Ingersoll Rand Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Mike Halloran - Robert W. Baird & Co. Incorporated - Analyst : Hey, good morning, everyone.

Question: Mike Halloran - Robert W. Baird & Co. Incorporated - Analyst : So let's start on slide 13. And I certainly heard the prepared remarks commentary around project pushouts. But maybe you could put that slide in context to what you're seeing on an underlying basis right now because the -- I think the MQLs as an example, that's been improving as you worked through the year here. But the organic growth guidance has moved down, again, partially project pushouts. But maybe kind of correlate all those moving pieces because I'm guessing the MQLs is probably a little bit of a shorter-term lead time or a leading indicator, excuse me. And so kind of just maybe put all that in context and then related -- what needs to happen to have that slide sync with the order trends and the underlying demand -- and the underlying trend in your portfolio?

Question: Mike Halloran - Robert W. Baird & Co. Incorporated - Analyst : So if I take your comments then, the optimism, the fact that these leading indicators are tracking the right way, does that mean that when you think about next year, it starts tracking towards a more normal growth algorithm for the company? And if it doesn't, what do you think prevents you from getting there at this point? Market, timing of these projects, any other variables?

Question: Mike Halloran - Robert W. Baird & Co. Incorporated - Analyst : Thanks (inaudible).

Question: Julian Mitchell - Barclays - Analyst : Hi, good morning. Maybe just the first question, Vicente, around sort of current demand trend, just flesh that out a little bit more. I think the last quarter, it was very clear that China was the big headwind or surprise factor back in the early summer months. And I see your compressor orders ex-China are good. But since the last call, have you seen kind of a broadening out of those project pushouts? Is there maybe weakness in more geographies, perhaps, than just the China factor? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call And I understand that orders are good, backlogs are good. It's the conversion of those two things into sales that's sluggish at present. But when we take a step back and look at the overall kind of process industries exposure of ITS, is it fair to say that those generally would lag kind of earlier cycle markets, and that speaks to your point on a very gradual recovery pace next year?

Question: Julian Mitchell - Barclays - Analyst : That's helpful. Thank you. And just my follow-up on the margin front. So maybe just put a finer point on the sort of EBITDA margin rates in Q4, I think maybe it's down a little bit sequentially, but maybe I have that wrong. But that would be -- I know historically, you normally up sequentially in Q4. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call And as we think about 2025, exceptional incrementals this year, any sort of give back or normalization of incrementals as you think about next year because of investment spend or anything like that?

Question: Julian Mitchell - Barclays - Analyst : Great, thank you.

Question: Jeff Sprague - Vertical Research Partners - Analyst : Thank you. Good morning, everyone. Just kind of back to the project delays and uncertainty, what you said about the EPCs is interesting. But a lot of companies are pointing to election uncertainty. What is your view on that? Is that a reality or an excuse? And do you see the outcome impacting your business substantially one way or the other, or just having an outcome and getting this over with, just lift some uncertainty, we can kind of try to move on with whatever hand would dealt? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call

Question: Jeff Sprague - Vertical Research Partners - Analyst : Do the project delays, though, skew to the US? It sounds like it's actually just quite global.

Question: Jeff Sprague - Vertical Research Partners - Analyst : And just pivoting real quick, just mix, obviously or seemingly, would be positive, given equipment softer. And Vik just mentioned service. Can you just maybe give us a little bit of an update on how service is performing, sort of what the growth rate is, how you expect to close out 2024 on the service side?

Question: Jeff Sprague - Vertical Research Partners - Analyst : All right, thank you.

Question: Rob Wertheimer - Melius Research LLC - Analyst : Yeah. Hi, thanks for the question. Your margin performance continues to be extraordinary. And I'm a little bit curious just about how much opportunity lies ahead, maybe we do IT versus behind, if you still see as much potential there, if you're shifting your workflows to be more growth-oriented than margin oriented. Just maybe comment on that. Because, obviously, you've done amazing things over the last couple of years.

Question: Rob Wertheimer - Melius Research LLC - Analyst : Okay, I'll stop there. Thank you.

Question: Andy Kaplowitz - Citi - Analyst : Good morning, everyone.

Question: Andy Kaplowitz - Citi - Analyst : Vicente, can you talk about or give us more color about the acquisition landscape as you start to think about '25? You obviously have been very active, as you said, for '24. Your LOIs, I think, went up a little bit sequentially. So do you see '25 as potentially as robust a year for incremental M&A activities '24? And I know you said the LOI is more bolt-on in nature. Is that generally the type of activity that you would expect in '25?

Question: Andy Kaplowitz - Citi - Analyst : Okay. Helpful, Vicente. And then you mentioned in PST book and ship, it's still up high single digits year over year. You mentioned sequential orders up 13%. I know organic revenue growth has been stubbornly negative for a while now in that segment. So does the better order environment suggests that you do have relatively good visibility to improve growth in '25? Maybe just on ILC Dover, in particular, a lot of positive commentary on it. But just an update there.

Question: Andy Kaplowitz - Citi - Analyst : Appreciate the color, guys.

Question: Nigel Coe - Wolfe Research - Analyst : Thanks. Good morning, everyone. Morning. Just wondering if we could maybe just hone in on the PST sort of outlook for 4Q. It looks like we're sort of pointing towards a return to growth in the fourth quarter. Obviously, comps are getting easier. I just wanted to make sure that's the case. And then I just wanted to just try and nail this M&A contribution. You definitely had a bit more revenue from, I guess, ILC Dover in the third quarter. And just want to know what your kind of penciling in the fourth quarter from ILC Dover. And just -- maybe just -- if you just, within that address, the book to bill, 0.97 for reported, 0.99 for core. Does that suggest there's a bit of book to bill below 0.9 for acquisitions? Just -- maybe just unpack that for us. Thanks.

Question: Nigel Coe - Wolfe Research - Analyst : Okay. And then just to be clear, are we still on track for [215, 220] guide for ILC?

Question: Nigel Coe - Wolfe Research - Analyst : Yeah. Are we still on track for full-year contribution from ILC at, I think, the [215, 220] is the range.

Question: Nigel Coe - Wolfe Research - Analyst : Okay, great. Thanks, Vik.

Question: Joe Ritchie - Goldman Sachs & Company, Inc. - Analyst : Thanks. Good morning, everybody.

Question: Joe Ritchie - Goldman Sachs & Company, Inc. - Analyst : Hey, Vicente, could you just elaborate on what site readiness actually means? I know you referenced the Middle East. I'm assuming this is brownfield project and very separate than the, like, EPC discussion that we had earlier. And then also -- and I know people are asking all these questions around orders and book to bill. I guess, that there's a concern that the book to bill will kind of nose dive in the fourth quarter. And so just any kind of comments around what the expectation is for the book to bill, fully recognizing that, typically, in the second half of your year, it is typically below one.

Question: Joe Ritchie - Goldman Sachs & Company, Inc. - Analyst : Great. That's super helpful. And then I guess just -- maybe just elaborate a little bit more on biopharma; really nice to see that 20%. Typically, we thought of that as being very margin accretive to the business. And then we're hearing from others that there's places like radiopharma or theranostics that could see really good growth in the coming years. So just maybe elaborate on that piece of your business and specifically where you're seeing good momentum.

Question: Joe Ritchie - Goldman Sachs & Company, Inc. - Analyst : Very helpful. Thank you, guys.

Question: Chris Snyder - Morgan Stanley - Analyst : Thank you. I want to follow up on the commentary around site readiness. Much of it appears tied to labor capacity and constraints there. So when you speak with customers, is there an expectation that that gets any better? Because I know unemployment, at least, here in the US continues to go higher. And it seems like demand for these projects and the activity is pushing higher. So seems like that could remain a constraint.

Question: Chris Snyder - Morgan Stanley - Analyst : Yeah. Appreciate that. And then maybe on China, specifically, I know you said you're not really seeing any impact in the operating environment or from the stimulus in the early part of Q4. But I guess, do you think that the stimulus will have an impact on the economy there into 2025? Any way to think about the timing between -- when that could filter through. And just for all of us in the US, when you look at the policy measures, I guess, is there anything that stands out as potentially being impactful to Ingersoll?

Question: Chris Snyder - Morgan Stanley - Analyst : Thank you, Vicente. Appreciate that.

Question: Joe O'Dea - Wells Fargo Securities, LLC - Analyst : Hi, good morning. Vicente, could you talk about Ingersoll's kind of engagement in the timeline of a large project when we think about a growing pipeline of what can be multiyear projects, how to think about your involvement relative to when shovels go in the ground, when you're engaged with the customer, when you get an order, when you ship it, relative to, say, shovels in the ground in a multiyear timeframe?

Question: Joe O'Dea - Wells Fargo Securities, LLC - Analyst : Got it. That's helpful. And then just wanted to come back to PST and some of the trends. I mean, when we look at the organic growth, the stacks, whether it's two years, three year, actually softened sequentially from Q2 to Q3. The guide suggests that those would improve sequentially from Q3 to Q4. It seems like within sort of the order framework as well and book-to-bill outlook that PST orders would sort of lead the growth in the fourth quarter. And so just looking for any color on lumpiness within the third quarter and how that's improving in the fourth quarter. Not sure if weather events were a factor, but any details there would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call

Question: Joe O'Dea - Wells Fargo Securities, LLC - Analyst : Great. Thank you.

Question: David Raso - Evercore ISI - Analyst : Hi, thank you for the time. Just a quick question. The organic orders within ITS, I know page 18 provides sort of the all-in ex-currency. But just given the acquisitions, can you help us between compressors, vacuum, power tools, and other -- the 0.4. I'm just trying to figure out how much would a bottoming China be as a boost to the organic orders? It's not that easy on page 18, just given those are all in ex-currency. Can you give those same splits organically to get to the organic order of 0.4 for the quarter?

Question: David Raso - Evercore ISI - Analyst : I guess to ask directly, if China is, say, at this point, down about 15% of ITS, maybe even slightly smaller, what were the organic orders ex-China year over year in ITS ex-China?

Question: David Raso - Evercore ISI - Analyst : Okay. So something like up 3% and China down 15%. So something like that is sort of the math. Okay. Very helpful. Thank you.

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Hey, good morning, everyone.

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Something that caught my eye that was kind of interesting is your comment on some incremental activity in water treatment. Can you comment more on that -- is there more behind that? And I guess, what are you seeing in that market? Because it really seemed to accelerate quite a bit. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Yeah, interesting. Another comment I was hoping to get some color on -- everyone's obviously trying to gauge your 2025. But what -- your free cash flow has been such a good story for a long time. Do you see incremental tailwinds as some of these projects, especially some that are kind of delayed here, really move forward? And maybe any other comment on -- other than fundamental sort of EBITDA margin expansion, any other puts and takes we should keep in mind as we try to model out next year?

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Yeah, cash flow. Yeah. It seems like you have incremental -- certain tailwinds, especially with some of the pent-up projects.

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Yeah, great. Thank you.

Question: Nathan Jones - Stifel, Nicolaus & Company, Inc. - Analyst : Good morning, everyone. (multiple speakers) Just a couple of questions back on the velocity of the MQLs through the funnel. Vicente, you said, historically, six to eight weeks, and that is materially longer now. Is it still getting longer, or has it stabilized? Are things getting shorter? And if the major reasons are customer site readiness and insufficient EPC engineering capacity, these things will naturally move through that process over time. Is it really just time that we have to wait for these -- the decision-making to accelerate again, or are there other conditions that need to exist?

Question: Nathan Jones - Stifel, Nicolaus & Company, Inc. - Analyst : You guys have a little bit more visibility than we're going to have from the outside into those kinds of things. Is there an expectation, or do you have intelligence into the markets that would suggest kind of when that MQL lead time might start to shrink and these things might start to move forward?

Question: Nathan Jones - Stifel, Nicolaus & Company, Inc. - Analyst : Fair enough. And you made a comment that things are boding well for 4Q organic orders. Could you just elaborate on that a little bit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 12:00PM, IR.N - Q3 2024 Ingersoll Rand Inc Earnings Call

Question: Nathan Jones - Stifel, Nicolaus & Company, Inc. - Analyst : Thanks very much for taking my questions.