Ladies and gentlemen, thank you for joining us, and welcome to the Ingersoll Rand fourth quarter 2020 earnings conference call. All participants are currently in listen-only mode. After the presentations, there will be a question-and-answer session. I will now turn the conference over to your speaker today, Vik Kini, Chief Financial Officer. Thank you. Please proceed.

Thank you, and welcome to the Ingersoll Rand 2020 Fourth Quarter and Total Year Earnings Call. I’m Vik Kini, Chief Financial Officer; and joining me is Vicente Reynal, Chief Executive Officer. We issued our earnings release and presentation yesterday that we will reference during the call. Both are available on the Investor Relations section of our website, www.irco.com. In addition, a replay of this 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 discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the Forward-Looking Statements on Slide 2 for more details. 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 earnings release, which are both available on the Investor Relations section of our website. On today’s call, we will provide a Company strategy and integration update, review our Company and segment financial highlights and offer 2021 guidance. For today’s Q&A session, we 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 turn the call over to Vicente.

Thanks, Vik, and good morning to everyone. Before we start, I want to take a moment to reflect. Think about it, one-year ago today, we were five days away from day one as an integrated company of Gardner Denver and the Ingersoll Rand Industrial segment. And what a year we selected to take on a transformational transaction. Our newly combined company committed to a purpose to help make life better and a set of values that include having the confidence to take on the most difficult problems with humility and integrity. And little did we know, we would be tested so quickly. Looking back on 2020, the global pandemic was challenging for everyone. We had to adapt and learn new skills to ensure our essential workers' safety as they provided mission-critical products and services to serve the front line of the COVID-19 pandemic. We turned to our innovation and creativity to discover new ways to connect with each other, our customers, and our partners. I’m proud of every one of our global employees for their resilience, dedication, and determination to think and act like owners and protect and nurture our one-year-old organization. Our employees are strong. We adapt quickly and move fast. It is part of our culture, and that is not something you can replicate. It is a competitive advantage, and it proved to work for us this year. The backbone and economic engine of Ingersoll Rand is our execution excellence, but it is our employees who trust and lead IRX every single day. Thanks to them, we delivered strong results and stand ready to grow in 2021 and beyond. Starting on Slide 3. Today, we are going to concentrate our remarks around three things: first, how we accelerated our transformation during 2020; second, how we are unlocking our true potential as a company as we successfully pivoted to focus on growth and our portfolio optimization; and third, how our focus on growth is supported through strong business segment performance during Q4 with momentum continuing in Q1. Moving to Slide 4. We have seen this before. It is a framework of building a strong foundation, pivoting to growth and optimizing the portfolio, all guided by our five strategic imperatives. It serves as a reminder of what we have been executing against to deliver on our commitment. Turning to Slide 5. That framework shows we achieved substantial traction across all five strategic imperatives and pivoted quickly to offense around growth and portfolio optimization, from completing the Ingersoll Rand industrial transaction and integrating complementary cultures to awarding one of the largest equity brands ever given to employees in an industrial company and establishing diversity, equity, and inclusion goals. Our 2020 accomplishments, especially in the area of human capital management, are a differentiator. We see a broad-based employee ownership as a game-changer. It takes performance to a new level. We are thinking and acting like no other. As one of our core values, it changes the mindset from 'this is a company I work for' to 'this is my company.' It is a massive shift. Employees are highly engaged and active participants in our journey to create long-term value. All of these human capital management priorities are part of why we added operate sustainably as a strategic pillar. And more on that in a minute. We enhanced our portfolio through bolt-on acquisitions and also the sale of a majority interest in the high-pressure solutions segment. Looking ahead to 2021 and beyond, we will focus on several areas. We are ahead of plan on our integration as we enter year two. We are increasing our integration cost synergy target by $50 million to $300 million. On growth, we are bringing together complementary products across businesses for strategic niche markets and we are accelerating new product launches into sustainable industrial markets such as packaging, all of these while we continue to focus on our strong balance sheet to support our inorganic growth strategy through accretive M&A transactions. Let’s turn to Slide 6. As we successfully fuel growth and our portfolio penetration, we are unlocking our maximum potential as a company. Capital allocation is a huge part of my personal focus. I will come back to you with more thoughts on this. Last week we signed an agreement to sell a majority interest in our High Pressure Solutions segment. At the time of close, we will receive approximately $300 million while retaining a 45% common equity ownership in the business moving forward. We view the $300 million alone as a good value as it is approximately 24 times 2020 adjusted EBITDA and also represents a solid multiple of 2021 expected adjusted EBITDA. The remaining terms of the deal are confidential, and we are not going to comment further, but we view our remaining equity as pure upside in the medium to long-term. For Ingersoll Rand, the transaction is a meaningful step forward in our transformation. It materially reduces our direct exposure to the cyclical upstream oil and gas market to less than 2% of revenue and results in much more predictable business performance, all while removing minimal current earnings from the company. On the M&A front, at the beginning of this month, we completed the purchase of Tuthill Vacuum and Blower Systems. The transaction is highly complementary to our vacuum and blower technologies and will operate under the iconic and premium brands of MD Pneumatics and Kinney Vacuum Pumps. As we pivoted to growth, we accelerated investment in IoT, e-commerce, and digitalization. Last week, you may have seen our announcement with Google Cloud for a five-year collaboration to advance connectivity across our portfolio. With real client data and machine learning, we are strengthening our capabilities to help our customers be successful in the long term. Unlocking our key potential means being focused on sustainable technologies in high-growth end markets and also on our commitment to environmental, social, and governance principles. As we saw on Slide 7, yesterday we joined a growing number of companies who are embracing their leadership responsibility to help confront the global threat of climate change. The differentiator is that we are placing some ambitious milestones for our ESG efforts. We are committing to be net zero greenhouse gas emissions by 2050, achieving 60% of this goal in less than 10 years, by 2030. In addition, we have also committed to targets for water and waste reduction. Our corporate slogan is to help you make life better. We want to be an active participant in this important cause for the long-term sustainability of our planet. A key advantage for us is using IRX to deliver the performance needed to achieve our environmental goals. We will provide ongoing transparency and disclosure in our second annual sustainability report to be published at the end of May. I will now turn the call to Vik to provide an update on financials.

Thanks, Vicente. Moving to Slide 8. Q4 saw a strong balance of commercial and operational execution fueled by the use of IRX, with ongoing signs of improvement across industrial end markets. We continue to be pleased with the performance of the company in Q4. Total company orders and revenue increased 12% and 13%, respectively, as compared to Q3 levels, with strong double-digit orders momentum across each of the segments. In addition, the company continued to drive outperformance on productivity and synergy initiatives using IRX as the catalyst. The company delivered fourth-quarter adjusted EBITDA of $344 million and adjusted EBITDA margin of 22.8%. This was a 150 basis point improvement from Q3. On a year-over-year basis, despite mid-single-digit revenue decline, margins increased 300 basis points. When adjusted to exclude the High Pressure Solutions segment, total company margins improved 350 basis points. Given the strong close in Q4, we had our best performance of the year in terms of managing decrementals, with adjusted EBITDA increasing by $30 million on a year-over-year basis despite the $78 million decrease in revenue. As we have stated before, quality of earnings has been a key focus, and you can see the continued momentum we had throughout 2020 on this metric. Cash flow on the balance sheet was another highlight for the quarter as free cash flow increased to $397 million, yielding total liquidity of $2.7 billion at year-end. Moving to Slide 9. For the total company, orders increased 2% and revenue declined 7%, both on an FX-adjusted basis. This is a meaningful improvement from the comparable 8% and 11% declines we saw in the third quarter. IT&S, Precision and Science Technologies, and Specialty Vehicle Technology segments all saw positive organic orders growth in the quarter. Starting first with IT&S, the total segment saw 2% FX-adjusted orders growth, with both the Americas and EMEA regions showing mid-single-digit orders improvement for core compressors, blowers, and vacuum equipment. Precision and Science saw a 6% adjusted orders growth in the quarter, the highest level reached during the entire year. Continued strength in product lines like medical and Dosatron, both of which saw double-digit growth, were the major drivers given niche end market exposure in areas like lab, life sciences, and water. Specialty Vehicles saw continued strong orders performance, up 21% ex-FX. Specialty Vehicles showed positive orders growth each quarter in 2020, and Q4 saw a nice balance with continued strong momentum in consumer vehicles as well as double-digit growth in Gulf and aftermarket. Overall, we posted a strong book-to-bill of 1.01 for the quarter. This was much better than the prior year level of 0.92. Given the typical seasonality we see in the fourth quarter, with strong shipments and book-to-bill below one, we are encouraged by the Q4 2020 book-to-bill being above one as it sets up a healthy backlog moving into 2021. The company delivered $344 million of adjusted EBITDA, an increase of 10% versus prior year. The IT&S, Precision and Science, and Specialty Vehicle segments all saw year-over-year improvements in adjusted EBITDA and had strong triple-digit margin expansion. The HPS segment continued to show profitability despite depressed revenue levels and performed largely in-line with expectations. Corporate costs came in at $32 million for the quarter, consistent with prior expectations and relatively flat to prior year. Turning to Slide 10. Quickly touching on the total year. FX-adjusted orders and revenue were down 9% and 13%, respectively, due primarily to the impacts of COVID-19 in both the IT&S and Precision and Science segments as well as the known downturn in the upstream energy markets, which impacted the HPS segment. Despite these headwinds, the business delivered adjusted EBITDA of $1.08 billion and adjusted EBITDA margin of 20%, which is up 60 basis points versus the prior year or 180 basis points excluding HPS. This speaks to the team’s ability to execute during different business cycles as full-year decrementals were limited to only 15%. The three core segments of IT&S, Precision and Science, and Specialty Vehicles all delivered triple-digit adjusted EBITDA margin expansion, which is only possible to the power of IRX as an execution engine to drive change in every area of the business. Turning to Slide 11. Free cash flow for the quarter was $397 million, driven by strong operational performance across the business and ongoing working capital improvements. Inventory management was a particular highlight with a reduction of nearly $60 million as we are starting to see benefits of many of the operational efficiency projects the team has been deploying as well as the benefit of the improving commercial environment. CapEx during the quarter totaled $15 million, and free cash flow included $17 million of outflows going to the transaction. From a leverage perspective, we finished at two times, which was a 0.5 times improvement compared to the prior quarter due to both the stronger cash generation in the quarter as well as the improvement in LTM EBITDA due to the strong Q4 finish. We have now reduced leverage to the same levels we had prior to the RMT and have line of sight to leverage coming down closer to 1.8 times once the HPS sale concludes. On the right side of the page, you see the breakdown of total company liquidity, which now stands at $2.7 billion based on approximately $1.8 billion of cash and nearly $1 billion of availability on our revolving credit facility. In total, liquidity has now increased nearly $1.2 billion from the end of Q1. This gives us considerable flexibility to continue our strategy of M&A, coupled with targeted internal investments to drive sustainable organic growth. Moving to Slide 12. We continue to see strong momentum on our cost synergy delivery efforts. Due to the funnel we have built that stands in excess of $350 million and strong execution, we are increasing our overall target by $50 million to $300 million. To date, we have already executed approximately $175 million of annualized synergies, which is approximately 60% of the overall target and a $25 million increase from prior quarter. In total, we delivered approximately 40% of our new $300 million target in 2020, which equaled approximately $115 million of savings. In addition, we expect to deliver an incremental $100 million of savings in 2021, which would bring the cumulative total to approximately 70% at the end of this year. We expect a cumulative 85% to 90% of the $300 million in savings by the end of 2022, with the balance coming in 2023. The $50 million increase in the target is largely driven by procurement and direct material-oriented initiatives as the team continues to make good strides both on leveraging the larger spend base of the company as well as executing on the ITV funnel. On the right of the page, we reported each quarter in terms of our progress on managing detrimental margins across the business, and Q4 was no different. I will now turn it back over to Vicente to discuss the segments.

Thanks, Vik. Moving to Slide 13 and starting with Industrial Technologies and Services. Overall, organic orders were up 1% and revenue down 8%, leading to a book-to-bill of 0.98 times. Despite the revenue decline, the team delivered strong adjusted EBITDA up 12%, and an adjusted EBITDA margin of 26.1%, which were also up 210 basis points sequentially versus Q3. Let me provide more detail on order performance. Starting with compressors, we saw orders up mid-single-digits. A further breakdown into oil-free and oil-lubricated products shows that orders for both were up mid-single digit. Oil-free order rates slightly outperformed those of oil-lubricated and leveraged the company’s expanded oil-free portfolio, taking advantage of new channels. Regarding the regional split for orders in compressors, in the Americas, North America performed comparatively better at up low single-digit while Latin America was down high single-digit. Mainland Europe was up high single-digits, while India, the Middle East, and Africa saw a nice inflection of high-teens as compared to being down double-digits in the past two quarters. Asia Pacific continued to perform well with orders up mid-single-digits, driven by mid-single-digit growth in China and relatively flattish growth across the rest of Asia Pacific. In terms of vacuums and blowers, orders were up mid-teens with strong double-digit growth in the industrial banking and blower portfolio as well as mid-single-digit growth in the longer-cycle Nash Garo business. Moving next to power tools and lifting. The total business was down low-teens in orders. The tools part of the business was down high single-digits in orders compared to down high-teens in Q3. We expect to pivot to positive orders growth in the first half of the year driven mainly by our enhanced e-commerce capabilities. On the right side, you will see three market drivers coming to our go-forward segment: sustainability, digitization, and shifting demographics. For each segment, I will comment on how they are stepping forward to address these drivers. For IPS, the Google Cloud announcement I referenced earlier is a prime example of how the business is expanding comprehensive data digitization that will help increase the customers’ ability to improve energy efficiency to support their greenhouse gas emission reduction goals. Let me move now to Slide 14 and the Precision and Science Technology segment. Overall, organic orders were up 5%, driven by the medical and Dosatron businesses, which were both up double-digits, as well as healthy growth in the water and general industrial markets from products like Milton Roy. The momentum on our Hygiene Solutions continues to build, and we saw some good orders and funnel activity in this rapidly changing end market. Revenue was down 8% organically, with a major driver being two large projects for a big aerospace and defense company that shipped in Q4 of 2019 within the legacy PFS business. Despite the revenue decline, the PSCT delivered strong adjusted EBITDA up 7%. Adjusted EBITDA margin was 30.8%, up 290 basis points year-over-year. As a reminder, this segment has already generated a very respectable 27.7% adjusted EBITDA margin back in Q1 of 2020. We are very pleased with how the team continues to transform this business now in Q4 with comparable revenue as what we did in Q1. This segment is generating 310 basis points more margin. Looking at the market drivers, the position on science team is meeting demand for more sustainable energy sources and launching in new markets like hydrogen. From a digital perspective, many of our new pump technologies can be multi-controlled, leading to the safe and reliable dispensing of chemicals for markets around food sanitation and animal health. The segment’s medical business is answering the demand for precise liquid handling technology to help advance personalized medicine research. Moving to Slide 15 and the Specialty Vehicle Technology segment. Overall, Q4 was another strong quarter for the Specialty Vehicle team. Orders were up 21% organically and continue to get stronger throughout the quarter as the consumer offering continues to gain momentum and market share. We also saw an inflection on growth that continued into Q1. We believe our lithium-ion battery launch is clearly a market leader, and we are taking share in the market. Organic revenue was up 8% with improvements across not only vehicles but also aftermarket products and services. We feel we are in the early stages here and see potential as we expand the info base that can be served ongoing with parts and accessories. Adjusted EBITDA of $46 million increased 40% year-over-year, leading to an adjusted EBITDA margin of 18.7%, representing a 420 basis point improvement versus prior, proving that IRX can be applicable to any business to generate solid improvements. We continue to see runway into the future as the team continues to move rapidly on accelerating initiatives like new product launches and end-user life-cycle management. In terms of market drivers, the segment is recognizing and responding to sustainability and efficiency demand for zero-emission vehicles to replace gas engine vehicles. For example, in Q4, we saw more than 80% unit growth for lithium cars versus the prior year. Moving to Slide 16 and the High Pressure Solutions segment. The business performed largely in-line with expectations in the midst of continued lower demand in the oil and gas market. Order and revenue were down 51% and 42%, respectively, which was an improvement over the decline seen both in Q2 and Q3. Nearly 90% of the revenue base continues to come from aftermarket parts and services. The business delivered positive adjusted EBITDA of $2.5 million, an incremental 40% despite the meaningful revenue decline. Beginning with the first quarter of 2021, and due to the recently announced sale, the HPS business will be classified as discontinued operations in all future periods, and we will retroactively adjust the comparable prior periods. Within the income statement, the historical HPS business results will be presented on a single financial statement line below operating income. Upon deal closure, we will account for our 45% interest under the equity method of accounting. This means we will record a proportionate share of the HPS business income or loss for the period through a single financial statement line below operating income. Moving to Slide 17. We will review guidance for 2021. Given the pending sale, the HPS segment will not be included in our revenue or adjusted EBITDA guidance for the year. Starting with revenue growth, we expect total Ingersoll Rand revenue to be up high single-digits to low double-digits on an actual quarter basis. This is comprised of mid-single-digit organic growth across each of the three segments. FX is expected to be a low single-digit volume for the business, on a total year basis given the weakening of the U.S. dollar against many foreign currencies like the euro and British pound. FX assumptions are based on December 2020 exit rates. Finally, we expect the M&A impact to be approximately $60 million, driven primarily by the Tuthill acquisition in the IPS segment. From a patient perspective, we anticipate the first half of the year to be up low double-digits, driven by the prior year impact of COVID-19, particularly in China in Q1 2020, and the rest of the world starting in Q2 of 2020. Additionally, the FX tailwinds will be most evident during the first half of 2021. Overall growth in the second half of the year is expected to normalize a bit comparatively but still be up high single-digits. As is typical, we expect Q1 to be comparatively lighter than the remaining 2021 quarters. Based on these revenue assumptions, we are introducing 2021 adjusted EBITDA guidance of $1.23 billion to $1.26 billion. The range includes an expectation for approximately $100 million of incremental transaction-related cost synergies with slight offsets due to two factors: First, approximately $35 million to $40 million of temporary costs taken out in 2020 returning to the P&L; and second, some expected material and logistics inflation given the current dynamics across the global supply chain. We continue to monitor overall inflation and will take appropriate incremental pricing actions if and when warranted. In terms of cash generation, we expect free cash flow conversion to adjusted net income to be greater or equal to 100%. CapEx is expected to be approximately 1.5% to 2% of revenues. Finally, we expect the adjusted tax rate to be between 23% and 24% as compared to the 24.3% rate seen in 2020.

Moving to Slide 18. As we wrap today’s call, I reflect on 2020 as a year that changed us. We took every measure to prioritize our employee safety while enabling our essential workers to maintain their livelihood. This is because our employees mean so much to us. We concentrated on delivering our mission-critical products and services to the front line of the COVID-19 pandemic because our customers needed us. We even proactively reached out to area healthcare providers to donate the use of sub-degree triggers to store COVID-19 vaccines because communities also needed us. We take on the role of a sustainably minded employee-owned industry leader, as can be seen by our clear commitment to reducing our impact on the environment. I’m proud of every team member in our company for how we came together to deliver and protect the interests of all of our stakeholders this year. What a difference this year makes. On the threshold of our one-year anniversary, it has been a momentous ride, creating a differentiated culture and improving the performance of our company. I’m confident we will continue to transform Ingersoll Rand and deliver increased value to all of our shareholders. With that, I will turn the call back to the operator and open for Q&A.

Great. Thank you. And your first question comes from Nicole DeBlase from Deutsche Bank. Please go ahead, your line is now open.

Yes, thanks guys. Good morning. Maybe we could start by just talking about if you guys are seeing any impact to production or your supply chain relative to COVID and how confident you feel about the ability to ramp up as we move into Q2 when presumably growth should be pretty significant?

Yes. Nicole, I would say that, I mean, we are clearly not immune to what is happening in the supply chain, whether delivering or kind of the logistics side. The good news here is, I would say two things. One, we have always said that we are in the region for the region. So we really co-located our factories to support our customers in the regions. For the most part, a lot of our supply chain is really co-located within close proximity to the factory. So there has not been a material impact on us. The second point is that with the combination of the companies, we have a larger supply chain. As we have gone through the procurement and the rationalization of suppliers, we are selecting some pretty strong partners that are here to support us from a global perspective, which is leading to minimal disruption that perhaps orders are seeing. So in terms of ramping capacity, we don’t foresee that to be an issue. Most of our factories operate under one-shift operations. If we have to expand, that should be just a matter of expanding capacity from incremental shares.

Got it. That is helpful. Thanks, Vicente. And then when you think about the proceeds from HPS once the divestiture closes or the partial divestiture, is the idea that that is going to be used completely to pay down debt? I know you mentioned bringing down leverage on a pro forma basis, and is that indicative of maybe the M&A pipeline just not being very full right now?

Yes. I think, Nicole, as we mentioned, capital allocation is definitely one of my top priorities. We are having constant conversations with the Board. We will provide an update here in due course. But yes, I mean, we are very excited about where we are. You have seen that we are still playing a pretty large addressable market, highly fragmented. Our M&A funnel is really robust and very strong. It is just a matter of making sure that we are disciplined with current valuations. But we are going to remain really active.

Okay, thanks. I will pass it on.

Your next question comes from the line of Mike Halloran from Baird. Please go ahead, your line is now open.

Hey, good morning everyone. So let’s start on the cost side. You have upped the target from $250 million to $300 million in the funnel, still $350 million, but obviously, you are talking about some upside to that. So two things. One, can you talk through the components of what you have seen that give you confidence to raise it from $250 million to $300 million? And then also maybe talk about some of the things that are out there that would raise the synergy target funnel above that $350 million level?

Yes, sure, Mike. This is Vik. I will take that one. Like we said, we had a larger funnel, as Vicente mentioned, of $350 million. I think the teams have been executing really well. A large part of what I call structural actions that are really behind us. Most of those have taken much closer to the merger. What you have seen is the momentum building on here is really execution across the more direct material-focused components of that funnel. So really, what I call procurement as well as getting deep into the ITV equation. So a lot of what you are seeing is just good execution. Like we always said, we have a larger funnel. Not every idea in the funnel is going to necessarily translate straight to the bottom line. But the team is executing really well. We saw good momentum, including in the fourth quarter. Our annualized synergy number actually increased in the fourth quarter compared to where we were in Q3. This gave us the confidence to increase the synergy target up to $300 million. In terms of the second part of your question, what would give us increased confidence to increase ahead of us is items like procurement, ITV, and footprint. We have always been very disciplined in saying that the footprint piece of this equation was always going to come more so towards the back end of the kind of three-year plan. Nothing has changed in that perspective. But now, as we move into kind of our second year as a combined company, the teams are starting to build out that footprint funnel and see some of that momentum. So time will tell in terms of being able to increase the number from there, but we are optimistic about where we have gone this far.

Thank you. And then the second one here. When you think about assumptions embedded in the revenue guidance for the year, can you talk a little bit about what the cadence looks like? Obviously, first half, second half dynamics, you laid out in prepared remarks as well as the slide deck. But are you seeing normal sequential? Are you assuming a pretty conservative ramp through the year? Maybe just give some context on what type of environment is embedded in the assumptions as you look at the three units.

Yes. Mike, in general, what you can expect is a quarterly phasing in terms of revenue being quite comparable to what we have seen in 2020 in terms of percent of sales per quarter. Typically, Q1 is the lightest quarter as customers reload budgets and things of that nature, as well as the Chinese New Year holidays in the first quarter. The second and third quarters are in between, and Q4 typically becomes the heaviest quarter. Again, for the same dynamics we have seen historically as well as some of our larger project businesses tend to ship more in the fourth quarter or the second half of the year. Nothing is largely different in that respect. When you think about the overall equation, 2020 is probably a pretty good proxy to use in terms of the quarterly phasing and applying that to 2021.

So if I hear you right then, you are basically assuming normal sequential from the current run rate. No real acceleration in the environment from an underlying perspective for the year.

Yes, I think that is a fair way to describe it. Like we mentioned in the prepared remarks, we continue to see the overall industrial demand environment improving sequentially kind of through Q4. As you look at it in the context of 2021, we see a fairly similar cadence to what we saw in the prior year.

Sure. Thank you, Vik. Thanks, Vicente.

Thank you, Mike.

Your next question comes from the line of Julian Mitchell from Barclays. Please go ahead, your line is now open.

Good morning. Maybe just starting off with the adjusted EBITDA guide for the year. Just wanted to confirm that, that implies around 30% incremental margin or so. I understand there is $100 million of extra cost synergies as a tailwind for the EBITDA. Maybe give any color around the headwinds embedded in that guide from, say, the scale of temporary costs coming back, any kind of input cost headwind, that sort of thing.

Yes, sure, Julian. I will take that one. In terms of the incremental that we are expecting on a total year basis, on an all-in basis, I would say growth, as well as some of the synergies, along with some of the other cost headwinds, is probably closer to about a 35% incremental or slightly higher depending on some of the quarters. It is a little bit closer to 35% is kind of the implied incremental on an all-in basis, which we actually see as pretty healthy given the puts and takes. It does include reinvestment back in the business as we are focused on sustainable organic growth moving forward. I think in terms of kind of the moving pieces, you hit it on the head here. In addition to just kind of the organic growth in the M&A and some of the FX tailwinds that we called out in guidance, a couple of pieces I would include: one, the $100 million that you spoke to in terms of the incremental synergy savings. That is year two of our transaction-related integration savings. The second item on the headwinds would really be the $35 million to roughly $40 million of temp costs really coming back into the equation, ramping into the back half of the year. We have baked in a nominal amount of inflation. We are not necessarily quantifying the exact dollar amount. But as you would expect, and as Vicente mentioned, we are seeing some normal supply chain and logistics-oriented inflation that you would expect. Those are probably the major pieces in terms of the components that we are seeing. Hopefully, that characterizes everything.

Thanks. Maybe my second question, just around the free cash flow was very, very strong in 2020. Just wanted to confirm sort of what is left in terms of cash costs to achieve synergies? And maybe what the phasing of that is embedded in your free cash flow in 2021 and 2022.

Yes, sure. Julian, I think we can keep it relatively high level. I mean we do have a continued integration of the company as well as synergy delivery, particularly on the footprint side. So again, I think we have been saying, roughly speaking, about $20 million to $30 million per quarter has typically kind of been what you have seen in terms of cash costs going out the door for execution. I don’t think that is a bad placeholder to use for 2021 as you look forward. We are pretty encouraged by how we have managed to execute to a higher number in terms of synergies, but continue to keep cash outflows pretty disciplined. Remember, we do have the footprint piece of the equation ahead of us, which, again, does tend to be a little more on the cost side.

Great. Thank you.

Your next question comes from the line of Jeff Sprague from Vertical Research. Please go ahead, your line is now open.

Thank you. Good morning everyone. I just wonder if we could come back to the kind of the margin discussion a little bit and if you could elaborate a little bit on what you are expecting for price realization over the course of 2021. Just to be clear on your comments about cost, were those kind of inflationary pressures net of pricing actions? Perhaps you could just provide a little more color on that.

Jeff, let me give you a little bit of color on the price. We generated price in the fourth quarter. We have said it very well that our products are mission-critical in the entire process, and I would have been highly strategic on the pricing equation, and we will continue to do so as we go into 2021. Vik, do you want to comment about the headwind here? Yes. So Jeff, I think the way I would think about the headwinds are, we view those things as kind of separate from the pricing equation that I just mentioned. Net-net, we do expect to be price-cost positive. That is kind of the trend you have seen historically in the business. The other thing to mention here is to the degree inflationary pressure potentially becomes higher, if that is really how things play out, we are not seeing that just yet. But we want to continue to look at price as a lever to pass that through. Right now we see everything as price-cost on kind of inflation at this point.

Could you also give us some thoughts on what you actually expect HPS to do in 2021? Vicente, I think you kind of mentioned a multiple on 2021. I didn’t catch it when you said it, but that implied an earnings number. Just thinking about what kind of placeholder should be coming through on equity income.

Yes. Jeff, we are not providing guidance on HPS in 2021 or anything further in terms of the details of the transaction. What I said in the remarks is that when you look at the $300 million of cash, it equals roughly 24 times EBITDA of 2020. It also implies a good multiple based on expected 2021, but we are not guiding to any specific number for 2021.

I’m sorry, can I just ask one more quick one? Backwards were characterized as healthy. But can you give some context on where they stand, maybe backlogs as a percent of projected sales? Are they normal in that regard, do they give you comfort and visibility in the top line forecast? I will stop there.

Yes. Jeff, when you look at the three segments, you can characterize, I will start with maybe the Specialty Vehicles. You have seen the bookings momentum. They are coming in really strong into 2021 with robust backlogs. ITS saw some good large long-cycle orders as well in the fourth quarter. That is encouraging. Some of the orders we received in the third quarter are becoming shippable into 2021. The backlog in ITS is coming in also better than what we have seen historically. Precision and Science is really more kind of short cycle—they don’t have that long cycle with the exception of hydrogen orders. Those have seen some final momentum continuing to grow. So all-in-all, we feel pretty good about our backlog coming into 2021. Thank you, Jeff.

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Please go ahead, your line is now open.

Hi good morning guys. We have come a long way from talking about fluid end pricing. So really congrats on the overall portfolio transition the last few years.

Thank you, Josh.

In kind of the compressor, vacuum, blower or more traditional side of IT&S, it seems a bit stronger on orders than you would normally see at this stage of recovery. I mean, comps aren’t really even truly easy yet. I know you are not big in semiconductor compared to your other big competitor out there. But could you contextualize what is going on in the market and why orders are bouncing back so hard? It doesn’t seem like it would be capacity for your customers, but some sort of debottlenecking or near-shoring, or like any way you would characterize what seems to be kind of earlier strength?

Yes. We are excited about what the team has accomplished. As we articulated in the past, vacuum and blower, as you very well said, is mostly industrial. We don’t play in the semiconductor market. It is due to the nature of the unique applications we have. The team on the vacuum side continues to win new OEM accounts. These OEM accounts are basically new and pretty unique applications. The blower has good momentum in water and wastewater treatment facilities, as well as some other niche end markets that we have been very actively engaged in opening. When you combine some of that with the demand generation activity in this highly fragmented end market, it is really causing strong momentum to perhaps show the ability to take some market share.

Got it. That is helpful. Are there a lot of Hills, Albins, Runtechs out there to be found? Is this a flywheel you guys can keep going, because obviously, the balance sheet and cash flow are in good shape.

Yes, Josh, it is. We are spending a lot of time, even in 2020, improving our process—how focused we are with our M&A process from stage zero in terms of ideas and cultivation. This has dramatically improved. The level of investment we have done with the team across the different segments to support more penetration of M&A and leverage IRX as a way to review some key critical performance indicators every week on things that we are adding to the funnel. We think we see continued good momentum in funnel activity that could translate into acquisitions. We remain highly disciplined regarding price.

Perfect. Thanks for the color.

Thank you.

Your next question comes from the line of Rob Wertheimer from Melius Research. Please go ahead, your line is now open.

Thank you. Good morning everyone. My question is a little bit just on the Google Cloud announcement that you made. I’m curious if that brings you new revenue models in the next five years. I’m a little bit curious if it puts you ahead of competition, how you thought about the decision strategically and how it relates to how you interact with customers?

Sure. Yes, Rob, to your question, absolutely. This should help us become more creative on new revenue streams over the next five years. When you think about the potential here, in North America alone, we have over one million assets in the field in North America. As we continue to find ways to connect them, harvest the data, and leverage the supercomputing power from Google Cloud to create better predictive analytics and better revenue streams, I think that is the power of what we see here. We are excited about it; it was a rigorous process, and we selected Google Cloud as a partner to help us harvest a lot of these data and analytics over the next few years.

Do you have any comment on how connected that asset base is today, what you are doing internally, and what you gain with Google? Is the groundwork done for the analytics to start or do you have a lot to invest?

Some of the groundwork has been done on the compressors. I think the excitement is how we can connect the machines in specific end markets. When you look at water and wastewater, we have multiple assets that could be connected to optimize the entire process. We see the power realized with Google analytics, but we are in the early stages of that.

Thank you.

Your next question comes from the line of Joe Ritchie from Goldman Sachs. Please go ahead, your line is now open.

Thanks. Good morning everybody. Hey so obviously, great job navigating a really, really tough environment this year. I guess as I’m thinking about the medium term for you guys from a margin perspective, you exited the year really strong in both ITS and PST. I’m just wondering how to think about the medium-term targets for both of those segments given the upside synergies. Can ITS be sustainably in the high 20s? I’m just thinking about this really beyond 2021 into 2022, 2023.

Yes. Joe, to answer the question specifically, yes, I mean, we haven’t come out with specific guidance in terms of the medium term of where we see the margin profile to come. But I mean, look, ITS, finishing the fourth quarter at 26% margin. If you remember from the Gardner Denver days, we wanted to be in the mid-20s. We see more room for improvement from there on. Inside ITS, we have P&Ls running above mid-20s, so we have a model to reach high 20s. In the Precision and Science, when we started in Q1, the business was doing a respectable high 20s, and we are above 30 on an exit rate. Do we see potential on that continuing? We were in the mid-20s and ended up in the 30s. We will comment maybe soon in terms of how we think about the medium guidance for those segments, but we see continued room for improvement from here and beyond.

Got it. No, that is helpful. Great to hear. I guess my one follow-up question is about the portfolio just given the announcement in HPS. So I guess maybe two questions. One, just on HPS and keeping the 45% ownership here, like what is the kind of thought process? Is it to play in some of the upside and potentially then monetize it in the future? And then how are you thinking about the rest of the portfolio? There are other pieces that don’t necessarily fit longer term, but I would be curious to hear any thoughts around that as well?

Yes. Joe, we are excited with HPS for multiple reasons. One, we found a great partner with AIT. We are excited with the team on them becoming a pure play in the upstream oil and gas with a very premium product and business. We view a really good because we locked in some cash but at the same time participate in any upside that could come. Multiple cycles can happen here. As we see, we have that 45% participation in terms of what could come next. Regarding other questions, we look at all possible scenarios. If we create shareholder value by doing something creative with some businesses that might not be that properly aligned, we won’t hesitate to explore those options. We want to be thoughtful, strategic, and disciplined on how we do that.

Makes sense and thank you guys.

Thank you, Joe.

Your next question comes from the line of Stephen Volkmann from Jefferies. Please go ahead, your line is now open.

Hi good morning guys. Maybe just back to Joe’s margin question quickly. Any difference amongst the segments and how we should think about incrementals for 2021?

Yes, I will take that one. The way to think about it is ITS will probably be the healthiest overall just because many of the cost synergies are much more isolated or centralized in the IT&S segment. The Precision and Science and Specialty Vehicles businesses, the incrementals there will be a little bit more muted year-over-year due to a little balancing in terms of the mix. We saw a strong in-swell of COVID-related demand in 2020 on the medical side, which came at a good margin premium. That is not expected to recur in 2021. For the SVG business, as the commercial and Gulf businesses tend to normalize, you won’t see the mix be quite what it was in 2020. We are going to continue to invest for new products and growth. We see IT&S is where you will see a little more pronounced incrementals.

Great, that is helpful. If I could just ask about recurring revenue and services, maybe both near- and longer-term. Are you guys able to get out and do the servicing? Do we have some pent-up demand there, and longer-term, are we getting those types of contracts? I know that has been a target for you guys, just an update there.

Yes. We are able to get out there and do a lot of the service work, and we have a fantastic team that has been created not only by doing that physically but in some cases, even remotely as we connect more machines. We see good potential here based on our info base and the technologies we are launching with IoT, and now further expanding with the connectivity with Google Cloud. This will enable us to create some unique service agreements.

Okay. I will leave it here. Thank you.

Thank you, Stephen.

Your next question comes from the line of Nigel Coe from Wolfe Research. Please go ahead, your line is now open.

Thanks. Good morning. Not a whole lot to really run through here. But I did want to go back to the synergies. And obviously, procurement has been a big source of cost savings. With the supply chain issues you have seen, is that limiting in any way your ability to get procurement savings in the near term? Doesn’t feel like it is, but just wanted to set in there. And then the second part, SG&A is relatively a small part of the synergy mix. I’m just wondering now that you have had IRN for a year, whether you see a bit more potential for G&A?

Yes. On the procurement front, we have seen some inflation in the system, but does that prohibit us from delivering on the procurement savings. The continued momentum has given us confidence to raise the synergy target to $300 million. We have a good line of sight and conviction in being able to deliver those procurement and direct material-oriented numbers. Regarding G&A, we always look for opportunities. The majority of the more structural-related savings came in 2020. So again, that part is largely behind us, but we will always seek optimization opportunities.

Great. And then just going back to Joe’s question on the portfolio. Just curious, given the performance of SVT, much better than we would have expected, probably better than what you expected as well. How has your view on SVT evolved over the past 12 months? How confident are you that this performance can be sustained beyond reopening?

Yes. I think I put it a couple of ways there, Nigel. The LDT’s performance is great due to product launches on the consumer side. In Q4, we saw very good momentum in Gulf, based on new product launches that they have done, particularly with lithium battery cars. The team is gaining market share and they are not done yet. COVID may have accelerated the decision-making for some consumers. The momentum has continued, and the team is ready for some solid product launches in 2021, which could do well not only in the U.S. but also in Europe. The team is hitting on all cylinders.

Great, I will leave it there. Thanks.

Thank you.

Your next question comes from the line of Nathan Jones from Stifel. Please go ahead, your line is now open.

Good morning everyone. A couple of questions on investments in growth here. Can you talk about what level of reinvestment you are making in growth at the moment? What the potential to take that to your view? The 1.5% to 2% CapEx seems a little low to me. Can you talk about the opportunity to invest more here in order to drive better growth?

Yes. In terms of investment on growth, multiple ways are in play. One on the corporate side, we are continuing to invest in demand generation activities as well as our partnership with Google Cloud. Within the businesses, we are making solid investments, highlighting the Precision and Science team investing in hydrogen and accelerating product launches. On the industrial technology front, we have heavy investment in product launches. We launched a good cadence of execution in 2020 that continues now. CapEx is typically light. If the team presents a great proposal that provides good return on invested capital, we look at ROIC on CapEx and will pursue it.

Okay. I wanted to ask one about revenue synergies. I know when we put these businesses together, revenue synergies is one avenue for creating value but is likely to take longer to really start to kick in. Now at year-end, can you talk about what opportunities you have seen, what successes you have and what you expect in the future?

Sure, Nathan. I will touch at high level. We haven’t necessarily quantified growth synergies externally. But they are strategic and you have seen a lot of momentum driving around organic growth numbers. Things around the water end market, some deleveraging of oil-free compressor technologies, and the expanded channel the market that the combined company has brought. Each of the segments, particularly in IT&S and Precision Science, have a good funnel of growth synergies that they are executing that you are starting to see embedded in the organic growth numbers. The healthy order numbers we talked about are indicative of that. We feel good about the backlog as we close out the year.

Great. Thanks for taking my questions.

Thank you, Nathan.

Your next question comes from the line of John Walsh from Crédit Suisse. Please go ahead, your line is now open.

Hi, good morning everyone. Just one here for me. Going back to the free cash flow guidance for this year, the greater than or equal to the 100%, is there another way you guys could articulate what you are expecting in terms of free cash flow, either through a free cash flow margin or maybe free cash flow as a percent of EBITDA and then how you kind of think about that going forward as well?

Yes. John, I think the guidance we gave was greater than or equal to 100% of adjusted net income, which is the right way to look at it, clearly taking a lot of the purchase accounting implications out of the equation. If you look at 2020, we were pleased with what we saw. We experienced good tailwinds—lower than normal CapEx and good working capital management. For 2021, we see strong opportunities, including cash interest coming down, expected lower tax rate, and working capital opportunity. The guidance itself is pretty prudent; we expect strong cash flow similar to 2020 as we start seeing opportunities for the tax rate and working capital.

Great. I will leave it there. Thank you.

Thank you.

And there are no further questions. I will turn the call back over to Vicente for any closing comments.

We want to say thank you to everyone for their interest. I know that in these calls, many of our employees across the world join to listen to the excitement of what they have accomplished. To all of them, I just want to pass another big thank you. 2020 was a phenomenal year. We are about to celebrate our one-year anniversary. What a phenomenal journey it has been. This is just the beginning. We are getting started, and there is definitely much more to come. So thank you. Thanks everyone.

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