as normal but when we're looking at this sort of seasonality of revenue this year, you know maybe help us understand
How the quarterly organic sales are expected to progress.
Julian Mitchell: Anything abnormal, seasonality wise, and what sort of exit rate for the year from the year does your guidance in bed on organic sales?
Yeah, let me, let me be kind of. [inaudible]
Julian Mitchell: Take that to two pieces, including also kind of just talking about maybe half one, half two probably is the right way to frame that up.
Speaker Change: So, first and foremost, I do think that from a seasonality perspective, when you think about either percentage of revenue or percentage of earnings, first half or second half, very comparable to what you've seen historically, not being really...
out of swords from that perspective. [inaudible]
Speaker Change: I think when you think about the moving components and I'll probably answer your question here in terms of the organic first and foremost, we do expect obviously organic growth trends to improve moving into the back half of the year as compared to the first half of the year. [inaudible]
Speaker Change: So I would think about the first half of the year. Thank you very much.
Speaker Change: from an organic perspective in total being down approximately three to four percent.
Speaker Change: with price contributing approximately 2% of growth, including, I would say, the beginning of some of the terra-related pricing actions here in the April and May timeframe.
Speaker Change: And as you move the second half of the year, we're expected to be up approximately three to four percent total organic with organic volume expected to be down low single digits. Let's go.
Speaker Change: and the balance coming from the full run rate of pricing, including the terra-related pricing actions. So that can kind of help frame it up, including the pricing and volume components. And it is worth noting here that the comps in the back half the year do moderate a bit, which does help with that comparison point.
Speaker Change: That's helpful, thank you, Vic. And then just my follow-up would be looking at the EBITDAB margins. Those were down slightly year on year in the first quarter. I think the guide for the year...
Speaker Change: margins to just be up a bit in each of the remaining three-quarters year-on-year.
Vicente Reynal: Yeah, Julie, I think the way I would explain it and to keep it relatively simple here is you're completely right. You total year, it implies relatively flatish. I think that's essentially what you will see in ITS, a little bit better on the PST front.
Vicente Reynal: In terms of the biggest driver, the single biggest driver is the tariff pricing.
Vicente Reynal: We are taking pricing actions that are one-for-one offsetting the tariff costs, so that size is at a approximately $150 million dollars, both the price and cost.
Vicente Reynal: And obviously with that being a zero flow through, that is, you know, let's call it dollar cost and margin essentially, you know, it's not, it's not, it's dilutive to the overall.
Vicente Reynal: So, that's essentially the biggest driver. I think when we look at the other factors of productivity, normal pricing actions, things of that nature, we actually feel relatively good. Kind of very much in line with how you've seen us historically behave. [inaudible]
Vicente Reynal: and then in terms of the quarterly is yes, a little bit of moving parts but generally speaking right around that kind of flatish expectation Q2 to keep forth.
Great. Thank you.
Goodbye.
Speaker Change: Your next question comes from Jeff Sprague with Vertical Research Partners. Your line is open.
Jeff Sprague: Hey, thank you. Good morning everyone. Hey, I'm a little bit late, but just coming back to the terrorists, if I could, but something I think you, you know, wouldn't...
Jeff Sprague: and kind of explaining the hedges of sorts and the guide, right? You...
kind of characterized the tariff impact is 2% of sales.
Jeff Sprague: but it doesn't sound like you're going for it all in price. Can you, if you haven't already, can you just write a little bit more color on how much you think of it as kind of price versus kind of cost or other sourcing actions to offset this gross amount? [inaudible]
Jeff Sprague: Yeah, Jeff, I'll say it's a pretty good plan between prize and surcharges. Everything that we did in April first was a hundred percent on price.
Jeff Sprague: So, and then what we did on the as of May 1st included a good combination between price and surcharges.
Jeff Sprague: I will also kind of emphasize a mention too as well, Jeff, that typically when we do a price increase it stays. So we have been very disciplined and diligent that when we do a price increase we don't then discount that price.
Jeff Sprague: I will also mention, kind of what I said on the call, is that a lot of these tariffs today does not include some of the meaningful
Jeff Sprague: Well, the supply chain relocalization or moving one product from one factory to another to another as you saw I mean we have a pretty vast global footprint and we have the ability and capability of moving product.
Jeff Sprague: from one facility to another. So, that is not included in our guide, but clearly something that, as you know, was very well, we're always actively working on cost mitigations.
Speaker Change: Yeah, great. No, that's what I was sort of getting at. So, yeah, the plan is all price, but you're obviously doing a lot of other stuff.
Speaker Change: Could you also just speak to the China business specifically, China for China, kind of the tone of demand that you're seeing there and sort of any evidence of backlash against US companies or anything of that nature? [inaudible]
Speaker Change: I was actually with a Chinese team a couple of times already this year and I'll tell you that the team continues to be fairly optimistic about what could happen here in this year.
Speaker Change: So things seem to be very stable, clearly throughout the quarter, we saw better improvements.
Speaker Change: Still for the year, we're predicting that China is going to be materially going to still be down. It's kind of what we imply in our guide.
Speaker Change: but we're encouraged by what we're seeing and how our teams continue to... [inaudible]
Speaker Change: really accelerate the process of localization and also share taking in new technologies and products such as blowers and vaccines.
Speaker Change: Also, highlight to us what, Jeff, you know, you heard us talk a lot about how outside of China we have put a lot of attention on how do we accelerate our share take or, you know, market share, which is under penetrated. We call it the under penetrated regions.
Speaker Change: It is clear to say that, obviously, overall, you know, within the ITS, we saw Asia-Pacific up organically in orders.
Speaker Change: and that speaks to the fact that we continue to see good momentum outside of China.
Speaker Change: with the organic investment initiatives that we have done outside of China. And that remains to be a great, good encouragement to offset any potential softness that China may seem to be continuously throughout the rest of the year. But again, China will say encourage. Thank you very much.
Speaker Change: And no negative retaliatory gestures that we're seeing from customers against us.
Thank you.
Speaker Change: Thank you for that. I'll leave it there. The next question comes from Rob Wertheimer with McMillius Research. Your line is open.
Rob Wertheimer: Thank you. I'm curious how you think about acquisitions, your desire to close, how conversations change, just given obviously there's more uncertainty that you reflected in your own guidance. Do you assume a safety factor and are willing to go forward or what does the outlook for kind of closing deals in the year? Thank you.
Speaker Change: Yeah, Rob, I'll say it continues to be very very strong funnel that we have in the M&A and you have seen that we have closed already quite a few transactions here in the year already so we're off to a very very good start.
Speaker Change: As you have seen us do, we are very focused on bolt-on in nature acquisitions.
Speaker Change: We're very disciplined with price. You can see that the last two that we mentioned here, roughly nine times pre-snergy multiple with expectation that in a post-snergy we can lower that to another three turns. So, very good return on those investments that we're making there. Thank you very much.
Speaker Change: I would also highlight that our funnel is consistent to what we have done always on before, which is soul source, we go to family and companies, and moments like this in this macro environment provides a lot of uncertainty to those multi generation families and also provides a good opportunity for us.
Speaker Change: to continue to emphasize how we're a good home for those acquisitions.
Speaker Change: Clearly in the financial diligence, we do a lot of work to understand if the macro kind of making changes or not.
Speaker Change: and we're being prudent on how we're writing the model to create that ROIC.
Speaker Change: And last point I'll say, Rob is that a lot of these multi-generation families are encouraged to come to us because of our ownership model. I mean, they're regardless of the macro environment, they view that we are a great home for transitioning their legacy. Thank you.
Speaker Change: especially the way we treat employees and how we treat the long-term ownership of having those employees be part and owners of the company.
Thank you
Thank you, Ralph.
Speaker Change: The next question comes from Andrew Kaplowitz with City Group, your line is open.
A good morning, everyone.
Forty-I'm in it.
Speaker Change: The center of it, booked a bill over one time, as you said, which was strong on still strong in April and I know you said your MQLs remain strong so maybe you could talk about your or expectations for the year but this year end up actually being normal for you or booked a bill if there's over one time in Q2 and
Speaker Change: You end up booking Booktable Adder above one for 2025.
Vik Kini: Yeah, Andy, this is Vic. Maybe I'll take that one. Obviously, we're not going to necessarily try to guide on orders. I think what we'll say is this. One, encouraged by the momentum we saw in Q1. Worth noting that a good balance between both will call short to medium cycle products as well as longer cycle activity. And I think it speaks to a lot of what we've been talking about, even in prior quarters, that MQL activity has remained healthy. And we've been seeing that I'd say funnel activity. And-
Vik Kini: You know, was just waiting for some of those longer cycle projects to kind of get to the finish line if you will in terms of the PO. So I encourage that we saw a nice balance of that.
Vik Kini: You know, I think right now, you know, listen, our expectations that, you know, we're not...
Vik Kini: We're not expecting to see dramatic changes from what we've seen historically in terms of what the bill is from a seasonal perspective and things of that nature and that's kind of the best view we have at this point in time just given the macro environment. [inaudible]
Speaker Change: It's helpful, Vic. Can you talk about the Q1 margin performance in the segments? I know you've got hit with operating delivery in ITS, given the 15 million moving to the right, as you said. But if I look over the last couple quarters, you know, margins, at least, versus high expectations have been a bit choppy, and we know your acquisition activities continue to be robust. So is there anything to read into here that acquisition noise and margins little higher these days? And is there anything you could do to mitigate that noise?
Speaker Change: Let me start by kind of maybe the ITS, and just remind everyone that Q120 for 24, the ITS EBITDA margins were really strong. I mean, there were 29.9%
Speaker Change: in the first quarter of last year, which was up 370 basis points.
Speaker Change: So, still, when you look at it at two-year stack, you know, that Q1224 and Q1225, we're still up 260 basis points, which is...
Speaker Change: We're very pleased with what the teams continue to do, including obviously bringing new M&As and also, as you said, some of the delivery because of the organic decline. So we continue to be very pleased with how the teams continue to execute.
within the ITS.
Speaker Change: And to your point, I mean, there's still plenty of runway for us to improve. I mean, you saw the great example that we gave.
Speaker Change: with the use of innovative value to really consolidate those product lines and still save. I think it was like 23% improvement in the bill material cost of that specific product line.
Speaker Change: So I think we're encouraged. We continue to see tremendous wrong way. We spoke a lot about how recurrent revenue and things like that will also improve the margin profile of the ITS.
Speaker Change: On the PSD segment, you saw a sequentially great improvement, you know, 150 versus points Q4.
Speaker Change: to Q1. We continue to be very pleased to what we see on kind of what it was kind of that legacy of CPST that we call precision technologies now.
Speaker Change: that continues to see some very good improvements and also the operational improvements that we saw on the ILC Dover business on a sequential basis Q4-2-Q1. So I think everything seems to be moving along with expectations and clear there's still plenty of runway for us to see improvement on both segments.
Appreciate the color of the Sunday.
Thank you, Andy.
Speaker Change: The next question comes from Nigel Coe with Wolf Research. Your line is open.
Thank you.
Thanks. Good morning.
Morning, guys.
Speaker Change: So, I just wanted to maybe sharpen up the 2Q kind of thinking here. You said previously I think 46, 54 on EBITDA, but obviously there's a lot to change since February . So, are we still on that sort of 46% phasing for the first half, Vic?
Speaker Change: Yeah, I think you're still very much right in line with that expectation.
Speaker Change: So both 505 of the Bidar, 80 cents of EPS in that kind of zone.
Speaker Change: You're in the right ballpark, Nigel. Okay, fair enough, that's helpful. And then a big picture is a question I think maybe for you, Vicente. I mean...
Speaker Change: The ultimate growth of 6% is really encouraging and shows resilience of that franchise, but that sort of backs into equipment down close to 10%, 90% I think is the number.
Speaker Change: That feels recessionary, so I understand there was some push from wonky to 2K, but any sort of perspectives you have on the cycle would be really helpful.
Speaker Change: So, I say that you're like, keep in mind that we're putting a big effort on the recurrent revenue that we said, the recurrent revenue will kind of up double digit.
Speaker Change: I think we still feel fairly good on the overall compressor product portfolio, and as you saw with the compressor's blowers and vacuum technologies, and even including the part that we continue to see, we saw positive, good, order organic momentum.
Speaker Change: You know, we do analyze a lot of the data that we kind of get from associations, particularly here in the one in the US, which continues to show that we're holding to take your share. And so we remain, we remain encouraged. We have an amazing install base of. Thank you for that.
Speaker Change: of Coenacore equipment. I think it's very important for us to start connecting a lot of that, which is what we're very focused on. And in addition to that, we continue to see more equipment across the world, you know, so nothing, nothing that it is concerning here to us.
Okay, thanks all, kiss.
Speaker Change: The next question is from Joe Ritchie of Goldman Sachs. Your line is open.
Hey guys, good morning.
Bonjour
Speaker Change: Hey, just tackling this new guidance from a little bit of a different angle. So if I take a look at the kind of like midpoint of your EBITDA for the year, it's like 2.1 billion dollars, it feels like we can get there just from your completed M&A. So I want to make sure that I've got that straight and like all of speed and equal, it really isn't much baked in for the rest of the business. [inaudible]
Speaker Change: Yeah, Jill, let me take that one. Obviously, with regards to the M&A that we have completed that, you know, we size that in the earnings at approximately $330 million, which I think is that, you know, relatively normal flow-throughs.
Speaker Change: as you would expect for things that are completed kind of year one. As far as the other moving parts?
Speaker Change: Remember, with the organic volume of justice we talked about and the pricing, a meaningful component which comes through it at zero margin, it's a little bit atypical that kind of prior years but we think as we said kind of prudent, given kind of what we're seeing.
Speaker Change: So, again, are you kind of far off the mark in the contest of the moving parts? No, I don't think so, in that respect, but I would say that I'd say the composition of the growth elements, particularly the zero flow through on tariff pricing is probably the unique aspect of this year compared to years past.
Speaker Change: Okay, great, Vic. And then just Vicente, maybe bigger, bigger, bigger question and, you know, test to play in hypotheticals here, just given the environment that we're in. But if the terrorists were to kind of resolve themselves, you know, let's call it sometime in the next couple of months.
Speaker Change: Given just the demand picture that you're seeing in your business today and that contingency that you have built in...
Speaker Change: were your expectation then be that, like, okay, we're going to get a little bit better growth then as the year progresses and we can get back to potentially, you know, what the original guidance was for the year.
Speaker Change: Yeah, potentially. I mean, I think there's a lot of things that can happen. So, yeah, I mean, absolutely. Again, I think we're incredibly encouraged that even though in this environment, we're seeing what we're seeing in terms of how the organic order growth momentum is through on a year-to-day basis. Thank you very much.
Speaker Change: And as we said, we just decided to take a prudent view.
because we've used our stacking up all the positives.
Speaker Change: It kind of became a more of a situation that we said, hey, we want to be more prudency. So, it tears comes off. Could there be accelerate growth? Yes, I mean, but TBD, when that moment happens, and at that time, we will definitely evaluate what the situation is. [inaudible]
Thanks, guys. Appreciate it.
Speaker Change: The next question comes from Stephen Volkmann with Jeffries. Your line is open.
Stephen Volkman: Great. Good morning, guys. Just a couple of quick follow-ups here. I think you talked about like a hundred and fifty million or something of pricing. Is that pretty much even in the two segments?
Stephen Volkman: Well, yes, obviously it's, I'd say, proportional between the two given the size, but what I would say is the level of tariffs and or the level of pricing actions have been very commensurate across the two is probably the best wouldn't think about it.
Stephen Volkman: Okay, and then I'm just trying to get my head around, you know, you're obviously doing some other things on the cost side sourcing, et cetera. It would seem to me like those would take a little while to sort of filter in, but it also doesn't seem like you're really sort of...
Stephen Volkman: saying the second quarter will be weaker and will sort of grow into it. So I just thought that was interesting. Anyway, to square that circle.
Stephen Volkman: Yeah, Steve, I'll take that one. So, you know, I think a couple of ways to think about it. I think the way you've thought about it, I'm going to call it the cost actions as Vicente mentioned earlier, 100%. You know, we're taking a prudent view here.
Stephen Volkman: Teams, we've launched Terrafor rooms and things of that nature which is very collaborative across the enterprise. We're just, you know, expecting that to, you know, take some time to kind of get to completion and taking a prudent view on the in-year impact.
Stephen Volkman: So, you know, we're offsetting the tariffs essentially one for one with the pricing actions. I think the reason you're seeing that, you know, essentially being net neutral from a dollar perspective, you know, quarter to quarter is, we have taken those actions in kind of two tranches. We took immediate action here, kind of coming into April 1st. [inaudible]
Stephen Volkman: which I think has helped mitigate a lot of the noise that you would see here in Q2 as well as a second round of actions here effectively as we speak here on May 1st.
Stephen Volkman: So I think the two-tiered approach on the pricing front compared with the terrorists themselves are folding in, I think is keeping us largely intact.
Got it. Okay. Thank you, guys.
Thank you.
Joe O'Day: The next question comes from Joe O'Day with Wells Fargo. Your line is open.
Hi, good morning.
Speaker Change: Hey, drop 10. Hey, can you unpack the 4% volume impact, I guess embedded as contingency?
Speaker Change: and it would seem that that's an annualized number, so it's an even bigger hit that you're taking primarily to the back half of the year.
Speaker Change: But where do you think about that vulnerability really sitting between segments and then within segments by, you know, end markets or product groups? Just understand what you're watching most closely for the volume vulnerability. [inaudible]
Yeah, Joe, this is Becca, I'll take that one.
Speaker Change: So, you know, I think a couple things here. You know, one, you know, we've taken what we think to be a prudent view for the balance of the year, obviously with only three quarters in the year. Yes, there obviously is an impact in the second half.
Speaker Change: As far as how to think about it between the two segments, we view it actually very comparable, right? Like Vicente has mentioned here, you know, we look at this...
Speaker Change: in 10 to 2 fronts. One, it's a prudently de-risking the guide, but then also keeping total revenue intact. And you see that we actually kept that across.
Speaker Change: It's commensurate across both segments. As far as product lines or anything of that nature, I don't think we view it necessarily any different product line or anything of that nature. We're taking a prudent view on the volume expectations to keep the revenue guide intact from a total perspective. Thank you, David.
Speaker Change: And yes, obviously the second half impact as I kind of outline before we are expecting organic volumes to be down low single digits in the back half of the year.
Speaker Change: Anything in differing demand trends between those, whether something that would be more at the reciprocating school, compressor price points, or up to centrifugal like it.
and he hesitation out there on higher price points.
Joe O'Day: I mean, Joe, nothing of significance that we can think about, I mean, as you kind of well point out when you think about centrifugal and some of the kind of medium to large
Speaker Change: Those things will be more capex oriented versus maybe the smaller compressors will be more really the kind of, I say, all picks. And but we play more in that kind of, you know. All right.
Thanks for listening.
Speaker Change: which I assume that's maybe more related to consumer spend or your cell, which that we don't play in that market. So our products are more of the highly engineered and they do provide that return on investment, so everything we sell is based on the payback.
Speaker Change: And, and as long we have proven that as long as we show the customer that the pay-by-case...
Speaker Change: You know, 15 months or less, they will put a project up on the list because obviously it's a great payback and the technologies that we're launching and how we save energy, how we conserve water and everything else. It's a great way for customers to view that total cost of ownership that offers a payback.
Speaker Change: And then just on tariff, 150 million, can you size how much of that is China? And within that, how much is import, how much is export, you know, really so that we have a sense of moving forward. And if we see headlines on changes to the...
He's, you know,
Speaker Change: We have a sense of how much of that applies to the 150. The 150.
Joe O'Day: Yeah, sure, Joe, I'll take that one, so I take the majority of the cost.
Speaker Change: from China. I would say much more on what I'd say, just, you know, third party spend, as we mentioned, we're largely in region four regions. So, while there's a small impact there, that's by no means the major driver.
Speaker Change: It's also kind of worth noting here that in that number, we do include what we'll call, you know, the I call, I refer to it almost as the Tier 2 impact, but that really refers to increases that in the US we're expecting from domestic suppliers. Ingersoll Rand PLC-Rand PLC-Rand PLC-Rand PLC-Rand PLC-R
Speaker Change: because they are getting components internationally. So, you know, we have included that in our $150 million estimate and we do attribute that largely to that kind of China component. So that is very much the majority of the driver of the 150. Thank you.
Thanks a lot.
Speaker Change: The next question comes from Chris Snyder with Morgan Stanley . Your line is open.
Speaker Change: Thank you. I wanted to ask just on the contrast between the Q1-1.0-1.1-0 book to Bill, which another positive season alley, but I think that was the best since 2022, and then just the four-point volume guide down.
Speaker Change: Is there a view that these orders could have included some pull-forward ahead of the tariffs?
Speaker Change: Or are you got, are customer conversations changing at all in Q2? That's making you guys a little bit more cautious on the back half and then just on that like anything specifically on China where it does feel like the demand for manufactured products.
Speaker Change: May have changed a lot, versus what was going on in Q1. Thank you.
Speaker Change: Yeah, Chris, thank you. I'll say on a pull forward, nothing that we could see, because keep in mind, I mean, I think a lot of our the majority of our prologues are very large percentage of them, they are...
Speaker Change: Did you get to select the options and it's kind of almost, I'll say, a little bit customized.
Speaker Change: that mostly on a precision technology side, we track, you know, what are selling and then they sell out.
Speaker Change: So we basically track the amount of inventory and we do not want our distributor to carry.
Excessive amounts of inventory soap. [inaudible]
Speaker Change: Based on the data that we have seen, we don't see any of that pull forward.
I think in terms of your question around China.
again, you know, positive
A positive link to see how to think about it. [inaudible]
Speaker Change: what we saw throughout the quarter and also kind of as we kind of come into April .
The team remains very encouraged of all the activity that...
that were saying.
Speaker Change: But we're not expecting a fast recovery clearly in China, and we're putting a lot of emphasis on growth outside of China, particularly Asia Pacific, where we see good solar momentum today.
Speaker Change: Thank you. I appreciate that. And then I'm just following up, have...
Speaker Change: tariffs change the competitive positioning for you in the US market, you know, whether it's some of your bigger competitors or to the extent are there, you know, do you guys compete at all against maybe lower cost for an import, you know, whether it's China or elsewhere that could be impacted by the tariffs? Thank you.
Speaker Change: Yeah, Chris, we do have a competitive advantage because of our in-region for region model. I mean, that is clearly because when you look at all of our competitors, whether... [inaudible]
Speaker Change: You know, they bring product from the outside, I mean, the majority, most of them. So that offers definitely a competitive advantage and one that...
Speaker Change: We're putting now, not only just in the US but on a global basis, a lot of our customers, they're asking for local products and that is what we are able to offer to a lot of them.
Thank you.
The next question.
Speaker Change: Sorry, the next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.
Yeah, thanks. Good morning, guys.
Speaker Change: Just one quick follow-up on the one-cube margins. We're margins impacted at all by price calls, headwinds, just because the inflation kind of came in really quickly, and I think you guys started to attack this with pricing in April rather than during one queue.
Speaker Change: Yeah, Nicole, I think the simple answer is not dramatically, you know, I would say, you know, the tariff impact has become more of a Q2 dynamic forward, so I mean we did have some of the kind of carry over pricing that kind of comes normally from prior year into this year, so I wouldn't say there was anything of a dramatic nature there.
Speaker Change: Okay, thanks. And then we've got to do a lot of my questions here, but I guess one thing we didn't talk about is what you're seeing in Europe . I suspect that it's probably stability, not really much change relative to what we've seen in the past few quarters, but could you talk a little bit about, you know, order activity in that region? Yeah.
Speaker Change: Yeah, we were actually a great person. Thank you for that. We're actually very pleased with what we saw in Europe . We saw kind of mid-single-digit organic in the ITS segment through, I mean, in Europe . So I guess that, you know, encourage what we actually saw.
Thank you all for having me.
Speaker Change: The next question comes from Nathan Jones of Stiefel. Your line is open.
Good morning, everyone.
Good morning, Nathan.
Speaker Change: I wanted to ask a question thinking about the price increases from your customers' perspective. I mean, we're talking about, you know, 2% price for Ingersoll Rand.
Speaker Change: But if we start thinking about that being across three quarters, and 40 to 45% of revenues in the US,
Speaker Change: So if you just spread that across kind of the US portfolio, you're talking more about a 6% price increase on that kind of stuff and then probably some of the services don't need to see that price so we are maybe you're pushing into the high single digits on products.
Speaker Change: Everybody else is raising price the same amount. Did these things start to impact?
Speaker Change: Customers go no-go decisions on projects because the return metrics for their investments have changed because of these pricing increases.
as they go into effect.
Speaker Change: I don't have a great question. I'll say a couple of things. Including our prolettes are mission-critically nature, so they're needed. It's a must-have.
for the specific projects and the specific application. Thank you, John .
Speaker Change: And it's just not all that are increasing prices. I mean, clearly we track the competitive dynamic.
Speaker Change: And everyone is along the lines kind of doing it. So I would say that customers continue to pursue what, I mean clearly they will do the math in terms of the return on that investment whether that will make sense as I kind of mentioned before.
and then return on that investment soul.
Speaker Change: I think, you know, what, so is this happening in the market? Could it create some customers to maybe put a pause? We haven't seen it at this point in time yet?
Speaker Change: That's why even more so of being prudent as we kind of do what we did with our guide, but again we have nothing that we have seen on a year-to-date basis kind of Q1 and through April from an older perspective. Thank you.
Speaker Change: And the last point I'll say is that this is why we emphasize our in-region for region.
Speaker Change: because we do see many customers they're asking for products that are made locally.
Speaker Change: And that is the advantage that we have not just on compressors, but you saw on the map, I mean, blowers, vacuums and other technologies that are very prevalent in the markets.
Speaker Change: Thanks for that. I guess the second question for me is a bit of a longer term one.
Speaker Change: We've seen things like fiscal stimulus announcements in Europe and Germany specifically probably get some more of that. We've started to stories about South America looking to invest in capacity to decouple from the U.S.
Speaker Change: A lot of those things talk about and probably don't impact you this year but maybe start impacting neck, impacting you next year. Maybe just talk about the opportunities that that could provide for the business.
Speaker Change: Yeah Nathan, I, uh, it's a great question and, you know, one that, uh, I mean, so far this year I've probably, I have been out to all the, across all the regions. I've been in Latin America, Europe , Asia, Middle East, and, and clearly throughout the US
Speaker Change: and I spent a lot of time talking to a lot of our customers. Thank you very much.
Speaker Change: And it is, it is coming kind of loud and clear, customers want localized products.
So yes, we see some good investments that are happening.
Speaker Change: And I think these localizations, whether you think about India, even Brazil, that I just, you know, basically was inaugurating our new facility there, not too long ago, a couple, a few weeks ago, and customers, they want some local content in those products. And I think that provides us very well position. And, again,
in that apartment.
Thanks very much for taking my questions.
Thank you, Neelam.
Speaker Change: The next question comes from Andrew Buscaglia with B&P Paraba. Your line is open.
Hey, good morning everyone.
and Andrew.
Speaker Change: It may be just one for me, everyone kind of took, I lost a few questions I had, so I wanted to get an update, so I'll see Dover and how that is tracking during the tariffs. It's not a market I'm too familiar with, but I'm wondering what the exposures are there and if you're seeing any change in demand trends in that specific area. Thanks.
Speaker Change: Yeah, yeah, yeah, sure, Andrew. We continue to remain really encouraged by the momentum we're seeing in the Lifesign's front.
Speaker Change: I'll just kind of highlight that, you know, the life signs, the components of ILC's over, which is everything except the aerospace business, you know, had a book to build of 1.11
Speaker Change: and of course single use, powder hand and portfolio bookings are off, love double digits every year in Q1 and operationally very encouraged to what we saw kind of Q4 moving into Q1 as I mentioned in the call. Thank you all so much.
Speaker Change: And clearly we continue to make a lot of investments in the IOC and over the long term we continue to see that clear path.
Speaker Change: for that long-term margin target that we outline when we announce the deal in the transaction, particularly to your question on the areas, I say fairly minimal in nature. And where we have seen them, we can actually work with our customers to pass that whether it is price or surcharge. Thank you very much. Thank you.
Okay, got it. That's it for me. Thank you.
Speaker Change: Thank you. This concludes the question and answer session. I'll turn the call to Vicente Reynal for closing remarks.
Vicente Reynal: Yeah, thank you, Sarah. I'll just kind of want to highlight that, you know, eventually last month we crossed our five-year anniversary of combining Garnet Denver and Ingersoll Rand.
Speaker Change: And as you have seen over the past five years, we have been through a lot, COVID, supply chain, freight, a couple of wars, and things of that nature. And we like to say that we're now much stronger than ever.
Speaker Change: and completed the investigators that acquired 65 companies. We have a pretty unique portfolio.
Speaker Change: And needless to say, we know how to navigate this market. We have a management team that has done it before...
Speaker Change: We have done it over the past five years, and regardless of what comes out, we're pretty agile and nimble in this environment. Thank you very much.
and we know that we'll definitely come out even stronger. Thank you very much, Robert.
Speaker Change: in out of this situation that we have done even historically in the past. [inaudible]
Speaker Change: Remain very excited, remain very encouraged about what's future ahead of us at Ingersoll Rand.
Speaker Change: And one more time I want to thank all 21,000 employees who are owners of the company and that is one of the reasons why we continue to remain very agile and nimble despite any of the market situations because all of them are pushing towards the same goals and same characteristics that we want to do and we know that we will be successful.
Speaker Change: So with that, call it up for today, and thank you everyone.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.