Thank you for joining us for the Ingersoll-Rand First Quarter 2020 Earnings Conference Call. All participants are currently in a listen-only mode. After the presentation, we will open the floor for questions. Now, I would like to turn the call over to our speaker today, Vik Kini, Head of Investor Relations. Please proceed.

Thank you. And welcome to the Ingersoll-Rand 2020 first quarter earnings call. I'm Vik Kini, Ingersoll-Rand's Investor Relations leader, and with me today are Vicente Reynal, Chief Executive Officer, and Emily Weaver, Chief Financial Officer. Our earnings release, which was issued this morning, and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website, www.irco.com. In addition, a replay of this morning's conference call will be available later today. Before we get started, I would like to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. For more details on these risks, please refer to our annual report on Form 10-K filed with the Securities and Exchange Commission and our current report on Form 8-K filed with the Securities and Exchange Commission on May 1st, 2020, which are available on our website at www.irco.com. Additional disclosure regarding forward-looking statements is included on slide two of the presentation. 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 release, which are both available in the Investor Relations section of our website. I will also remind everyone that in both our earnings release and today's presentation, we've included both as-reported financials and supplemental financial information to assist with analysis and comparatives. The as-reported financials only include the Ingersoll-Rand industrial segment results from the closing date of the transaction on February 29th, 2020, and the supplemental financial information provides results as the transaction had occurred as of January 1st, 2018, to provide a full quarter of comparable results. Turning to slide three, on today's call, we will provide an update on the top priorities of the company in the current operating environment as well as review our first quarter total company and segment highlights. We will conclude today's call with a Q&A session. As a reminder, we would ask that each caller keep to one question and one follow-up to allow for enough time for other participants. At this time, I will now turn it over to Vicente Reynal, Chief Executive Officer.

Thanks, Vik, and good morning to everyone on the call. I would like to kick off today's presentation by sending our thoughts to all who have been affected by COVID-19 and all the dedicated healthcare workers, first responders, and volunteers who are on the frontlines all over the world battling this pandemic. I would also like to take a moment to say a sincere thank you to all of the Ingersoll-Rand employees around the world. The pictures on slide four are just a few examples of our dedicated global workforce who have adapted to the realities of the work environment to continue to serve our customers. Every day I hear a new example of our businesses providing mission-critical products to our customers. And I am proud of what our company represents and how our employees have responded to these unprecedented times. While there continues to be a lot of uncertainty about the future, one thing I am sure about is that Ingersoll-Rand will continue to keep the safety of our communities and serving our customers at the center of everything we do and that wouldn't be possible without the dedication and hard work of all of our employees. Moving to slide five, I would like to ground everyone on the critical priorities we're following during these challenging times. When we closed the transaction a little over two months ago, we could have never anticipated that within a matter of weeks, we would be dealing with a global pandemic, causing disruptions to our customers, supply chain, and the day-to-day operations of the company. Our response speaks to how the IRX toolkit has effectively helped us plan, accelerate, and adapt our actions to act quickly and decisively around three core priorities. First, ensuring the safety of our employees, customers, and the community. Second, around keeping a strong focus on the integration and execution to ensure the financial stability of the company through these uncertain times. And finally, continuing to execute on the strategy of the company as we have multiple catalysts to drive ongoing value creation. The strength of the Ingersoll-Rand team aligned around these three priorities will position the company to emerge from this crisis as a stronger and more unified company. The next slide is a reminder that our purpose and values as well as our execution engine, which we call IRX, are really at the heart of how we operate as a company, especially in these unprecedented times. During the integration process, we spent a lot of time thoughtfully creating the company's purpose. One that is centered around our stakeholders, where we know that they can lean on us to help make life better. This purpose when combined with the four key values that our teams live by daily, creates a framework of what we want to achieve as a company and the basis of how we do it is the Ingersoll-Rand execution excellence process. The simplicity and effectiveness of this is allowing us to accelerate the creation of a single culture across Ingersoll-Rand. Turning to slide seven, I would like to briefly update you on the company's response to the COVID-19 crisis, since it has been swift and focused around two major components. First is the health and safety and well-being of our employees, customers, and communities. And second, business continuity not only within operations, but across a larger supply chain. Starting first with health and safety, we activated our COVID-19 task force in February, and had a full coordinated company approach in early March, just weeks after the creation of the new company. Our execution approach has served us very well as we were able to quickly implement enhanced site safety protocols and a mandatory work-from-home policy for those employees who can work remotely. And it is very encouraging that our quick actions have been successful as we currently have had fewer than 30 confirmed cases of COVID-19 amongst our more than 17,000 global employee base. But it's more than just implementing safety protocols. It's also about supporting and engaging the employee base. As a result, we have implemented several measures, including a global outreach program to solicit employee feedback. Our employees reacted quickly and with a true ownership mindset, providing more than 200 suggestions when we asked for cost savings ideas. Not only did our team volunteer to take individual pay cuts, furloughs, and forego vacation time this year, but they also provided thoughtful, in-depth suggestions, many of which we're actively implementing today. From a business continuity perspective, starting first with our operations, as we've previously communicated, we have seen plans largely in China, Italy, and India impacted due to COVID-19. China was largely impacted in January and February and has seen steadily improved capacity and output through March and into April, as things are now largely back to normal. Italy and India saw about a two-month lag to China, with operations being impacted in late March and into April. And in these times, our sites around the globe are 98% operational, with India still being the most impacted due to governmental restrictions on returning to work. The supply chain has seen a similar trend, as the impact in China is largely behind us, and we currently have no meaningful delivery issues. The Americas and EMEA regions are stabilizing as impacted suppliers in the U.S. and Italy have started to come back online. In the past few weeks, we have seen the number of impacted suppliers drop by more than half, which is a very good sign, and we're supplementing supply from dual sources from other regions where possible. Much like our operations, India continues to be the most impacted aspect of the supply chain. And we expect the situation to improve in the latter half of May, when governmental restrictions begin to ease. We're addressing the current environment head-on by actively managing those areas within our control. So, let me tell you about what we're doing here. Starting with slide eight, through the use of IRX, we have been able to build the cost energy funnel to over $350 million with increases across all major saving categories, and we continue to identify areas of incremental opportunity. As a reminder, we expect to be able to realize the anticipated transaction cost synergies of approximately $250 million by the end of year three after closing. We expect to incur approximately $450 million of expense in connection with both achieving these cost synergies and the associated stand-up of the new company. As we have stated multiple times over the past few quarters, this phasing of synergy delivery was always an area we believed we could accelerate based on market conditions, and that is exactly what we have done. We have dramatically increased the pace, having already executed on $90 million of annualized structural cost reductions with approximately $70 million savings expected to be delivered in 2020. The majority of these savings are coming from headcount actions already taken in the past two months, as we streamline the company and reduce layers within the organization. In addition, we have deployed the first wave of procurement initiatives with RFQs for nearly one-third of our historical direct materials spend base already launched, as well as some quick-win initiatives being deployed. In total, we're now expecting to deliver approximately 35% of our overall synergy target in 2020, which is approximately three times higher than the original year one expectation of 10% to 15% realization. We're keeping the overall cost synergy target at $250 million over a three-year timeframe at this time to remain prudent on volume-dependent synergies like procurement and i2V, given the current environment. It is not only the structural cost that we have taken out, but also how we are supplementing our synergy delivery activities with thoughtful short-term cost reductions to protect margins. So, let's move to slide nine to talk about that. In Q1, despite the 15% revenue decline that we saw collectively across the business on a pro forma basis, we were able to limit adjusted EBITDA decrementals to less than 30%, with the strongest performance coming from our two largest segments. We expect that these additional actions would yield $40 million to $50 million of incremental cost savings in the P&L this year, with the majority coming in the second quarter and third quarter. We will continue to reevaluate on a monthly basis, and if the demand environment does not accelerate in the second half of the year, we will potentially extend some of these actions and increase our savings target accordingly. While we're making some tough decisions to control costs, one area that we are not cutting back is strategic growth initiatives across the enterprise. Much like we did back in 2015 at Gardner Denver, when we invested through the downturn to capitalize on market share gains and new product opportunities, we're following the same playbook today. Investments in R&D are being maintained at similar levels as prior years and we continue to fund targeted commercial initiatives such as Demand Generation and our IoT platforms. This is all part of the strategy to play offense now, especially as we bring the two companies together through the integration. Moving to slide 10, let me talk about liquidity. The company continues to have a strong balance sheet with ample liquidity. At the time of the merger, we took the opportunity to reprice our legacy debt for placing the new $1.9 billion term loan to close the transaction. All of our debt is a term loan B structure with very attractive pricing as the U.S. components are LIBOR plus 175 and the euro component is a Euribor plus 200. The Term Loans have no financial covenants from a maintenance perspective, and there are no maturities until 2027. Liquidity also remains strong at $1.6 billion as we finished the quarter with $556 million of cash on the balance sheet and over a $1 billion of capacity on our existing credit facilities. As we look ahead, we continue to see several opportunities to unlock cash as we remain very prudent on preserving liquidity. Opportunities exist across working capital and cash taxes, and we will continue to see tailwinds from interest expense in the second half of the year as all $825 million of legacy fixed interest rate swaps will expire by September of 2020. Even though we feel our level of liquidity is proper, we're evaluating incremental debt or other liquidity vehicles, given the attractive rate and covenant environment. Turning to slide 11, our commitment to our long-term strategy remains unwavering. You have heard me already reference several elements of our strategy as we're building the culture of Ingersoll-Rand with our employees at the core. We will continue to act quickly and prudently to protect margins and preserve liquidity, and at the same time, we will position the company for future growth, both organically and through opportunistic targeted bolt-on M&A. Our business operates in a very fragmented market, and we see opportunities to add niche technologies to the portfolio. And importantly, our newest strategic priority of operating sustainably is taking shape as we launched several of our ESG-oriented initiatives already. Overall, we have several value creation levers as we look ahead and we will continue to execute, despite the uncertain macro-economic landscape. I will now turn it over to Emily to walk you through the financials.

Thanks, Vicente. On slide 12, you will see the as-reported financials for the company. As a reminder, the reported financials include three months of legacy Gardner Denver and one month of the legacy Ingersoll-Rand Industrial segment in Q1 2020 and only the legacy Gardner Denver businesses in Q1 of 2019. As a result, the comparisons are impacted materially by the transaction. I won't spend a lot of time on this page as a result, other than to mention that the as-reported net income in the quarter includes $197 million of amortization, acquisition, restructuring, and other adjustments, which you can see listed in the reconciliation tables in the appendix of the presentation. Turning to slide 13, to assist in clean comparatives to the quarter, we provided supplemental financial information which treats the transaction as if it had happened as of January 1, 2018. From a total company perspective, FX adjusted revenue and orders declined 14% and 7% respectively and were impacted by COVID-19. Regionally, we saw notable declines in Asia-Pacific, as well as sharp declines in the U.S. and Europe toward the end of the quarter, most notably in the IT&S segment. This led book-to-bill to finish at 1.11 for the quarter. The company delivered $208 million of adjusted EBITDA, a decline of 24%, driven mostly by the volume declines in IT&S and the expected downturn in the HPS segment. Adjusted EBITDA margins were 16.4%, down 200 basis points from last year. However, our proactive cost controls within the business limited decremental to 29%. In terms of adjusted EBITDA composition for the company, the legacy Gardner Denver business delivered $97 million as compared to our original guidance expectation of approximately $100 million, which we view as relatively strong performance given the environment. The legacy IR businesses delivered $51 million of adjusted EBITDA in March as opposed to a combined $60 million for January and February. Moving to slide 14, free cash flow for the quarter was $60 million on an as-reported basis, including $8 million of CapEx. The Q1 free cash flow includes $63 million of outflows related to the transaction, comprised of $38 million of synergy delivery and stand-up related costs and another $25 million of transaction fees. We also paid $38 million of debt issuance costs in the quarter, which you can see in the financing section of the cash flow statement, bringing our total transaction-related outflows in the quarter to $100 million. From a leverage perspective, we finished at 2.6 times, and while we do expect to see some short-term increase to leverage, we have shown the ability to delever historically. As you can see on the right side of the page, we remain extremely disciplined on cash, and we expect our capital allocation priorities to be very aligned with what you have seen historically, specifically, internal reinvestments for growth, prudent debt pay down, and opportunistic bolt-on M&A. We have no plans for any share repurchases or a dividend at this time. I'll now turn it back to Vicente to walk through the segments.

Thanks, Emily. Starting first with Industrial Technologies and Services on slide 15. The IT&S segment first quarter adjusted order intake was $889 million, down 9% versus prior year excluding FX. Adjusted revenues in the quarter were $796 million, down 17% excluding FX and leading to a book-to-bill ratio of 1.12 times. From a regional perspective, Asia-Pacific revenues were down in the mid-30s, with Europe down 15% and Americas down 7%, all excluding FX. We use these trends as an indication of how Q2 could potentially play out, meaning that the APAC decline in Q1 is what we expect to see in Americas and EMEIA in the near-term. This is the baseline we're using to plan the cost controls for our business. But we're staying highly active with Demand Generation activities and pricing controls, while we continue to demonstrate discipline in price, generating over 1% in the quarter. While these markets are more opaque than historically, we're using our unique acquisition strategy to map order trends and remain agile in serving our customers in the current environment. We break this out into two areas—aftermarket and original equipment. For aftermarket, a leading indicator we have is actual compressor utilization data, as we can see the hourly usage of thousands of compressors worldwide that are connected to a remote monitoring system. In America and Europe, we saw a sharp decline in compressor utilization in the last few weeks of March of nearly 30%, with some recovery in the past few weeks of April. We're now using this as a way to know where our service teams need to focus, while at the same time using it as a leading indicator for aftermarket activity, which is approximately 50% of the compressor business today. For original equipment, we're using Demand Generation leads. We said in the past that Demand Generation was a leading indicator of orders that we will be getting in the next six to eight weeks. With more than 1,000 leads per week, we have a lot of commercial insight in our system. What we saw in the latter weeks of March was a drop of 30% versus what we saw earlier in the quarter, with similar trends in America and Europe. We have seen also early signs of improvement over the past few weeks of April, but still approximately 20% to 25% off from the highs in the early part of the year. Let me give you now some color from a product line perspective. We have seen very similar trends across compressors, blowers, and vacuums where we saw orders down in the mid to high single digits. We have spoken about third-party industry reports in the past, and the Q1 data speaks well for the outcome of the combining of the two companies. According to a leading third-party report, the market in the U.S. was down mid single digits in dollars in the first quarter. Gardner Denver branded products were flat, and Ingersoll-Rand branded products were down high single digits, but when you look into the details, you see the power of the two companies, as Gardner Denver saw good share gains on low to medium horsepower machines, while Ingersoll-Rand took share on high horsepower compressors. This was exactly our hypothesis coming into the deal, and we see this as a way to leverage the technology portfolio as well as the direct and indirect channel that both companies have. Power tools and lift, which is part of the segment had a very tough quarter with orders and revenue down both over 20%. The business was highly impacted by large inventory purchases that online retailers typically make in the first quarter to support first half of the year revenue. However, this quarter in addition to the slowdown of the market, many online retailers switched their focus to household essentials. Moving to non-GAAP adjusted EBITDA, IT&S delivered $135 million in the quarter, which was down 25%. Non-GAAP adjusted EBITDA margin was 17%, which was down 150 basis points from the prior year, as our cost mitigation efforts helped limit decrementals to 25% in a segment that typically has base decrementals of 35% to 40% before cost actions. Moving to slide 16 to the Precision & Science Technologies segment. Overall, the segment had solid performance in this economic environment, as adjusted orders were $218 million, up 2% ex-FX. Adjusted revenue was $192 million, down 9% ex-FX on strong prior year comps of 12% ex-FX growth and shipment delays due to COVID-19. This platform is a collection of technologies and premium brands that have leadership positions in very attractive niche markets. In the first quarter, we saw order growth high single digits in the legacy medical pump business, as we are a leading key player in several applications like oxygen concentrators, respirators, and liquid handling. You can see many of the applications that our medical pumps go into, at the bottom of the page. Our teams have been working 24/7 providing modified solutions that can be used for new applications to fight COVID-19 now and in the future. The remainder of the portfolio saw slightly negative orders performance down 2% ex-FX, with the majority due to COVID lockdowns in January and February in China and towards the end of the quarter in India. What is encouraging is that we continue to see good funnel and orders activity across many of the product lines and regions due to the niche applications in water and chemicals, which will help balance some of the expected weaknesses in more industrial end markets. Moving to non-GAAP adjusted EBITDA, P&ST delivered $53 million in the quarter, which is down 6%. Non-GAAP adjusted EBITDA margin was 27.7%, up 120 basis points, driven by strong cost controls and productivity, leading to decremental margins of only 15%. Moving to slide 17 and the Specialty Vehicle Technologies segment. Our priorities for this segment are to continue to capture growth in a profitable manner. We see that this segment can expand margins with the use of the same IRX tools we have used across other segments, and expect to see improvements in this business moving forward. Having said that, this business performed very well in the first quarter. Adjusted orders were $230 million, and adjusted revenue was $185 million, up 8% and 7% respectively with a book-to-bill of 1.15. Growth was driven by the strength in Golf, Connectivity, and Consumer product lines. The business saw strong double-digit order momentum in early January and February, but as the pandemic hit the U.S., we saw a sharp decline in the second half of March. While there is a lot to be excited about, we're expecting Q2 to be down compared to last year for a couple of reasons. First, last year was a tough comp as the business had some supplier issues in the first quarter where some product was shifted to the second quarter of 2019. And two, the business is not immune to this current environment. While April orders were down year-over-year, we're starting to see some sequential improvement in orders. We feel this is driven by a couple of factors. First, in the consumer product line, the team pivoted quickly to leveraging Demand Generation techniques widely used in the legacy industrial businesses, and we have seen better momentum recently in the run rate. And second, with the work we have done on proactive COVID prevention across all of our locations, we were able to remain open, while some of our competitors were closed. Moving to non-GAAP adjusted EBITDA, Specialty Vehicles delivered $18 million in the quarter, down 1%. Non-GAAP adjusted EBITDA was 9.9%, which was down 80 basis points due to strategic growth investments and product mix. Moving to slide 18 and the High Pressure Solutions segment. The business performed above our expectations in a tough operating environment, with adjusted orders of $84 million and adjusted revenues of $96 million, down 26% and 29% respectively. As expected, the revenue base in the business was nearly 90% aftermarket, and the team executed very well commercially with sequential adjusted orders of 6% and sequential adjusted revenues of 26% versus the fourth quarter of 2019. We continue to see share gain opportunities in aftermarket and specifically consumables, where we saw orders and revenue up double-digit sequentially. This allowed us to deliver non-GAAP adjusted EBITDA of $24 million, at margins of 24.6%, which was down from last year's level of 30.8%, but sequentially better by over 400 basis points. As we pivot to the second quarter and rest of the year, a key leading indicator for this business has always been activity and intensity. We can measure that in multiple ways, but the simplest form is the number of fleets operational in the market. As a reminder, each frac fleet has about 16 to 18 trucks, with each truck carrying one pump. Each pump has a fluid end and every fluid end utilizes consumables. While Q1 of 2020, on average, we saw 318 active fleets, the exit rate in March was 240. We expect to see a substantial drop in the second quarter, where we believe the month of April ended at roughly 50 active fleets due to the recent demand dynamics in the market with the oversupply and lower pricing for oil, and this will have a meaningful impact on revenues within this segment. And because of that, we're taking a very proactive stance to drive proper cost takeout to still show reasonable profitability in the quarters to come. Moving to slide 19, we wanted to provide a quick snapshot of how the business has performed thus far in April. Overall, the total company is down approximately 20% in orders as the month began very slowly, particularly in the U.S. and European markets. But we're encouraged by the order momentum throughout April. We expect total revenue to be lower than orders in the second quarter. In terms of orders, both the Industrial Technologies & Services and Specialty Vehicle segments were right in line with the total company average, while Precision & Science Technologies is performing considerably better with positive year-over-year orders performance thus far as a result of continued strength in medical pumps. And not surprisingly, the High Pressure Solutions segment is down approximately 80% in orders as the market resets for what will likely be a prolonged downturn that we expect will last for a number of quarters. As we look forward, due to the uncertain environment that we find ourselves in, we will not be providing Q2 or total year guidance at this time. However, to best manage our business and ensure we're taking the right steps to manage during the downturn, we're running multiple scenarios to stress test the balance sheet and the associated impacts on cash flows. Our current model shows that the business will need to be down 40% on an annual basis to be cash flow breakeven using fairly conservative assumptions around working capital and CapEx, coupled with the cost actions we have taken thus far. We feel that this puts us in a very solid position moving forward when compared to current order trends and coupled with our current liquidity position. Turning to Slide 20 for some concluding remarks, I want to say that while we manage through what will no doubt be a tough second quarter and an uncertain recovery thereafter, we feel that the fundamental investment thesis in the company has not changed. Ingersoll-Rand is a premier industrial company and we are in the early stages of our transformation. We have multiple levers for accelerating value creation. We're being very focused on the current priorities. We feel good about our liquidity with opportunities to increase this by unlocking cash, as well as taking advantage of the current rate environment. We will continue to drive a culture of execution, and will continue to pay attention to the opportunities in our large addressable market, particularly on the current conditions to be strategic on bolt-on acquisitions. With this, we will turn the call back to the operator and open the call for Q&A.

Your first question comes from Andy Kaplowitz from Citigroup. Your line is open.

Good morning, guys. How are you?

Good morning, Andy. Good and you?

Vicente, could you provide more insight into the decline in orders for April that you're noticing in your largest segment in IT&S? How long do you anticipate the change in customer behavior related to the power tools business will last? It's evident that you have reduced exposure, particularly in downstream and midstream areas within IT&S. Are there noticeable differences in the performance of these businesses, considering they are more project-oriented compared to the industrial compressor sector?

Yes, Andy, let me provide some details. As we mentioned, total orders in April were down 20%, but the book-to-bill ratio was above 1. Specifically, Industrial Technology and Precision and Science were leading with ratios greater than 1. For IT&S, the short cycle was most affected this quarter, and we expect some ongoing weakness in that area moving forward. This is mainly linked to the PMI decline in the Midstream sector, which is typically viewed as a long cycle. Conversely, we saw more stability in the first quarter, and we might experience some consistency in April as well. Generally, we receive long cycle orders in the first half of the year to facilitate shipments in the second half. Regarding power tools, we had a tough quarter in Q1. Last year, they experienced solid growth due to their expansion into online retailers, but in the first quarter, many of these retailers shifted focus to household goods and essentials for COVID-19, which affected this segment. Sales in April have been relatively slow, and we have not yet seen a resurgence in the power tool business.

So, that's helpful, Vicente, and I'm sure you expect us to ask about decremental margin in some way. So let me just ask it, like, there are some obviously good result in Q1 of close to 30%. How do I think about decrementals with High Pressure Solutions? The orders down 80%. Can you hold decrementals there in the mid-40%? At what point do the fixed costs become a problem? I know you talked about accelerated cost out. As you think about the rest of the business, can the rest of the business hold 30% decrementals with the 20% decline that you're seeing overall in the rest of the business?

Yes, so as I said, Andy, I mean, that's kind of what we're targeting for. And, I mean, as you have seen, we have performed well in the down cycles in the past. I think we have a good solid playbook that we executed in the 2015, 2016 that included both, not only in industrial downturn, but also in upstream downturn. Base decrementals, they tend to be around 40% across the business with slightly higher in businesses like the High Pressure, as you mentioned, as well as the Precision and Science because of the nice high gross margins that those businesses have and lower on the Specialty Vehicles and the Industrial Technologies, they tend to play in that kind of 40% range. You've seen that we have taken very decisive actions between synergies and the short-term actions to protect the margin. We saw, as you mentioned, some very good first quarter results for the total business under 30%, and Q2, we'll clearly see a bit more pressure from a topline perspective, but we will continue to manage the decrementals with the target being closer to that 30% of the EBITDA. And when you think about the actions, we're clearly taking much more aggressive actions on the High Pressure around cost actions based on what we see here with a lot of our data points and the long duration of the downturn that we expect that business to have.

Very helpful, Vicente. Stay well.

Thank you, you too Andy.

Your next question comes from Julian Mitchell from Barclays. Your line is open.

Hi, good morning.

Good morning Julian.

Good morning. Maybe just a first question on that point on decremental margins. So if you could help us understand perhaps the phasing of the cost synergies through the year and also of that $40 million to $50 million of other cost out actions. And should those mean that decremental margins narrow in the second half or not necessarily depending on mix and some other things?

Certainly. To break it down into two parts, regarding the $40 million to $50 million we discussed, which is mostly discretionary or volume-related, this will primarily occur in the second and third quarters, with a larger portion expected in the second quarter. In terms of cost synergies, out of the projected $80 million to $90 million for the year, approximately $70 million will be from headcount reductions, and this will be fairly consistent across the second, third, and fourth quarters. The remaining $10 million to $20 million from procurement will be more concentrated in the third and fourth quarters.

That's very helpful. Thank you. For my second question, I would like to ask Emily about the free cash flow. You performed well in Q1, and I noticed the slide discussing the general assumptions regarding breakeven free cash flow. Assuming that a 40% decrease doesn’t occur, what kind of sales reduction, around 20% to 25% for the year, would we anticipate? What level of free cash flow conversion should we expect? How do you expect working capital to change? Also, could you remind us that in the free cash flow, there was $63 million in transaction and separation cash costs in Q1? What is the approximate assumption for the rest of the year?

We are very pleased with the Q1 cash performance that you saw, and we've been managing cash carefully since the transaction. We continue to establish strong processes and controls around it, especially given the current crisis. We expect the second half to also perform well, but there will be a longer cash cycle as we navigate the impacts of COVID-19. We are actively managing payments in response to the collections we receive to sustain our strong cash flow and liquidity positions. The future outcomes will largely depend on factors that we cannot predict at this time, but we are confident that we have the right processes in place to maintain our cash position and liquidity.

And how about the transaction and separation costs? Any very rough guide post for the year in light of that $63 million in Q1?

Yes. There will be some incremental cash outflows in Q2. I don't have the figure at my fingertips at the moment, Julian, but I can get back to you on that.

Okay. Thank you.

Your next question comes from Michael Halloran from Baird. Your line is open.

Good morning everyone. I hope everyone is doing well.

Hey, Mike.

So could you just talk about the synergy funnel you referenced? What are some of the incremental sources in that relative to the originally identified $250 million in synergies? And maybe talk about the difference you're seeing more on the cost side versus longer-term, some of the revenue synergy opportunities you're seeing.

Yes, Mike, as you'll recall, we always said that we were going for a funnel higher than the $250 million as we were 60 days into the transaction. We have obviously a much more kind of line and clear visibility as to what that funnel could potentially be. Roughly that $100 million comes from a combination of structural savings, as well as some quick footprint rationalization, kind of, non-manufacturing. As I alluded to on the Investors Call that we had back in April, we now have a pretty good database of all the locations across the world, and that is giving us a very good way for us to really understand and rationalize, not so much the manufacturing yet, because we still see manufacturing kind of come in year two, year three, but more of the other kind of quick hits that we can take from a footprint perspective.

So, second part of the question. Liquidity is in a strong position, once you get through some of the one-off things associated with timing of restructuring, the separation, and some of the extra things, Emily just referenced, what would it take for you guys to be a little bit more aggressive with the cash outflow? And then secondarily, related to that, do you think the fact that we're going into some sort of recession here, who knows how long, visibility is low, but do you think the opportunity is going to accelerate for you to deploy capital more toward the M&A side of things over the next couple of years and are you positioned for that today? And any kind of thoughts on how you're thinking cumulatively about that capital side over the next six, nine-plus months?

Yes. No, absolutely, Mike. I mean, I think, clearly over the next couple of years, we see M&A continuing to be really part of our strategy. Still we see it's a very unique environment right now. We still see, at this point in time, some very good funnel on bolt-on. We see also a very good funnel around the Precision and Science as well as some of the Industrial Technologies, but they're really more related toward bolt-ons.

Thank you.

Thanks, Mike.

Your next question comes from Nigel Coe from Wolfe Research. Your line is open.

Good morning. How are you guys?

Hey, Nigel. Good, and you?

I wanted to revisit the performance in the Industrial Tech segment. I was somewhat taken aback by the 17% decline in pro forma performance, which appears to have largely stemmed from the legacy IR businesses. Can you provide more details on how much of this can be attributed to the geographic and end market mixes of the IR industrial business? Additionally, could you explain what occurred with services during the quarter?

Yes. So to the first question, yes, I mean, I think, China was definitely impacted largely in January and February. The legacy IR business, they have a pretty sizable China exposure and we saw an impact to that. In terms of the service, we saw service better than original equipment. I mean, typically we saw roughly about two times from a percentage perspective, better performance than the original equipment. And just to kind of give you maybe a little bit more color here, particularly, as you know there are some external ways of comparing some of the Industrial Technologies, the Industrial Technologies is composed of multiple technologies, compressors, vacuums, and blowers. And our compressor business is clearly within the Industrial Technologies. When we specifically compare to some of the competitors, a couple of data points that we look at is what I referenced in terms of the third-party report. At the same time, just to give you further perspective, the legacy Gardner Denver business, in Q1, orders were down in the low single-digit, which is kind of comparable to what we saw in the market, and since we didn't own the legacy IR for the full quarter, we just tend to not comment on what we saw specifically January and February that they saw from an order perspective. But that hopefully gives you a good perspective as to how we were able to perform even on the legacy.

Great, thanks Vicente. And then switching to the High Pressure business. This business has become so small now, it's not so much development, but if it is down 8% in the quarter, it implies revenues of $25 million to $30 million. I mean, isn't it possible to breakeven at those kinds of levels? And given, you're clearly expecting this business to be kind of like, we keep it longer, would you expect revenues to kind of like just bounce some of the trough year, so for the next several quarters? I mean, any color there would be helpful.

Yes. Nigel, so for sure, that's what we're targeting to be, breakeven, even positive. I mean, we're taking some pretty aggressive actions. At the same time, I mean, this business is now 100% aftermarket and consumables. So that kind of carries a much better margin profile too as well. And those factories that are kind of not needed based on volume, I mean, we're basically keeping them closed or in very, very low exposure. So yes, I mean, I think, the team has a pretty good playbook on how to navigate this. It is something that we have done extensive work and I think we see that we can definitely overcome these kind of long-term challenges, and our plan is that it's going to be down for a while. And to the second question, I mean, clearly, it's a market that, as you saw, we just invested in a new fluid end technology so that when the market comes back up again, we can be ready for capturing some accelerating market share.

Great. Thank you very much.

Your next question comes from Jeff Sprague from Vertical Research Partners. Your line is open.

Thank you. Good morning everyone.

Good morning, Jeff.

Why don't we take a moment to discuss service? Vicente mentioned that utilization is down 30%, but how should we interpret that in relation to future guidance? This doesn't necessarily indicate that your service sales will decline by 30%. I'm not sure if you have enough historical data to analyze this effectively. However, what does this 30% decline indicate to you?

Yes, Jeff, that's a great question. In terms of historical data, we don’t have much because, as you can imagine, many of these remote monitoring systems and connectivity with the IoT platforms that our companies now utilize are relatively new. However, we do have enough data to analyze specific soft end markets. This information indicates which markets we should continue to focus on or invest more in from a service perspective. It's aiding us in redirecting our teams and improving our customer service while ensuring we remain resilient. Regarding the 30% decline, we see that as an indicator of potential trends. As you pointed out, we lack extensive historical data to draw strong correlations from this decline. Therefore, we're using this data point to reassess our commercial teams and refocus them on those areas, regions, and markets where we are still observing significant utilization of the compressors.

And the answer to your prior question where you noted IT&S obviously includes more than compressors, vacuums, et cetera, are you suggesting that those other products areas outside of vacuums and blowers were substantially worse than the compressor business in the quarter?

Yes, the power tool and lifting business performed worse than expected. The power tools have two main product lines, including a lifting segment more related to factory usage and efficiency. This area was particularly affected, especially in China, which saw significant challenges. The other product lines, such as Nash, Garo, Liquid Ring Pumps, and Liquid Ring Vacuums, have longer cycles and were more stable and resilient during this period.

All right. Thank you.

Your next question comes from David Raso from Evercore ISI. Your line is open.

Good morning. My question is about in the ITS business, when I think about the inventory in the channel and you think about some of the recent improvement you've seen, can you give us some sense on any sequential improvements sort of a lead lag and obviously inventory is part of it and also the mix of your businesses being short cycle versus long cycle? Can you just give us some sense of the inventory in those channels and somewhere we can read the lag you would need to see or that you would experience let's say, the PMI has got better, for example?

Yes, Dave. I mean, I think, when we look at the inventory in those channels, I mean, there's just not a lot of inventory, and I am going to describe this from a compressor perspective, which is obviously the one that has the biggest size of the distribution network. And it is also a more particularly towards the Gardner Denver branded products. We don't tend to have a lot of inventory because these are particularly smaller distributors, more sub-bridging alliance, more localized, they don't tend to put a lot of cash upfront to have compressors on the shelf. So to speak, I mean, maybe on the smaller compressors they may, but not on the medium to high level compressors, and the inventory will come in more on consumables aftermarket and parts. But those tend to really move fairly well, I mean, they turn fairly quickly.

And the recent improvement you've seen just unclear. Is it a stabilization at a low level after the initial shock in ITS or have you seen some little improvement in order sequentially? And I'd be curious, is that more short cycle or long cycle?

Yes. Great question. Yes, it is all categorized that has a set stabilization and initially and then obviously, when look at it within the month, I mean, at the month of April, there are some slight improvements on the second half of April compared to first half.

But again, was that more short cycle improvement?

Short cycle, yes.

Short cycle. All right. Thank you. Thank you very much. Appreciate it.

Sure.

Your next question comes from Josh Pokrzywinski from Morgan Stanley. Your line is open.

Hi, good morning all.

Good morning, Josh.

So, Vicente, I guess, everyone here on the call kind of say most questions that we are going for most, so we covered a lot of ground already. I guess just with some of the commentary around utilization and with the comments made around supply chain interruption, how much of the decline that you're seeing and yes, I guess this comment is mostly an IT&S comment is related to customer shutdowns or supply chain interruption and in some form, like the lights come back on and a certain amount of demand comes back because I think some of these points on service or utilization that maybe that's not the steady state, state of the world there?

Yes, just outside more so definitely in Q1 in China, if you want to think about it's kind of that drives disruption completely. Also in the first quarter, maybe some disruption from the perspective of in Europe, particularly in Italy. I mean, we do have some very good manufacturing base in Italy, and although we stayed operationally, I mean, most of our suppliers have to shutdown. I would say that now as kind of the comment that I made before we see kind of there is lower demand level kind of getting more civilized. But still not seeing that kind of recovery, and we're just kind of waiting to see how the recovery will play out.

Okay. Regarding the synergy funnel, it seems that the activities planned for year three will need to continue as we focus on other aspects since we're manufacturing-centric. Is it accurate to say that the additional synergies expected in year two are smaller? Are we essentially suggesting that there's potential for more than 250, and we are just trying to proceed as quickly as possible? We will have more information soon.

Yes, I believe that's the situation. At this moment, we prefer to maintain the target at 250 million, as we consider it a cautious approach. Our reasoning hinges on our strong focus on internal processes and execution. We have accelerated our efforts and achieved significant savings, not just in conversation but in actual results. There are also aspects related to procurement and innovative value that operate independently. Our $250 million cost synergy target was established based on a 2019 run-rate level, so we want to be careful about suggesting that this target will increase. Once we are ready and observe more stability or normalization in the markets, we may revisit that. Currently, we are focused on areas within our control, such as reducing structural headcount, which we have successfully executed. We are also targeting quick wins in procurement due to lower commodity prices and managing discretionary spending effectively. Our attention remains fixed on executing the items that are within our control.

Great. Appreciate the color. Good luck to you guys.

Your next question comes from Nathan Jones from Stifel. Your line is open.

Morning, everyone.

Good morning Nathan.

I think I will start on PST. Revenue down 8.6 ex-FX, margins up a 120 basis points, clearly some very good control lag. Can you maybe give us a little more color on what drove the very good decrementals there? How you see the decrementals going forward and maybe any color, you can give us some what you think the long-term margin opportunities in that business?

Yes, Nathan. We experienced strong cost controls and positive momentum from the medical business. Last year, we noted a margin improvement of over 200 basis points, and the medical business ended the year with an EBITDA margin of approximately 30% to 31%. The momentum in this sector was impressive, and despite some market softness, the team successfully met their targets. The business boasts attractive gross margins, and while decremental margins typically hover around 45%, the team managed to reduce this to 15%. From a long-term standpoint, we'll provide a medium to long-term outlook later. To draw a quick comparison, just a few years back, the medical business had an EBITDA margin of 25.6%, and we concluded last year at 31%. There's a lot of common ground between the medical sector and our legacy PFS and ARO businesses within this segment.

Okay. Maybe just one on receivables. When you look through that, do you see any customer credit risk, any collection risk there? I guess it's particularly an upstream comment given the way that markets going, but anywhere else you see any potential issues in receivables? How are you going about managing customer credit those kinds of things?

I mean, I say not necessarily Nathan. I mean, I think is one that we live by day-by-day. I mean clearly on the high pressure solutions, which is, as you mentioned, the most exposed, I mean, customers are still paying; they take longer to pay, but they still pay. They also realize that from an option perspective that our business is critical and essential for when the market comes back up again. So, we have been pretty strict in many cases that we need to see the payments, or we will stop shipments, and then we cease to provide any type of output of products either now or later in the future. So I think we're really executing a good playbook here on collections within teams.

Excellent. Thank you.

Thank you.

Your next question comes from Nicole DeBlase from Deutsche Bank. Your line is open.

Yes, thanks. Good morning guys.

Good morning, Nicole.

So, a lot of this has been answered. We've covered a lot of ground so far, but I just wanted to ask one. Into next year as we think about approaching our recovery, there's clearly a lot of moving pieces here. We've got more structural cost savings coming through, presumably, you have temporary costs probably coming back to the business. And then just kind of dovetailing all of that with typical incremental margins, I'm not sure how best you can do this Vicente, but it'll be really helpful to kind of characterize the way you see incrementals coming out on the other side of this downturn.

Yes, Nicole that's great. I mean, I think, we typically see kind of the base, what I call the base level of incremental to be for the total business between 35 to 40%. Again, when you look at Precision and Science, maybe higher than that, Specialty Vehicles lower than that, with maybe Industrial Technology is about that level. Definitely, we'll see a little bit of a headwind, as we see a lot of these structural activities that we're doing to come to fruition. We also see a lot of tailwinds, I'm sorry, with the tailwinds a lot of these kind of structural costs come out, which is amongst some of the headwinds. But as we kind of get closer to coming out here to our budgets and how we kind of work with the teams, we'll definitely find ways on how we can continue to get that incremental margin, obviously to be at a minimum at that base or more.

Your next question comes from John Walsh from Credit Suisse. Your line is open.

Hi, good morning. Sorry about that, had some technical difficulties earlier. I'm glad to hear everyone's doing well. Maybe just one question here, you alluded on the call to share gains on kind of both those legacy GDI and IR businesses. Wondering if you could put a little more color around what's driving those? Is it something on the product side? Is that some of the end market strategies you were doing previously around, more niche markets like paper and pulp, maybe some competitive pressures from smaller guys? Just any kind of color you could provide there would helpful.

Sure, Johnny. So, I mean what I said on the call is that it is on specific horsepowers, and when we saw that we liked is this is in the U.S. based on the third party report. And we like because it was really very complimentary. So you look at the legacy Gardner Denver, we saw some share gains in the low to medium horsepower. While we saw on the Ingersoll Rand, some share gains on the high kind of larger horsepower compressors. I will categorize that as Ingersoll Rand has done a pretty good job on launching some new technology on the larger horsepower. Well, as you know, from a Gardner Denver perspective, we have been more focused on the medium-to-small compressor. And I think, this is what I mentioned on the call, that this is a great hypothesis that we had on these great merge and combining the two companies because now we have great new complimentary products and spectrum of technologies that a lot of these that I mentioned is on the oil lubricated, which is a very good solid kind of core product line. But as we spoke about during the April call, now also the oil-free product line spectrum. So again, it's new technology, new products and be able to show that uniqueness of differentiation on the product that teams are launching.

Great. Appreciate taking the question.

Thank you, John.

There are no further questions at this time. I'll turn the call back over to the company.

Thank you. I just want to close out by saying thanks to everyone for your interest in Ingersoll Rand. I want to do another shout out and thank you to our employees that are obviously doing a lot of work here to stay healthy, stay safe. And at the same time provide to our customers mission-critical products that are needed in these current market conditions. So, hopefully, everyone stays safe and healthy and we'll look forward to talking to you over the next few weeks. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.