Good day, and welcome to the Ingersoll Rand Q3 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Matthew Fort, vice president of investor relations, to begin the conference. Matthew, over to you.

Good morning, and welcome to the Ingersoll Rand 2024 third quarter earnings call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday, and we will reference these during the call. Both are available on the Investor Relations section of our website. 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. 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 on our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our 2024 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. Starting on Slide 3, our team delivered another strong quarter of results by leveraging our competitive differentiator, IRX. And for that, I want to thank and acknowledge our employees for continuing to think and act like owners. Our strong execution was highlighted by record orders and revenue, over 200 basis points of adjusted EBITDA margin expansion, 9% adjusted EPS growth, and 20% free cash flow margins. And despite the difficult macro environment, we expect to deliver on our long-term Investor Day targets of double-digit adjusted EPS growth and strong free cash flow generation in 2024. Turning to Slide 4. Our economic growth engine describes how we deliver durable compounded results. As stated on the right-hand side of the page, ultimately, the intended outcomes are double-digit earnings growth and strong free cash flow margins. We remain committed to our strategy of delivering over the cycle, our long-term Investor Day targets as outlined on this page. Our unique culture of ownership combined with IRX is our competitive differentiator, which will help to drive that long-term value creation. With that in mind, let me provide a brief update on our growth initiatives. On the next slide, we'll start with our inorganic growth initiatives. I am pleased to highlight four transactions that closed this past month, which together are expected to achieve a mid-teens ROIC by year three. Let me walk through these deals. First, APSCO, which is a leader in the design and manufacturing of fluid power systems for mobile transport equipment. This is a great example of strategic market expansion, which further strengthens our position in the dry and liquid blower and vacuum markets with energy-efficient, innovative solutions. Next is Blutek, which expands Ingersoll Rand technology capabilities, expertise, and aftermarket potential in high growth sustainable end markets, including biogas and carbon capture. Continuing on Page 6, on the left-hand side of the page, we have UT Pumps, which adds new high-pressure pump technology to our portfolio in end markets including water, wastewater, food, beverage, and life sciences. And finally, next is Penn Valley Pump, which is a leading manufacturer of positive displacement pumps with patented double disc pump technology for use in the municipal, industrial, chemical, and food industries. On the right-hand side of the page, I would like to highlight that year-to-date, we have already closed on a total of 15 transactions in 2024, and we have far exceeded our annualized inorganic revenue target, which bodes well as we look towards 2025. In addition, the funnel continues to grow and remains very active with 10 additional transactions currently under LOI, including deals that will fit into our recently-created life sciences business. The funnel, including the deals under LOI, are primarily bolt-on in size. Turning to Slide 7, I wanted to take a minute and highlight how we are driving organic growth across our digitally-connected assets as we often get asked two questions. First, what do we do with the data we receive on our connected assets? And second, how do we leverage that data to drive additional revenue? Simply stated, our teams are focused on creating a meaningful positive impact for our customers around energy efficiency and uptime. An example on the slide demonstrates the agility with which we operate. We recently gathered 45 employees across seven countries over a period of just two days. The goal was to do a deep dive into real-time connected asset data to unlock new revenue opportunities. The outcome was that we identified over 40 different revenue-generating insights that collectively could translate to over $25 million in incremental revenue, a figure that speaks volumes about the potential of data-driven innovation for our products. As you can see in the middle of the page, we have examples of those insights, and these range from the optimization of energy consumption to maximizing machine uptime. When we empower our people at every level of the organization to think and act like owners, they make us better by defining new customer experiences, improving our ways of working, and bringing innovative thinking to advance our mission of making life better. I will now turn the presentation over to Vik to provide an update on our Q3 financial performance.

Thanks, Vicente. Starting on Slide 8. Utilizing our competitive differentiator of IRX, we were able to deliver strong results within the quarter despite the continued challenging macroeconomic environment. Total company orders grew 10% or up 1% organically, finishing largely in line with expectations. Book-to-bill was 0.97x, which is in line with our previous guidance of above 1x in the first half and below 1x in the second half. Total revenue was up 7% as reported or down 2% organically. Worth noting that we did see some customers pushing out orders due in large part to site readiness and local approvals. However, we have not seen order cancellations, nor do we feel that cancellations are a significant risk. The company delivered third-quarter adjusted EBITDA of $533 million, a 15% year-over-year improvement and adjusted EBITDA margins of 28.6%, a 210 basis point year-over-year improvement driven predominantly through gross margin expansion. Adjusted earnings per share was $0.84 for the quarter, which is up 9% compared to the prior year. Free cash flow for the quarter was $374 million, delivering a solid 20% free cash flow margin in the quarter. And total liquidity was $4 billion with $1.4 billion of cash on hand at quarter end, which demonstrates the strength of our balance sheet. Our continued strength in free cash flow generation will enable us to remain focused on our capital allocation strategy. As Vicente mentioned earlier, we still have 10 additional transactions currently under LOI, and we continue to have momentum in building our M&A funnel. Turning to Slide 9. For the total company on an FX-adjusted basis, Q3 orders were up 10% and revenue increased 7%. Total company adjusted EBITDA increased 15% from the prior year. The ITS segment margin increased 190 basis points reaching a new high of nearly 31%, while the PST segment margin decreased 30 basis points year-over-year but remains above 30%. Overall, Ingersoll Rand expanded adjusted EBITDA margins by 210 basis points, and corporate costs came in at $35 million for the quarter due in large part to a year-to-date true-up of management incentive costs. Finally, adjusted EPS for the quarter was up 9% year-over-year to $0.84 per share, including an adjusted tax rate for the quarter of 22.8%. On the next slide, free cash flow for the quarter was $374 million including CapEx, which totaled $30 million. Total company liquidity now stands at $4 billion based on approximately $1.4 billion of cash and $2.6 billion of availability on our revolving credit facility. Leverage for the quarter was 1.7 turns, which was a 0.8 turn increase year-over-year and a 0.3 turn improvement sequentially versus Q2. The year-over-year increase was driven primarily due to the purchase of ILC Dover earlier this year. Specifically within the quarter, cash outflows included $15 million deployed to M&A, as well as $71 million returned to shareholders through $63 million in share repurchases and $8 million for our dividend payment. Our capital allocation strategy remains unchanged with M&A being our top priority, and we continue to expect M&A to be our primary use of cash as we look ahead. I will now turn the call back to Vicente to discuss our segment results.

Thanks, Vik. Moving to Slide 11, our Industrial Technologies and Service segment delivered solid year-over-year revenue growth of approximately 3% on top of approximately 19% growth in Q3 of last year. Adjusted EBITDA margins finished at a record high of 30.7% with an incremental of over 100%. Adjusted EBITDA margins finished up 190 basis points from the prior year, which was driven primarily by gross margin expansion. Book-to-bill was 0.97x with organic orders up low single-digits finishing largely in line with expectations. Moving to the product line highlights. Compressor orders were up mid-single-digits and we continue to see positive orders globally excluding China. Compressor revenue was up low single-digits in the quarter, while industrial vacuum and blower orders were up high single-digits and revenue was up low single-digits. For innovation in action, we're highlighting our new patented oil-free technology that is focused on high growth sustainable end markets like food, beverage, and clean energy. This patented technology offers a 30% reduction in total cost of ownership, driving a great return on investment for the customer and helping our customers achieve their Scope 1 and Scope 2 emission reduction targets. Turning to Slide 12, the PST segment achieved 3% organic order growth and delivered adjusted EBITDA of approximately $118 million with a margin of 30%. We continue to see many encouraging signs within the PST segment, with sequential order growth of 13% and sequential revenue growth of 16%. Book-to-bill was 0.96x or 0.99x on an organic basis. In addition, short cycle orders in the PST segment remain positive with book and ship orders of high single-digits year-over-year demonstrating the ongoing momentum of organic orders driven mainly by our demand generation efforts. We're pleased to see organic order growth stabilizing, and we remain positive about the underlying health of the PST business. Finally, I wanted to highlight the performance of ILC Dover within the quarter. Sequentially, total ILC Dover revenue improved low double-digits with the biopharma business up low-20s and the medical device component business up low double-digits. Year-over-year revenue for the biopharma business is up double-digits. We're very pleased with the business performance, and we're optimistic about the potential to drive above-market growth. Our PST innovation in action example shows how our mission-critical products can help a community in need. Planet Water Foundation provides safe drinking water access in the wake of emergencies and natural disasters. Using our Dosatron pumps, the Planet Water system can provide clean drinking water for up to 6,000 people without the need for electricity. The system was recently deployed in Nashville, North Carolina after Hurricane Helene. I also would like to take a moment to talk about the recent hurricanes, which impacted our Dosatron site in the Tampa area, where several of our team members experienced flooding that damaged many of their homes. Despite this, they worked late nights and weekends to support our customers. So to our Dosatron team, a special thank you for your dedication, hard work, and resiliency. Your actions show what we can achieve with our ownership mindset and culture. On the next slide, let me provide an update on the current market trends as we always get a lot of questions about our leading indicators. Marketing qualified leads or MQLs are a key leading indicator of our short to medium cycle business. As illustrated in the chart on the left-hand side of the page, our MQLs continue to grow. For the quarter, organic MQLs are up 12% year-over-year and are up 7% sequentially. As for the longer cycle component of our portfolio, one key indicator we look at is the funnel activity for engineered to order compressor systems, and we remain encouraged, as the funnel activity for Q3 is up 22% year-over-year. Consistent with what we discussed last quarter, the decision-making process remains elongated. The feedback we hear continues to be centered around customer site readiness and too many projects happening at the same time, which is impacting EPC engineering capacity. As we move to Slide 14, we have updated our full year 2024 guidance for revenue, adjusted EBITDA, and adjusted EPS. Total company revenue is now expected to grow overall between 5% to 7%, which is down 100 basis points versus our prior guidance. For adjusting, our organic revenue guidance is down 200 basis points, driven predominantly by the timing of orders converting into shipments. While we are very encouraged by the improvement in Q3 organic order momentum and continued strength in market activity, we continue to see customer delivery delays driven largely by customer-side readiness and other factors including the upcoming election. We expect these orders to be delivered in 2025. As we look at our MQL data, long cycle project funnel, and Q3 organic order growth, this situation remains encouraging as we move into 2025. FX is now expected to be approximately flat for the full year, which is approximately 100 basis points as compared to our previous guide. M&A is projected to contribute around $455 million, which reflects all completed and closed transactions as of October 31, 2024. Corporate costs remain at approximately $170 million. Total adjusted EBITDA for the company is expected to be in the range of $2.01 billion to $2.04 billion, which is approximately 13% year-over-year at the midpoint. Adjusted EPS is projected to be within the range of $3.28 to $3.34, which is up approximately 12% year-over-year at the midpoint. On the bottom right-hand side of the page, we have included a 2024 full year guidance bridge, showing the changes in our latest guidance compared to our previous guidance provided in August. No changes have been made to our guidance on interest expenses, tax rate, CapEx spend as a percentage of revenue, and free cash flow to adjusted net income conversion, all remain in line with our previous guidance. Finally, as we turn into Slide 15, before we open the call for questions, let me wrap up by saying that I am very pleased with how our teams continue to execute despite the current market conditions. As we look to close out 2024, our teams continue to execute well in terms of targeted share gains and driving momentum in geographies where we have historically been under-penetrated. Despite lower organic growth expected in 2024, we're on track to deliver a nearly 10% organic growth CAGR for the total company over the past four years, which is 2x our stated goal. What continues to differentiate Ingersoll Rand is our economic growth engine, where even in a difficult macro environment, we're able to add differentiated technologies to the portfolio with a distinct focus on high growth sustainable end markets. Year-to-date, we have added 15 companies through M&A with 10 more bolt-on targets under LOI, and we don't see this momentum slowing down. The real power continues to be in the value we're able to unlock as part of this model. We're on track to deliver again triple-digit adjusted EBITDA margin expansion through strong initiatives focused on improving gross margins, which translates into strong double-digit earnings growth and solid free cash flow generation. We believe that we have created a durable model that will continue to deliver exceptional financial results, differentiating Ingersoll Rand as a premier growth compounder. With that, I'll turn the call back to the operator to open the call for Q&A.

Your first question comes from the line of Mike Halloran from Baird.

Hi. Good morning, everyone. Let's start on Slide 13. And I certainly heard the prepared remark commentary around project push-outs. But maybe you could put that slide in context to what you're seeing on an underlying basis right now, because I think the MQLs as an example, that's been improving as you've worked through the year here, but the organic growth guidance has moved down, again, partially project push outs. But maybe kind of correlate all those moving pieces because I'm guessing the MQLs is probably a little bit of a shorter-term lead time or leading indicator. And so, kind of just maybe put all that in context and then related, what needs to happen to have that slide sync with the order trends and the underlying demand and the underlying trend in your portfolio?

First of all, we're definitely encouraged by the market activity we're observing. I would describe the MQL market activity as our demand generation engine; it drives new customer engagement. About 50% of those MQLs are from customers who haven't purchased from Ingersoll Rand in the last two years, which reflects our efforts to gain market share. Historically, we mentioned that an MQL would typically convert into an order within six to eight weeks, but that timeframe is now extending. We're not specifying how much longer it is, but it's noticeably beyond historical norms, largely due to customer readiness and external factors like election instability that may be causing hesitations, which we're also seeing among others in the market. The positive takeaway is that these leads are from genuine customers who are seriously considering placing orders, not just inquiring. We are pleased to report that we aren't experiencing order cancellations or customers dropping from our pipeline; it's just about nurturing these leads until we can close them. Our close rates remain strong, which contributes to our continued optimism about the generated activity. Regarding long-cycle projects, the situation is somewhat similar. Many large-scale projects have been announced recently, yet they haven't converted into orders just yet. This is largely because these projects require extensive design and processing through major engineering contracting firms, known as EPCs. However, we're seeing positive progress here. I recently travelled extensively, including a weekend in the Middle East, discussing specific projects with customers to gain firsthand insights, and what I saw was encouraging. It's taking longer than expected, but we're optimistic about the outlook as we maintain focus on what we can control and strive to deliver strong performance.

So, if I take your comments then, the optimism, the fact that these indicators are tracking the right way, does that mean that when you think about next year, it starts tracking towards a more normal growth algorithm for the company? And if it doesn't, what do you think prevents you from getting there at this point, market, timing of these projects, any other variables?

Yes. I think Mike, I think the way we view it is that we don't view that the margin is going to see a V-shaped recovery. We'll just see that gradual recovery as we go into 2025. And as we always do, we want to kind of see continuation here in the fourth quarter, how everything kind of lays out in preparation for our 2025 and we give guidance on our next earnings call. But the other point too that bodes well for us is that here even in the Q3, our backlog actually grew year-over-year and sequentially. Again, it kind of continues to bode well as we think about 2025, but we'll be able to provide better color and guidance as we go into our next earnings cycle.

On the line is Julian Mitchell from Barclays.

Hi, good morning. Maybe just a first question around sort of current demand trend, just flesh that out a little bit more. I think the last quarter, it was very clear that China was the big headwind or surprise factor back in the early summer months. And I see your compressor orders ex-China are good. But since the last call, have you seen kind of a broadening out of those project push-outs? Is there maybe weakness in more geographies perhaps than just the China factor? And I understand that orders are good, backlogs are good. It's the conversion of those two things into sales that's sluggish at present. But when we take a step back and look at the overall kind of process industries exposure of ITS, is it fair to say that those generally would lag kind of earlier cycle markets and that speaks to your point on a very gradual recovery pace next year.

Thank you, Julian. Regarding China, I spent some time there recently with the team, and I engaged with customers. The market has faced challenges this year and has remained fairly stable as we enter the latter part of Q3 and early Q4. However, I gathered positive feedback from a major customer with over 400 facilities in China and nearly 1,000 worldwide. This customer expressed optimism about our service-oriented initiatives and was enthusiastic about our technological advancements. They are particularly interested in how we can support their focus on energy efficiency and operational improvements. The customer noted our employees' strong commitment when visiting their factories, which they appreciated. Additionally, this customer is starting to make investments beyond China, including in places like Africa, suggesting a willingness to invest in enhancing their efficiencies. Regarding your question about potential negative inflections in other regions, there haven't been significant concerns for the most part. Our guidance is mainly influenced by shipment timing and customer readiness to accept products. There have been some delays that are likely to extend into 2025, affecting our organic guidance. Concerning the ITS business in the process industries, we do anticipate gradual growth. ITS is diverse, allowing us to adapt our products and technologies to areas of opportunity. While PMIs have been in a contraction phase for over 24 months, we have managed to grow organically at double digits last year, whereas we expect this year to be more stable. Nonetheless, we believe any future growth will be gradual as PMIs improve, without expecting a sudden recovery in growth from one quarter to the next.

That's helpful. Thank you. Just my follow-up on the margin front. So maybe just put a finer point on the sort of EBITDA margin rates in Q4. I think it may be down a little bit sequentially, but maybe I have that wrong. But that would be, I know historically you're normally up sequentially in Q4. And as we think about 2025, exceptional incrementals this year, any sort of giveback or normalization of incrementals, as you think about next year, because of investment spend or anything like that?

Yes. Julien, this is Vik. Let me take that one. So, I think, first and foremost, frankly, exceptional margin performance by the teams in Q3, really proud of what the teams were able to deliver. I think it's worth noting, that largely driven by gross margin expansion and you really are starting to see, I'd say, the fruits of the labor and things like recurring revenue and things of that nature that we've been talking about for quite a while. I think as you move to Q4, I think sequentially, you're still going to see essentially two segments that are in the 30% EBITDA margin range. It's probably the easiest way to say it. I think corporate costs will probably normalize a little bit in that $40 million to $45 million range. And so that's kind of the way to think about that margin algorithm for Q4. Now, I think as you've always seen us do and say, we're going to continue to make the requisite investments for ongoing growth. And if there's room to probably outperform on the margin front, specifically in ITS, I think you've seen us do that for several quarters. I don't think you'll hopefully see anything necessarily different in Q4, but we think around 30% is probably the right levels as you think about Q4 specifically. To your question about 2025 and obviously not giving necessarily guidance at this point, but is there anything that we would say is giving back margins or anything of that nature? No, I don't think that that's the way to think about it. We think that next year will be a bit of a normal margin expansion kind of in line with what we've historically laid out. But we feel really good about where we are, and most importantly, we continue to make the right investments in areas like innovation, demand generation, and commercial resources.

Your next question comes from the line of Jeff Sprague from Vertical Research Partners.

Thank you. Good morning, everyone. Maybe, simply just kind of back to the project delays and uncertainty. What you said about the EPCs is interesting. But a lot of companies are pointing to election uncertainty. What is your view on that? Is that a reality or an excuse? And do you see the outcome impacting your business substantially one way or the other or just having an outcome and getting this over with just lift some uncertainty, we can kind of try to move on with whatever hand we're dealt?

Yes. It's interesting, I mean, and the reason why we don't call it out too often is because we do a lot of voice of customer, and we are pretty close and intimate to them as they go through their buying cycle. It doesn't come off top of the table or top of the chart in terms of as the reason why the elongation. Now naturally, as we have been kind of getting closer to the election here, has it been more verbally said more often? I'll say, yes. It is definitely not the top of the list, but it is definitely mentioned more often. So I think there's a little bit of that. I mean, how big of a reality it is or how much pent-up demand is going to be after the election kind of snaps or kind of is over with and we see a better outcome. I think still there's a lot to be determined based on clearly what happens at the election time. But again, we'll remain focused on controlling what we can control, and that's our play basically here, Jeff. So to answer your question, yes, how we heard that a little bit more often? I would say, maybe yes, but it is definitely not the number one reason for the elongation.

Do the project delays though skew to the U.S.? It sounds like it's actually just quite global.

It is quite global, Jeff. Yes. Very global. That's why the election is definitely not the only reason, to be honest. You know, due to Saudi Arabia and spend time with customers, it is project late delayed because of site readiness and EPC. I mean, it's basically those two. Yes. Jeff, very encouraging on the service side. Service positive, good momentum that we saw clearly organically in the quarter. And I think everything that we said at Investor Day is working really well. That recurring revenue and the focus of the teams are giving it and not just, I mean, the U.S. is one of the biggest engines that we have, how we see now the momentum in Europe and even also in China and India. India was the other country that I spent amount of time with the team. And again, that service-oriented, it's a great solution that not only our teams are launching but also customers, they really want. So I will say, yes, it's good. Good momentum that we're seeing.

Your next question comes from the line of Rob Wertheimer from Melius Research.

Your margin performance continues to be extraordinary. And I'm a little bit curious just about how much opportunity lies ahead, maybe we do ITS versus behind if you still see as much potential there if you're shifting your workflows to be more growth-oriented than margin-oriented. Just maybe comment that because obviously, you've done amazing things over the last couple of years.

Yes, I'll start with the last question. Internally, we focus on both growth and margin. We prioritize the quality of our earnings while ensuring that we grow profitably. Year-to-date, we have experienced exceptional incrementals, reflecting the gross margin activities we have implemented despite market volatility. We continue to invest in recurring revenue streams and new product technologies. During my recent trip to Asia, I spent a full day with the team in China, focusing on innovation. The unique and exciting innovative solutions they have developed are now being leveraged on a global scale. The example we provided will certainly contribute to additional revenue, and this is part of our ongoing investment strategy. We remain optimistic about our margin expansion opportunities in ITS.

And Rob, maybe I'll just add to your question about thinking about the two segments to percentage point. I think we've been incredibly pleased with the momentum we've seen in '24. We're poised for another triple-digit margin expansion year and as you can — the guidance implies and as you've seen, largely right on the ITS side. I think as we flash forward, it's kind of back to how we laid things out. We expect that there still is opportunity in ITS. Are you going to see the pace probably as much in ITS as you've seen historically? Maybe not as much. I think there's still opportunity there. But I do think there's probably a little bit more outsized opportunity in PST, and that very much fits with our stated Investor Day targets of how to get back to closer to a mid-30s EBITDA margin. So still really pleased. And I think that we see a lot of great opportunity as we now think about the PST business and particularly also with the ILC Dover business now being fully integrated.

Your next question comes from the line of Andy Kaplowitz from Citigroup.

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

The simple answer to that is yes. I mean we definitely see we're seeing a lot of good activity. Clearly, you heard on the opening remarks to as well with the ILC Dover acquisition that gave us a $10 billion expansion into an addressable market, and that comes in with looking in terms of bolt-on acquisitions, and we already have a few of those in our funnel. So yes, I mean, 2025 looks to be still also very encouraging as we see the momentum that we have today.

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

Andy, this is Vik. I'll start and then let Vicente join in. Regarding the core PST business, and we'll address ILC Dover separately, we've been very encouraged by the positive order momentum we've experienced for several quarters now. We are beginning to see that translate more effectively. For instance, we expect it to be part of our growth in Q4, specifically reflected in our Q4 guidance as we look at the full year forecast. We'll hold off on discussing 2025 for now. The good news is that the combination of our core business and the successful integration of recent acquisitions positions us well as we approach 2025, and we remain optimistic about the core PST business. Vicente, I'll let you share your thoughts.

And then on the LLC, I'll say that the integration continues to go very well. You saw some of the numbers in terms of biopharma and the medical device component business are doing really well. The most important piece is that we continue to make investments for growth in the ILC Dover already as we see opportunities to accelerate growth in both the biopharma and the Medical Device business and investments are not only just on demand generation, target commercial and innovation of product investment but also investments in talent. We have multiple new general managers. I think we said before, we structured the business now into three distinct P&Ls with new general managers in the P&L and we're reinforcing the functional support area. So we're making a lot of the good prerequisite investments to scale that up and scale that business as we move forward.

Your next question comes from the line of Nigel Coe from Wolfe Research.

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

Yes, I'll address all your points. Regarding PST and the growth algorithm for Q4, we expect a return to positive organic growth. In terms of M&A contributions for Q4, they will be similar, possibly slightly lower than in Q3, but this shouldn't be interpreted as a negative market trend. Specifically for ILC Dover, as previously mentioned, the biopharma and medical device sectors are stable, showing normal growth and sequential momentum. The book-to-bill ratio relates more heavily to the space division, where order patterns can be irregular due to their association with larger contracts. Shipments for these typically occur over several quarters or years, which influenced the lower book-to-bill figure in Q3. In future quarters, we anticipate a reversal once we secure standard contracts, and this aligns with our usual business operations. Overall, we find the performance consistent and are satisfied, with any fluctuations being relatively minor. Your characterization of the situation and the numbers you referenced are quite accurate.

Okay. And then just to be clear, are we still on track for 215, 220 guide for ILC?

Yes. I think that's in the right ballpark.

Your next question comes from the line of Joe Ritchie from Goldman Sachs.

Vicente, could you explain what site readiness means? I understand you mentioned the Middle East. I believe this is a brownfield project and quite different from the EPC discussion we had before. Also, I know there are concerns about orders and the book-to-bill ratio potentially dropping in the fourth quarter. Could you share any expectations for the book-to-bill, considering it usually falls below one in the second half of your fiscal year?

Yes. Joe, regarding site readiness, there are various reasons why we face challenges. It could involve obtaining permits for greenfield sites or project expansions, as well as securing labor to handle certain tasks. Often, we are just one part of a larger process, and if other elements aren't ready, we have to align our timing accordingly. This involves logistical coordination to get these activities in place. Concerning the book-to-bill ratio, while we don't provide specific guidance on orders, we have indicated that for the full year, we expect it to be around 1%. Currently, we are on track for that. Typically, the first half of the year sees a ratio above 1, while the second half tends to fall below that. We have observed this trend in the third quarter and expect the same in the fourth quarter. For the full year, we anticipate the book-to-bill to be approximately 1, which suggests that organic orders should perform well in the fourth quarter.

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

Yes, the exciting aspect is that our biopharma division is highly focused on high potency active pharmaceutical ingredients, which are essential for next-generation gene therapies. This includes advancements in cancer treatment and medications for weight reduction like GLP-1s. There have been significant developments in this area, shifting from primarily monoclonal antibodies to bi-modal activity. This progress requires high potency compounds, and we play a crucial role in that by providing customized powder handling and containment processes that are designed for single-use. Our team is committed to accelerating growth and concentrating on the early development stages of these drugs. Overall, there is a strong positive momentum within our biopharma business.

Your next question comes from the line of Chris Snyder from Morgan Stanley.

I want to follow up on the commentary around site readiness. Much of it appears tied to labor capacity and constraints there. So when you speak with customers, is there an expectation that that gets any better? Because I know that employment, at least here in the U.S., continues to go higher, and it seems like demand for these projects and the activity is pushing higher. So it seems like that could remain a constraint.

Yes, Chris, I believe the situation varies from country to country. However, it's exactly for this reason that we are carefully considering the gradual recovery and the momentum. As you pointed out, labor will continue to be a constraint here in the U.S. and will remain constrained in many other countries around the globe. In many instances, there is a significant demand for skilled labor for these highly complicated projects.

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

Yes, great question, Chris. I believe the key factor is that the recent stimulus focuses on upgrading equipment, which often receives higher priority nationally, followed by regional considerations. These high-priority projects and conversions are expected to enhance energy efficiency, aligning with what we've consistently communicated about our capabilities in energy efficiency improvements. Therefore, I think this stimulus has the potential to be beneficial for Ingersoll Rand. Regarding timing, there is a delay; once the central government announces the stimulus, it needs to be implemented at provincial and regional levels, which takes time. During my recent visit to China, there was frequent discussion about this, but we haven't seen tangible results yet. However, this leads us to believe it could have positive implications for 2025, and we will monitor how the fourth quarter develops in that context.

Your next question comes from the line of Joe O'Dea from Wells Fargo.

Vicente, could you talk about Ingersoll's kind of engagement in the timeline of a large project when we think about a growing pipeline of what can be multiyear projects how to think about your involvement relative to when shovels go in the ground when you're engaged with the customer when you get an order, when you ship it relative to, say, shovels in the ground in a multiyear time frame?

Yes, sure. Also, Joe, from the early beginnings, we get involved. I mean, a lot of these large projects they have at the EP side, they have what they call SME, subject matter experts. They're subject matter experts on a typical specifically processing technology like rotating components. And so we have really great relationship and contact with those educating what our products can do. When the project gets decision, the typical lead time is call it 12 to 18 months between the order to the time of a shipment. That could be maybe 12 months later after the shuttle goes into the ground. So call it, it could be up to 2 years by the time that when the initial kind gets removed to the time the project gets to completion. But it varies. I mean it clearly varies on the size of the project and the scope of the project. But our lead time is could be anywhere between 12 to 18 months based on when the customer puts the order and when the customer is ready for the site.

Got it. That's helpful. And then just wanted to come back to PST and some of the trends. I mean when we look at the organic growth, the stacks, whether it's 2 years, 3 years actually softened sequentially from Q2 to Q3. The guide suggests that those would improve sequentially from Q3 to Q4. It seems like within sort of the order framework as well and book-to-bill outlook that PST orders would sort of lead the growth in the fourth quarter. And so just looking for any color on lumpiness within the third quarter and how that's improving in the fourth quarter. Not sure if weather events were a factor, but any details there would be helpful.

Yes, this is Vik. I’ll begin, and then I’ll let Vicente add his thoughts. To address your question about significant weather-related issues, there is nothing noteworthy to report. We are encouraged by the fact that we have experienced two consecutive quarters of positive year-over-year organic growth in PST. We’ve effectively dealt with the legacy challenges from Ingersoll Rand Medical and life sciences that have been affecting us for some time. While we have not seen a significant recovery in that area yet, it was a factor that complicated our historical comparisons. On a positive note, the industrial segment continues to perform well, showing strong trends over multiple quarters. Additionally, PST is involved in some longer-cycle projects that can generate the fluctuations Vicente mentioned. Overall, combining these elements, particularly the recent positive organic orders growth, leads us to anticipate positive organic revenue growth in Q4.

Your next question comes from the line of David Raso from Evercore ISI.

Just a quick question about the organic orders within ITS. I know Page 18 shows the overall numbers excluding currency effects. However, with the recent acquisitions, can you help clarify the breakdown among compressors, vacuum, power tools, and others regarding the 0.4 million? I'm trying to understand what a rebound in China would contribute to the organic growth. It's not straightforward on Page 18 due to the all-in figures excluding currency. Could you provide those same organic splits to explain how we reached the organic order of 0.4 for the quarter?

Yes, David, let me outline this at a high level. There are a couple of components to consider. The two main detractors, particularly in terms of the region, were clearly related to Asia, specifically China. We highlighted this earlier, and there hasn’t been any notable commentary on China; it’s essentially all organic. The impact from M&A is minimal on that side, and this has significantly contributed to a negative comparison for China, which is pulling the numbers closer to flat. The power tools sector, while smaller, also performed below the overall fleet average, which is slightly reducing the figures. On the positive side, the Americas are leading in performance compared to other regions, likely benefiting from easier comparisons in Q3 due to the timing of projects from last year. The Middle East, India, and Africa have shown solid organic growth, especially in India and the Middle East, where Vicente and I have been recently. Western Europe has had mixed performance across various regions. In summary, the two biggest detractors have been China and, to a lesser extent, power tools. The Americas are showing stronger performance, while Europe is in between. Overall, the product technologies tend to align with these regional trends.

I guess asked directly, if China is say, at this point, down about 15% of ITS, maybe even slightly smaller. What were the organic orders ex-China year-over-year in ITS ex-China con?

Yes, David, we haven't provided that information, but I can offer that you might feel more optimistic in the low single-digit range, which is likely a fair statement.

Your next question comes from the line of Andrew Buscaglia from BNP Paribas.

Something that caught my eye was kind of interesting is your comment on some incremental activity in water treatment. Can you comment more on that, is there more behind that? And I guess what are you seeing in that market? Because it really seemed to accelerate quite a bit.

Yes, Andrew, we perform very well in the water treatment sector. You saw the Dosatron example we provided. We have strong technologies like progressive cavity pumps for wastewater treatment facilities, where companies like Milton Roy are making significant contributions to wastewater systems. In the ITS segment, we also lead in technologies that facilitate aeration in wastewater facilities. We focus heavily on wastewater treatment and processing, including strategic acquisitions. A few years ago, we acquired Everest in India, which is a leader in wastewater aeration. It's important to note that only about 30% of water in India is treated, presenting significant growth potential in that market. Therefore, water and wastewater treatment represent substantial opportunities for our growth.

I was hoping to get some insight into your outlook for 2025. Your free cash flow has been a positive aspect for a while. Do you anticipate any additional benefits as some of these projects, particularly those that have faced delays, progress? Also, aside from the basic EBITDA margin expansion, are there any other factors we should consider as we work on our projections for next year?

Andrew, just to be clear, was that on the cash flow side of the equation? Was that the nature of the question or?

Yes, cash flow. Yes. It seems like you have incremental certain tailwinds, especially with some of the pent-up projects.

Absolutely. I believe there are a few key points to consider. First, the growth of the business, whether from projects or our core operations, is significant. Additionally, working capital remains a major focus for us. We've made considerable progress in certain transactional areas, specifically accounts payable. Inventory also presents an opportunity for us to improve, especially given our business model. It's worth noting that the majority of our M&A activity tends to involve smaller, privately held companies that often prioritize working capital less than we do. Therefore, integrating these companies offers us a chance to enhance our working capital management. We will keep refining our strategies, particularly regarding cash interest and cash taxes. I believe there are numerous avenues available to us. Overall, I’m very satisfied with the performance of our teams, as we've maintained strong free cash flow conversion, and we will strive to sustain those levels while taking advantage of the opportunities I mentioned.

Your next question comes from the line of Nathan Jones from Stifel.

I have a few questions regarding the speed of MQLs moving through the funnel. Vicente, you mentioned that it used to take 6 to 8 weeks, but now it's taking significantly longer. Is it still increasing, or has it leveled off? Are things moving faster now? If the main factors are customer site readiness and a lack of EPC engineering capacity, those will naturally progress over time. Is it just a matter of waiting for the decision-making to speed up again, or are there other conditions that need to be met?

Yes, Nathan, sure. I would say that the elongation has not materially changed to be much longer, but it is definitely above the 6 to 8-week conversion rates. Regarding the additional question, it really is just about time. I don’t think interest rates have impacted this in any significant way. We mentioned that elections have not caused dramatic changes. Could it possibly accelerate as we finalize and potentially get this order next week? Maybe, but it’s not something we are relying on. It primarily comes down to timing in this case.

You guys have a little bit more visibility than we're going to have from the outside into those kinds of things. Is there an expectation? Or do you have intelligence into the markets that would suggest kind of when that MQL lead time might start to shrink and these things might start to move forward?

I would say it varies greatly from country to country based on the situations and customer projects. We do have a good amount of intelligence on many projects and data, but we probably won't share that information externally. However, we certainly understand the situation well. I think based on the calculations regarding the book-to-bill ratio, and considering we have three quarters of data, it would suggest that there might be low single-digit organic growth in orders. This is what the numbers indicate. The one-time book-to-bill ratio is expected to remain around the same level. To Vicente's point, we have seen two quarters of solid year-over-year growth in organic orders for PST. Additionally, ITS has returned to positive organic growth in the third quarter. Overall, the main indicator shows that the general market remains stable and relatively healthy, which gives us confidence as we approach the fourth quarter.

There are no further questions at this time. I'd like to hand the call back to Vicente Reynal for closing remarks.

Yes. Thank you. I'll say my last remark will be, again, a big thank you to our teams for another great quarter and the fact that our economic engine is working very well to deliver very good results even despite the macroeconomic environment, it's very exciting to see. So again, thanks, everyone, for the interest, and look forward to speaking with you any time soon. Thank you.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.