Ingersoll Rand Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• The company's economic growth engine drove outperformance in 2024 with double-digit adjusted EPS growth and strong free cash flow margin despite a dynamic global market. Looking to 2025, continued growth is underpinned by organic investments and over 200 active M&A targets, with strong operational execution via IRX.
• The company is a leader in sustainability, named to the Dow Jones Best-in-class Indices and A List by CDP, and has created approximately $700 million of incremental wealth for employees through ownership equity grants.
• Since the 2020 merger, the company has transformed into a premier growth compounder, divested businesses, reinvested ~$5.4 billion into accretive acquisitions, and nearly doubled its total addressable market. The M&A strategy remains disciplined, targeting 400-500 basis points of annualized inorganic revenue in 2025.
• In 2024, the company acquired ~$625 million in annualized revenue from 18 acquisitions at less than 14 times pre-synergy adjusted EBITDA multiple, with seven additional transactions at LOI stage. Free cash flow for Q4 was $491 million, with total liquidity at $4.1 billion.
• 2024 financials: Total company Q4 orders up 8%, revenue up 4%; full-year orders up 4%, revenue up 5%. Adjusted EBITDA up 13%, margin 27.9%. Adjusted EPS $3.29 for full year, up 11% y-o-y.

Segment Performance

• ITS Segment: Fourth quarter orders were up 3% year-over-year and approximately flat organically (excluding China and power tools/lifting, Q4 organic orders grew low-single digits). Revenue finished down low-single digits organically, primarily impacted by the China business. The ITS segment delivered solid year-over-year adjusted EBITDA margin expansion of 30 basis points on top of near record level margin from the prior year. For the full year, adjusted EBITDA margin finished at a record level of 30.2%, already meeting 2027 targets three years ahead of schedule. 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. The new PureAir oil-free compressor is an example of the multichannel, multi-brand strategy.
• PST Segment: Orders in PST were up 29% and revenue was up 24% year-over-year largely driven by M&A. Fourth quarter organic orders finished slightly down year-over-year, but low-single digit organic order growth was seen excluding the impact of China. PST delivered adjusted EBITDA of $107 million, which was up approximately 14% year-over-year with a margin of 27.6%. The year-over-year decline in Q4 adjusted EBITDA margin was due to lower volumes in the Aerospace & Defense business within the ILC Dover business and organic volume declines, primarily attributed to China. For the full year, PST finished at approximately 30% adjusted EBITDA margin despite organic growth headwinds. ILC Dover Life Science business grew revenue double-digits, and a $150 million plus multiyear agreement for the legacy space suits business was reached in December. The new Diaphragm Metering Pump offers increased energy efficiency and 20% reduction in total cost of ownership.

Guidance

• 2025 total company revenue expected to grow 3%-5%, with organic growth 1%-3% (75% price, 25% volume). FX expected to be ~2% headwind. M&A projected at $300 million. Corporate costs planned at $165 million. Adjusted EBITDA expected in range of $2.13 billion to $2.19 billion. Adjusted EPS projected in range of $3.38 to $3.50, up ~5% midpoint.
• Revenue and EBITDA phasing consistent with prior years, with Q1 expected to have low-single digit total revenue growth. Adjusted EPS expected to follow adjusted EBITDA phasing, with 46%-54% split between first and second half.

Risks

• Geopolitical and macroeconomic uncertainties impacting end market stability and order cadence.
• Tariff uncertainties and their potential impact on cost of goods sold.
• Challenges in integrating larger acquisitions, which could slow margin improvement despite strong M&A strategy.

Question and Answer

• Q: Talk about assumptions embedded in guidance regarding demand and end market stability.

A: Vicente says revenue and EBITDA phasing similar to history, organic growth with 70% price and 25% volume, regions with different growth rates (America upper low-single digits, Mainland Europe lower low-single digits, China flattish, Middle East/India/Asia mid-single digits).

• Q: PST margins in Q4.

A: Vik says lower volumes in ILC Dover Aerospace/Defense and China organic declines, but optimistic for margin recovery in 2025 with margin expansion initiatives.

• Q: M&A pipeline and 400-500 bps incremental inorganic revenue.

A: Vicente says 400-500 bps is incremental to guidance, with over 200 active targets in the funnel.

• Q: China market impact.

A: Vicente says stability in China orders, some pockets of growth (blower/vacuum business organic high-single digits), but tough comps from 2023.

• Q: PST margin improvement and M&A integration.

A: Vik says no dramatic differences in integration approach, but some volume deleverage in ILC Dover Aerospace/Defense, with progress on restructuring and IRX implementation.