Ingersoll Rand Inc. Q3 FY2024 earnings call

• Leveraged IRX to achieve strong results: record orders, revenue, over 200 basis points of adjusted EBITDA margin expansion, 9% adjusted EPS growth, and 20% free cash flow margins.
• Inorganic growth: 15 transactions closed in 2024, with 10 additional bolt-on targets under letter of intent (LOI), including APSCO, Blutek, UT Pumps, and Penn Valley Pump, expected to achieve mid-teens ROIC by year three.
• Organic growth through data-driven innovation: 45 employees from 7 countries gathered over 2 days to analyze connected asset data, identifying over $25 million in incremental revenue opportunities related to energy efficiency and machine uptime.

The Industrial Technologies and Service (ITS) segment delivered approximately 3% year-over-year revenue growth with adjusted EBITDA margins reaching a record high of 30.7%, up 190 basis points. The PST segment achieved 3% organic order growth and had an adjusted EBITDA margin of 30%. Total company orders grew 10% (1% organic), revenue was up 7% (2% organic). Adjusted EBITDA for the quarter was $533 million, a 15% year-over-year improvement, with margins at 28.6%.

• Total company revenue is expected to grow between 5% to 7% for 2024, down 100 basis points from prior guidance, driven by order shipment timing. Adjusted EBITDA is projected to be in the range of $2.01 billion to $2.04 billion, a ~13% year-over-year increase at the midpoint. Adjusted EPS is expected to be between $3.28 and $3.34, up ~12% year-over-year at the midpoint.
• FX is expected to be approximately flat for the full year. M&A is projected to contribute around $455 million. Corporate costs remain at approximately $170 million.

• Project delays due to customer site readiness, EPC engineering capacity constraints, and some mention of election uncertainty as a contributing factor to delays.
• Global labor constraints impacting site readiness for various projects.

Q: Mike Halloran asked about project push-outs and how marketing qualified leads (MQLs) relate to order trends.

A: Vicente Reynal stated MQLs are improving, but order conversion is delayed due to customer readiness and project timelines, with long cycle projects taking longer but showing good movement.

Q: Julian Mitchell inquired about demand trends and the impact of China.

A: Vicente Reynal noted China market challenges but positive customer sentiment, project delays are global, not just China, and the ITS business will recover gradually.

Q: Jeff Sprague asked about project delays and service performance.

A: Vicente Reynal said delays are global, and service has good momentum with recurring revenue growth in various regions.

Q: Andy Kaplowitz asked about M&A activity in 2025.

A: Vicente Reynal said 2025 is expected to be robust with bolt-on acquisitions continuing.

Q: Nigel Coe asked about the PST segment outlook for Q4 and M&A contribution.

A: Vik Kini said the PST segment is expected to return to growth in Q4, with M&A contribution in Q4 comparable to Q3 but lumpy.

Q: Joe Ritchie asked about site readiness and book-to-bill expectations.

A: Vicente Reynal explained site readiness involves permits and labor, and book-to-bill is expected to be approximately 1 for the full year.

Q: Chris Snyder asked about labor constraints and China stimulus.

A: Vicente Reynal said labor is a global constraint, and China stimulus could impact Ingersoll Rand through energy efficiency projects.

Q: Joe O'Dea asked about lumpiness in PST orders.

A: Vik Kini said there were no major weather factors, and the PST segment had 2 sequential quarters of positive organic growth.

Q: David Raso asked about the split of organic orders in the ITS segment.

A: Vik Kini said China and power tools were detractors, while Americas and other regions showed positive trends.

Q: Andrew Buscaglia asked about water treatment and free cash flow.

A: Vicente Reynal discussed water treatment opportunities, and Vik Kini said free cash flow benefits from business growth, working capital optimization, and M&A integration.

Q: Nathan Jones asked about MQL velocity and organic orders.

A: Vicente Reynal said MQL lead time is longer, just a matter of time for projects to move, and Vik Kini said organic orders show positive trends with leading indicators remaining healthy.