Hello, and welcome to the Ingersoll Rand 2024 Fourth Quarter 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 now like to turn the conference over to Matthew Fort, Vice President of Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll Rand 2024 fourth 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 afternoon, 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 as 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, 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 full year 2025 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, the key to our financial durability is our economic growth engine, which helped us to deliver outperformance in 2024 with double-digit adjusted EPS growth and strong free cash flow margin despite a very dynamic global market. Looking towards 2025, we see continued growth underpinned by organic investments and plenty of runway for our inorganic growth, with over 200 active targets in the funnel. And we also expect strong operational execution through the use of our competitive differentiation, IRX. Most importantly, I want to thank all of our employees around the world for their contributions and always thinking and acting like owners of the company. On Slide 4, we’re highlighting the differentiated company results delivered through our economic growth engine. With IRX underpinned by our innovative employee ownership model, we have created an increasingly durable financial profile with over 20,000 employees working towards our company's common goals. As shown on the page, over the cycle, we have either delivered or outperformed our long-term Investor Day targets across all targets. On Slide 5, we continue to be a leader in sustainability, delivering financial performance while also doing good for the planet, our community, and our employees. On the left hand side of the page, for the third year in a row, we were named to the Dow Jones Best-in-class Indices, ranking number one in our industry and finishing in the top 1% of the Corporate Sustainability Assessment. Also for the second year in a row, Ingersoll Rand was named to the A List for our commitment to global environmental leadership by CDP. CDP's annual environmental disclosure and scoring process is globally recognized as the gold standard for corporate transparency. As you can see on the right hand side of the page, with the ownership equity grants provided and through the performance of the company to date, we have created approximately $700 million of incremental wealth for our employees. We strongly believe that the combination of our ownership mindset and creating a great place to work is a true catalyst for long-term performance. Moving to the next page. Since the merger with Ingersoll Rand in 2020, we have transformed the company into a premier growth compounder. We reduced cyclicality through divesting our Club Car and HPS businesses, and we have reinvested approximately $5.4 billion into accretive acquisitions focused on high-growth sustainable end markets. Through this transformation, in just three years, we have nearly doubled our total addressable market, both through acquisitions and with continued organic investments in product and service innovation. We believe that we're uniquely positioned to grow our market share within the $67 billion highly fragmented market through the combination of our innovative product portfolio, multichannel, multi-brand strategy, and robust commercial and operational footprint, which is well-positioned for the current dynamic macro environment. On the right-hand side of the page, I want to highlight that our M&A strategy remains unchanged, and that we will continue to be disciplined in our approach for M&A execution, creating shareholder value while further positioning ourselves in highly attractive end markets. Turning to Slide 7. We continue to diversify our products and portfolios into high-growth sustainable end markets, and have expanded our total addressable market by approximately $12 billion in 2024. We acquired approximately $625 million in annualized revenue from 18 acquisitions at less than 14 times pre-synergy adjusted EBITDA multiple purchase. And currently, we have seven additional transactions at the LOI stage, as shown on the right-hand side of the page. Since our Q3 earnings call, we have closed on six companies, including channel acquisitions. We have added four new companies to the LOI stage and abandoned one transaction. Our M&A funnel remains strong with over 200 companies currently in the funnel, and we expect to acquire an additional 400 basis points to 500 basis points of annualized inorganic revenue in 2025, which will be incremental to our current guidance outlined later in this deck.

Thanks, Vicente. Starting on Slide 9, we delivered strong results through our competitive differentiator, IRX, despite a very dynamic global market. Total company orders and revenue improved sequentially, both of which finished largely in line with expectations. In our underpenetrated markets, which include Latin America, the Middle East, India, and APAC, excluding China, we saw robust growth in both orders and revenue. These results underscore the focused investments for growth we continue to make in these markets. The company delivered third-quarter adjusted EBITDA of $532 million, a 6% year-over-year improvement and near record adjusted EBITDA margin of 28%, a 50 basis point year-over-year improvement driven predominantly through gross margin expansion. Adjusted earnings per share was $0.84 for the quarter and $3.29 for the full year. We continue to deliver our long-term Investor Day targets of double-digit EPS growth, finishing up 11% for the full year compared to 2023. Free cash flow for the quarter was $491 million, delivering a robust 26% free cash flow margin in the quarter. Total liquidity was $4.1 billion, with $1.5 billion of cash on hand at quarter end, demonstrating the tremendous strength of our balance sheet. Turning to Slide 10. For the total company, Q4 orders were up 8%, and revenue increased by 4%. Book-to-bill for the quarter was 0.95, finishing in line with our previous guidance of above 1 time in the first half and below 1 time in the second half. Total company adjusted EBITDA increased 6% from the prior year, expanding margins 50 basis points year-over-year, with corporate costs coming in at $32 million for the quarter, which is down $15 million year-over-year due in large part to management incentive costs. Finally, adjusted EPS for the quarter finished $0.84 per share, including a Q4 adjusted tax rate of 23.4%. On Slide 11, for the full year, total company orders were up 4% and revenue increased 5%. Book-to-bill finished the year at 0.98, which finished largely in line with expectations. Total company adjusted EBITDA increased 13% year-over-year, with adjusted EBITDA margin finishing at record levels of 27.9%, up 190 basis points from the prior year. Corporate costs finished the year at approximately $155 million, which is down $18 million year-over-year. The year-over-year declines, once again, are largely attributable to a reduction in management incentive costs compared to the prior year. Finally, full year adjusted EPS finished at $3.29 per share, up 11% year-over-year with a full year adjusted tax rate of 22.2%. On the next slide, free cash flow for the quarter was $491 million, including CapEx, which totaled $35 million. Total company liquidity now stands at $4.1 billion based on approximately $1.5 billion of cash and $2.6 million of availability on our revolving credit facility. As Vicente mentioned earlier, we are targeting 400 basis points to 500 basis points of annualized inorganic revenue acquired in 2025, and still have seven additional transactions currently under LOI. With over 200 companies currently in the funnel and our continued strength in free cash flow generation, we are confident in our ability to deliver on this target. Leverage for the quarter was 1.6 turns, which was a 1 turn increase year-over-year and a 0.1 turn improvement sequentially versus Q3. As a reminder, the year-over-year increase in leverage was driven primarily due to the purchase of ILC Dover earlier in 2024. Specifically, within the quarter, cash outflows included $200 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. I will now turn the call back to Vicente to discuss our segment results.

Thanks, Vik. On Slide 13, fourth-quarter orders for ITS finished up 3% year-over-year and were approximately flat organically. Excluding the impact of China and the power tools and lifting business, Q4 organic orders grew low-single digits. Revenue finished down low-single digits organically, with the largest impact coming from our China business. Our ITS segment delivered solid year-over-year adjusted EBITDA margin expansion of 30 basis points on top of near record level margin from the prior year. For the full year, adjusted EBITDA margin finished at a record level of 30.2%, already meeting our 2027 targets three years ahead of schedule. Moving to the product line highlights. Compressor orders were up low-single digits, industrial vacuum, and blower orders were up mid-teens, and power tools and lifting orders were down mid-single digits. Highlighted here on our innovation in action is our new PureAir oil-free compressor. This product is a great example of Ingersoll Rand's multichannel, multi-brand strategy, providing an innovative digitally enabled sustainable solution with a market-leading 14% energy efficiency improvement. With 100% oil-less technology, this product is perfect for applications that require FDA approval. Turning to Slide 14. Orders in PST were up 29% and revenue finished at up 24% year-over-year largely driven by M&A. Fourth-quarter organic orders finished slightly down year-over-year. However, it is important to note that we did see low-single digit organic order growth, excluding the impact of China. PST delivered adjusted EBITDA of $107 million, which was up approximately 14% year-over-year with a margin of 27.6%. The year-over-year decline in Q4 adjusted EBITDA margin was largely due to the impact of lower volumes in the Aerospace & Defense business within the ILC Dover business, as well as the flow-through related to organic volume declines, primarily attributed to China. It is important to note that PST finished the full year at approximately 30% adjusted EBITDA margin despite the organic growth headwinds. I would also like to take a minute to review some key highlights within our ILC Dover business. In the fourth quarter, ILC Dover Life Science business grew revenue double-digits, which demonstrated their continued ability to deliver above market growth. Also, I am pleased to announce that in December, we reached a multiyear agreement worth over $150 million for our legacy space suits business. This long-term deal has been incorporated into our 2025 guidance, and we remain optimistic about the opportunities for growth within the Aerospace & Defense business. For our PST innovation in action, we're highlighting a new Diaphragm Metering Pump, which offers increased energy efficiency and a 20% reduction in total cost of ownership. This is a perfect example of innovation, generating over $50 million of additional market opportunities in key markets that include water and wastewater. Moving to Page 15. We're introducing our 2025 guidance. Total company revenue is expected to grow between 3% and 5%. We anticipate organic growth of 1% to 3%, where price and volume are split 75% and 25%. FX is expected to be approximately a 2% headwind for the year. M&A is projected at $300 million which reflects all completed and closed M&A transactions in 2024, as well as the acquisitions of SSI Aeration and Excelsior Blower Systems discussed earlier. Corporate costs are planned at $165 million and are expected to be incurred evenly per quarter throughout the year. Total adjusted EBITDA for the company is expected to be in the range of $2.13 billion and $2.19 billion. At the bottom of the table, adjusted EPS is projected to fall within the range of $3.38 and $3.50, which is approximately up 5% at the midpoint. We anticipate our adjusted tax rate to be roughly 23%, net interest expense to be about $220 million, and CapEx to be around 2% of revenue. On the right-hand side of the page, we have included a 2025 full-year guidance bridge showing the growth associated with the operational activity and the impacts associated with FX, interest income and expense, tax rate, corporate cost, and share count. On the next slide, we have provided some additional commentary regarding the phasing of our 2025 full-year guidance. So let me touch on a few key highlights. We expect total revenue growth to be consistent across both the first and the second half of the year at approximately 3% to 5%. Consistent with what we have seen over the past few years, we expect sequential improvement throughout the year, with Q1 being the lowest quarter in terms of revenue. To put a finer point on Q1, we expect to see a very similar percentage decline in terms of revenue from Q4 '24 to Q1 '25 to what we saw in the prior year. But that should equal a low-single digit total revenue growth in the first quarter. The 2025 phasing of both our revenue and adjusted EBITDA remains consistent with prior years. And this is illustrated on the right-hand side of the page, showing both our historical revenue and adjusted EBITDA phasing since 2021 and our assumptions for 2025. Finally, we expect adjusted EPS to follow the adjusted EBITDA phasing, with a 46% to 54% split between the first and second halves of the year. Turning to Slide 17. Ingersoll Rand is well positioned for strong operational performance in 2025. We remain nimble and we're prepared to be adaptable in what continues to be a very dynamic global market environment. We continue to differentiate Ingersoll Rand as an investment delivering double-digit revenue and adjusted EBITDA growth on average since 2020. To our employees, I want to thank you again for your part in delivering another record year. We delivered strong results by demonstrating our commitment to meeting our financial targets and executing our economic growth engine through the use of IRX. Today, our balance sheet remains stronger than ever, and we enter 2025 well-positioned to build upon our success to date. With that, I'll turn the call back to the operator and open it up for Q&A.

Thank you. You first question comes from Mike Halloran with Baird. Your line is open.

Hey. Good morning, everyone.

Good morning, Mike.

Can we just talk a little bit about some assumptions embedded in the guidance from a demand perspective? Essentially, how are you thinking about what the underlying demand cadence looks like through the year more qualitatively? Are you expecting any improvement in end markets, more stability? Thoughts on how you think the orders play out this year, and what kind of growth assumptions we're assuming as we move forward?

Yeah, Mike. So kind of let me frame it this way. As we discussed in terms of total revenue phasing, we're expecting it to look very similar to what we have seen historically. So if you think about the total revenue and EBITDA, it is consistent with prior years. And then from an overall organic growth perspective, just as a reminder, price is approximately 70% of the total, and we can clearly control that, as you know. And the other 25% is coming in from positive volume. And for that, we continue to be highly encouraged by the many growth initiatives that we're driving, such as the underpenetrated region acceleration that we talked about, very specific targeted new product development and obviously, our continued progress on recurring revenue. When you think about organic growth, it is expected to be approximately flat in the first half of the year, with approximately 4% growth expected in the back half of the year. And again, of that 4% back half organic growth, approximately half of that will be realized through pricing. So we're just talking about a 2% organic volume increase in that second half. And as I said, a lot of good organic investments that we're driving. And yes, comps also moderate in the back half of the year, which also helps. In terms of the regional perspective, when you think about it from a high-level growth assumption at the regional level, America is planned to be in the upper end of the low-single digits. Mainland Europe is planned towards the lower end of the low-single digits. China is assumed to be completely flattish. And then Middle East, India, and the rest of Asia is assuming the mid-single digit range.

Okay. And just a final point there. Is there an assumption for end market improvement embedded in the guidance or is it relative stability from where we sit here today?

Reliability from where we sit here today, yeah.

Okay. Thanks for that. And then on the PST side, can you maybe just talk a little bit about the margins in the quarter, a little worse than we were expecting. And how to think about that ramp as we work through this next year?

Yeah. Sure, Mike. This is Vik. I'll take that one. So in terms of within the quarter specifically, two major drivers that we'd point out. I think we called out during the prepared comments. First is specifically lower volumes as we talked about within the ILC Dover Aerospace and Defense business. So you had a bit of the deleveraging you saw there with the lack of volume, largely coming from the lack of the large space suit contract and things of that nature that we've talked about historically. The other piece is the impact from the organic volume declines, which is, I'd say, the largest driver of that is coming from China. Now as we think about going forward, I think we remain quite optimistic about the long-term margin profile and the ability to get to our Investor Day targets of those mid-30s over time. When you think about the drivers, first and foremost, as you've seen historically, one, we expect to continue to remain price cost positive throughout every single quarter like you've seen historically. Two, we do have a pretty robust productivity funnel. Three, I'd say, there has been some targeted restructuring that has been done. And then the other piece of the equation here is, as you would expect, now that we've kind of owned ILC Dover for a little over six months, you typically see a lot of that margin expansion as we start a lot of the integration activities, synergy activity, things like that, really ramp into the first year into the second year of ownership. And that's exactly what we're expecting to see as we move through '25. So we would expect to see returning back to that 30% EBITDA margin profile as we progress through 2025. We feel pretty comfortable about the ability to control that margin profile going forward.

Thanks. Appreciate it, guys.

Thank you.

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

Hi. Good morning.

Good morning.

Maybe just wanted to start with the orders. It seemed that maybe they fell a touch light in Q4 versus what you had thought. Was that all related to China or anything else happening there? And when we're thinking about the first quarter, I think organic sales year-on-year are down low-single digits or so, assuming a book-to-bill slightly above 1 for normal seasonality. Are we thinking sort of flattish orders just mechanically for Ingersoll year-on-year in Q1?

To answer the first question, yes, the results were primarily driven by China, which was a bit softer than we had anticipated due to the timing of a few large orders, resulting in essentially flat organic order growth for the overall company. It's worth mentioning that in the fourth quarter, China's book-to-bill ratio was around 1, which is promising. Additionally, when comparing the first half of 2024 to the second half in terms of orders, China has remained stable. Excluding China, we expect to see low-single-digit growth in organic orders across both segments, reflecting the continued resilience in other regions despite the evolving market conditions. Looking ahead, the timing for those large orders isn't lost; they've just shifted. We are continuing to see strong interest in these longer cycle projects, which have not yet converted. As we approach 2025, this is a positive sign, and communication remains very active.

Yeah. And Julian, on your second part of your question with regards to Q1, I think your read on the kind of organic revenue growth of down low-single digits is in line with expectations. On the orders front, I'll say, we don't guide on orders externally. But as we've historically said, this is a business that tends to be around 1 on a full-year basis. And sitting here today, I don't think we see anything materially different than what we've seen historically on the seasonality front.

That's helpful. Thank you. And then my second question, I just wanted to circle back on PST, how you're sort of thinking about the EBITDA margin cadence through 2025 and sort of general satisfaction with the ILC Dover performance.

Hey, Julian. Maybe I'll start with the ILC and then let Vik talk about the margin cadence. I mean, ILC Dover continues to improve and doing pretty well. I would say very, very happy with the Life Science businesses in ILC Dover that we continue to see double-digit revenue growth, which is in line with expectations, but way above the market. We're also having a lot of very good cross-selling and revenue synergy opportunity. And I think the conversation goes really well with some pretty large medical device customers, that they're pulling us into conversation, not just as ILC Dover, but holistically as a total Ingersoll Rand. And that's a recent event that just happened here over the past couple of weeks, and that's continuing exciting to see. We've done a lot of work at ILC Dover, including restructuring, as Vik mentioned. But now we're organized into three distinct P&Ls and that including also some new leadership in the P&L side. And this is driving a greater visibility and focus all around. Everything around the IRX implementation is going really well. Here at the end of the quarter, we're going to have a nice session around what we call Commercial Excellence Execution, which is another tool that we have in our tool bolts of IRX. So I'll say, continue to pursue the good momentum and very happy to see the continued performance on the business.

Yeah. And then, Julian, on the margin front, let me just take a step back and kind of calibrate. When we did our Investor Day, we kind of said that PST, we would expect approximately 100 basis points of margin expansion on an annual basis. And I think the reality in kind of what's baked in the guide here is actually slightly better than that. If you look at the full year for PST, we finished at a 29.6% EBITDA margin, obviously, a slightly lower number than that here in Q4. But as we now kind of transition into 2025 with a lot of the factors that Vicente said, the integration on the ILC Dover side, we would expect to see, I'd say, back kind of more in line with where you've seen historically, playing closer to that 30% range and sequentially improving, obviously, the easiest comp being in Q4 of next year.

Thanks very much.

Thank you.

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

Hey, thank you. Good morning, everyone.

Good morning.

Wanted to touch base on the Aerospace & Defense business. I think obviously, you bought ILC Dover for the Life Science business, and that makes sense, right, and space suits kind of came along for the ride. But at the time, you did indicate you liked the business and may build and grow there. It seems like it's become more of a distraction than anything. So really, my question is, would you actually commit additional capital to these air and defense-related businesses? Is there stuff in your pipeline or your funnel that plays into this space?

Yeah, Jeff. So as you recall, we always said that the Aerospace & Defense was kind of optionality, an optionality both ways. One, clearly, to learn more about the space economy and the strong relationship that ILC Dover on that aerospace side has with many customers in that industry. And it has led to some kind of cross-revenue synergies with some of our other compressor businesses like selling Haskel helium blanketing for some of the rocket shipments or rocket ships. Now as we said, the kind of optionality to your question in terms of the M&A, do we have anything in the funnel for the Aerospace & Defense things? The answer to that is no.

Okay. Great. And then just on the 400 basis points to 500 basis points of M&A impact. I just wanted to be kind of clear on that. So that's sort of excluding any wraparound effect from what you did in 2024, and would just be the annualized impact of what might get accomplished in 2025?

That is correct. Yes. So we're saying that, that 400 basis points to 500 basis points is incremental to what we have in the guidance.

The next question comes from Rob Wertheimer with Melius Research. Your line is open. Rob, perhaps your line is on mute?

I'm not on mute. Can you hear me now?

Yes.

We can hear you.

I wasn't on anyway. So sorry about that. So I think your comments on China were clarifying and that doesn't seem like you experienced kind of a macro slowdown in the quarter, but rather order comps. But could you talk about China in a more general sense? It's been tough to call for a while now.

I think your question is really about China and our observations there. We see stability. If you look at the order rates from the first half to the second half, they remain fairly stable. Additionally, there are some promising areas of growth in China. For example, businesses like our blower and vacuum sectors are seeing organic growth in the high-single digits. This indicates that our investments in localizing technology and focusing on specific markets are paying off with positive growth in China. Looking ahead to 2024, we have tough comparisons to the accelerated growth seen in 2023, which was driven by electric vehicle investments and solar production. Those conditions are not expected to repeat this year. During my visits to China last year, I observed progress toward greater stability. Furthermore, we are also directing significant energy and resources toward investments outside China. This shift is evident in the comments we've shared. I recently visited Vietnam and Australia, and the positive momentum we've observed in those countries, thanks to our investments, is very encouraging and exciting. It's great to see our teams implement initiatives as we shift some growth focus from China to these other regions.

The next question comes from Andy Kaplowitz of Citigroup. Your line is open.

Good morning, everyone.

Good morning, Andy.

It's interesting that you didn't speak about MQL this quarter, maybe you want to get away from that, but can you give us an update on how your MQLs are looking? Last quarter, you mentioned they were still up 12% year-over-year, 7% sequentially. But that lead times at MQLs were getting extended. Have they extended further? MQL still up or maybe stepping back, how do you feel about your short-cycle businesses outside of China?

MQL activity remains strong and finished the year with low double-digit growth, both in the fourth quarter and for the full year of 2024. We are encouraged by the MQL performance. Additionally, the long-cycle pipeline has also seen low double-digit growth for the full year 2024, which is positive. While decision-making processes continue to take longer than historically, we are noticing an increase in customer conversations, leading to better momentum that may result in decision-making as we approach 2025. I remain optimistic about these developments. I also had the opportunity to visit our demand generation center in Poland recently, where I was impressed by our talented team that is elevating our MQL generation efforts.

Very helpful. And then just back to the PST margins for one second, I think we understand that margin improvement to be slowed by weaker organic. But a lot of times when a company does a lot of M&A, it's hard to integrate the acquisitions, margin improvement slows. You're already at 30%, which is high. So I think, Vik, you mentioned some targeted restructuring. But maybe any lessons learned in terms of the greater acquisition strategy as this was a larger deal for you? Do you approach acquisitions differently at all? Maybe integrate differently, because you like very good at integrating, as you know.

I appreciate your question, Andy. The straightforward answer is that there's nothing specific I would highlight. We have experience with integrating larger assets. For instance, in the PST business, we integrated Seepex a few years back, and we were clear that it offered fantastic differentiated technology and healthy gross margins, but the EBITDA margin was in the mid-teens. We had an approach to reach the fleet average for PST, and that's essentially where we are now. Regarding ILC Dover, yes, there have been some volume-related challenges on the aerospace and defense side. However, in terms of core integration and restructuring the business into three distinct profit and loss statements with new leadership, we've made significant progress. From an integration and operational perspective, ILC Dover has advanced well in terms of our core processes, utilizing IRX and many day-to-day operations seen in Ingersoll Rand. There's nothing particularly different from the ILC Dover perspective, and the same applies to the smaller acquisitions we made in 2024.

Appreciate the color.

The next question comes from Stephen Volkmann of Jefferies. Your line is open.

Hey, good morning, everybody. Thanks for taking the question. Sorry if I missed this. I know you talked about incrementals 45%, 50%. Should we think about those pretty similarly, Vik, in both of the segments?

Yeah. Thanks, Steve. So I think the answer there is, generally speaking, yes. I think there's maybe a little bit more opportunity on the PST side, particularly, as you get to the back half of 2025, just given kind of some of the margin comps you have. But generally speaking, I think they're in that comparable ballpark. That's correct.

Okay. All right. Thanks. And then, Andy, I think almost touched on the question that I was going to ask, but it feels to me like you have sort of two competing targets here relative to margins, especially on PST, but also continuing to drive that 400 basis points to 500 basis points of M&A. As you know well, these M&A margins often come in a little bit lower at acquisition. And so, it just feels like those two goals are kind of at odds with each other. And I'm curious, Vicente, how you sort of balance that as you think about hitting those PST margin targets in the mid-30s.

Good question, Steve. I want to highlight that not all acquisitions lead to improved margins. For instance, we acquired a business in the PST segment called ADI, which specializes in high-pressure pumps. When we acquired it, it had 50% EBITDA margins, and now it's at 60%. This example showcases our capacity to enhance strong businesses with solid margins further. Our approach to M&A focuses on the quality of the business and its exposure to high-growth, sustainable markets, ensuring we can improve the margin profile if it doesn't meet fleet averages. Currently, our M&A portfolio includes companies that would fit well into PST and already have margins exceeding the fleet average. We consistently evaluate this, keeping in mind that not every business will yield margin improvements.

Got it. Okay. So those seven LOIs, I should just assume are 50% EBITDA margin.

Not all of them.

Thank you, guys.

Thank you.

The next question comes from Chris Snyder with Morgan Stanley. Your line is open.

Thank you. You mentioned a couple bigger projects in China pushing to the right in Q4. Do you think that this was related to the U.S. election outcome and just the expectation that incremental tariffs are coming? I mean, just in that same vein, has customer conversations in China changed following the election?

Yeah, that’s a great question, Chris. Specifically for this project, it was not related to the election. China is becoming a significant player in engineering, project, and contracting companies, and this situation was tied to end user technical specifications and discussions around projects requiring some of our critical technology. So in those instances, it wasn’t election-related. Overall, regarding any further impacts from China related to the elections, I wouldn’t say there’s been anything dramatic. It’s also important to remember that January tends to be slow in China due to the Chinese New Year and similar factors. However, conversations with our team in China remain very positive as they consider potential developments in 2025, but we have not observed anything election-related, either positive or negative.

Thank you. Appreciate that. And then maybe following up with one for Vik. It sounds like this year, we're going to get that typical revenue step down into Q1. Usually, that is accompanied by a sequential step down in margins on the lower volumes. Last year, we didn't get that. So it feels like this Q1 margin comp is maybe particularly difficult. Should we expect margins to be down year-on-year in Q1? Any color on that would be appreciated. Thank you.

Yeah. Chris, let me start with your first comment in terms of, and I think Vicente mentioned in our prepared remarks, the kind of normal sequential step down you see from Q4 to Q1. I think you're going to see a very similar level that you saw kind of prior year. So I think that's completely fair. I think in the context of the margin profile, you're right, we kind of came into the year in 2024 relatively quite healthy margins. I think that will be our steepest comp in the context of year-over-year. So should you expect to see meaningful margin expansion in Q1? No, I wouldn't say that. I would taper those expectations in that respect. I do think, though, as you progress through the year and particularly as you get to the back half of the year, and as I said earlier, clearly, Q4, I think that's where you'll continue to see the step up in margin. And I think the good news here is, I think a lot of the same levers that have historically existed, I mentioned before, pricing, productivity, some of those target restructuring actions, which have already kind of occurred, which means you can kind of see them go into the run rate, as well as some of the M&A synergies, are all going to kind of bear. And then maybe the other piece to mention here that we actually haven't mentioned yet is the progress on recurring revenue. We continue to be really pleased with the kind of the trends that we're seeing kind of across the board. We did see a nice pickup on recurring revenue kind of in line with expectations. And as expected, that comes with a bit of a margin premium. So you are seeing that largely on the ITS side, and that is definitely helping, I'd say, on the mix side as well as the margin profile.

Thank you. Appreciate that.

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

Yeah. Thanks. Good morning, guys.

Good morning, Nicole.

Maybe just continuing the tariff and election question, more from a cost perspective. I guess, can you guys talk a little bit about the exposure that you have, whatever you're willing to provide, as a percent of COGS with respect to Mexico, Canada, things that haven't been an issue before? And then any plans to offset what we've already seen with respect to tariff actions?

Yeah. Nicole, great question here. So let me just kind of start high level. First and foremost, let me just start by saying there's actually nothing in our guidance today explicitly with regards to what I'll call incremental tariffs or any of the mitigation actions. As you know, the tariff situation remains pretty dynamic, but we believe we're really well positioned, I think, to mitigate any of those impacts. So first and foremost, from an overall perspective, we're largely in-region for the region from a manufacturing standpoint, which does insulate us a bit and limits the kind of the overall impact of tariffs compared to others. That being said, we're not immune to tariffs. Maybe to kind of size and, I'll say, first of all, kind of the, I'd say, domestic U.S. kind of purchases from China specifically, it's a single-digit percentage of cost of goods sold, right? So relatively muted, but there's a little bit of impact there. As you would expect, we have kind of what I'll call, tiered mitigation plans ready to be executed, and they vary based on the severity of the tariffs. That does include, I'd say, leveraging our global supply chain to shift certain third-party procured material to alternate sources based on the level of tariffs. And then as you would expect, the balance of tariff impact will be mitigated through pricing actions. Just kind of a little bit of a reminder. We faced a very similar situation back in the kind of 2021 timeframe soon after the merger, and you saw us, we were able to navigate those waters pretty well. We stayed both dollar and margin accretive and positive kind of throughout the duration. And so, overall, we feel pretty good about our ability to manage through the tariff impact. And as you'd expect, we're continuing to monitor it pretty closely. So feel pretty good kind of where we sit right now, but relatively limited. And then specific to your question on Canada and Mexico, again, similar, fairly small impacts. But again, same kind of routine we're going through from a China perspective, moving where needed and mitigating the balance through price.

Got it. That was super helpful. Thank you, Vik. Can we talk about what you are seeing with respect to the ILC Dover Life Sciences business? What about the legacy Ingersoll Rand business? Are you observing continued recovery on the biopharma and life sciences side? Thank you.

The legacy Ingersoll Rand Medical business remains fairly stable. I wouldn't say there has been an acceleration in the fourth quarter. It looks stable, and this is evident when comparing Q3 to Q4. As we approach 2025, it's encouraging to see us overcoming challenging comparisons. We continue to meet with many customers in the life science tools segment where the IR Medical business is involved. Looking ahead to 2025, we do not anticipate a V-shaped recovery in our guidance for that business. We intend to maintain our outlook as fairly stable with a muted recovery.

Thanks, Vicente. I’ll pass it on.

Yeah. Thank you.

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

Good morning and thanks for the questions. We've been dancing around the margin questions around PST. But I wonder, can you maybe be a bit more specific in terms of that path for PST margins back above 30%? And I'm wondering, based on your 1Q comments about that Q-to-Q, do we sort of start the year at a similar level in that 27%, 28% range and then ramp from there? Any kind of first half, second half comments would be helpful.

I think the expectation is that whether in the first half or in the first quarter, it's likely to be a bit better than the exit rate observed in the fourth quarter. It’s probably healthier, likely in the upper 20s range, which is where you should expect PST to be overall. There will be some slight sequential improvement from there. Regarding our Investor Day targets, we initially set them at approximately 100 basis points, but we actually anticipate exceeding that on a full-year basis. It may start off a bit muted as we begin the year, but as the comparison with ILC Dover occurs around mid-year in June, we should see that as a turning point leading into the second half of the year.

Okay. And then just maybe expanding on Nicole's question about the kind of what you seeing under the hood at ILC Dover. I think you called out double-digit growth, 10% growth or similar to that in the life sciences portion. What are you seeing in 2025? Maybe just dissect between A&D and Life Sciences for '25.

For Life Science, we are experiencing ongoing momentum and our long-term expectations remain in the low double-digit to high-single-digit range for flows, which is largely on track as of now. This is largely driven by the end market exposure of the ILC Dover Life Science business, primarily in the biopharma sector. Specifically, we see growth in high-potency APIs related to GLP-1 and advancements in gene therapy and personalized immuno treatments. ILC Dover is well-positioned in these strong markets.

Great. Thank you.

Thank you.

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

Good morning, everyone.

Good morning, Nathan.

Maybe we could start with an update on some of the things you talked about last quarter. I think on some of these projects you were talking about, tight capacity on engineering, site preparations, those kinds of things holding back some of those projects moving forward. Maybe just start with an update on that.

I would say there hasn’t been a huge change in terms of freeing up capacity now. However, the important aspect that has changed is my recent discussions with a customer in the last week of December, where they mentioned that end users were easing procurement processes, which should lead to more orders. I had a similar experience in Australia with a customer involved in a significant project. The good news is that these projects are not being canceled, and we're having more frequent conversations. So while it's not a dramatic acceleration or a surge in activity, the conversations are definitely more positive, and none of the projects have been canceled; in fact, some are progressing positively.

I guess, a follow-up question on that as it relates to U.S. policy. There's obviously been a lot of noise around tariffs and what's happening and what's not happening. And uncertainty does tend to keep people's hands in their pockets when it comes to making capital investments, and I think probably more outside of the U.S. where that impact is unknown today. Is that kind of uncertainty around what U.S. policy impact might be in places like Europe, China, Canada, Mexico moving some of those projects a bit further to the right, with that uncertainty, people sitting around kind of waiting to see what happens with U.S. policy?

I would say that not much has changed regarding this. One of the data points we monitor is MQL activity, which provides a dynamic view of customer purchasing behavior, and that has remained consistent. We track this data daily and weekly, and the ongoing interest from customers seeking to understand their options for decision-making continues to be strong. Therefore, we have not observed any significant impact from U.S. policy that would cause a shift in behavior.

What do you need to see as a catalyst to get these decisions made and get these projects moving forward at a better rate? Thanks for taking my questions.

I believe it largely depends on each specific project. It's challenging to identify a single, precise factor. For instance, the customer I mentioned at the end of December was able to move forward due to some energy policies in the U.S. and the end customer feeling more at ease with the new administration's approach. In another case with a major EPC customer in Europe, the main issue has been a limitation on engineering capacity. We are actively collaborating with them and even assigning some of our engineers to assist in progressing their projects. Overall, the situation changes from project to project or customer to customer.

Hi. Thank you very much. On the organic sales guide, you said 75% is going to be priced, right, so 1.5%. But then you alluded to the pricing in the second half of the year is going to be 2%. So I was just curious. The acceleration that you're expecting in pricing, where are you seeing that? And is that a midyear price increase or something about the backlog, and then you're layering on maybe prices to start this year? Just trying to get a sense of why we see pricing accelerating as the year goes on.

You are correct, David. This can be linked to the typical midyear pricing actions. We do not have a single date for all our businesses regarding when they implement price changes. In fact, due to the current environment, there are often multiple pricing adjustments throughout the year. I believe this is due to planned pricing actions across the business and the anticipation of these changes affecting the profit and loss statement. Additionally, it's important to highlight that the expectation for a healthier price in the latter half of the year is a consistent observation across both segments.

Hey. Good morning, guys.

Good morning.

I just wanted to focus on M&A for a minute. You got this pipeline, and kind of along the lines of the question Nathan was asking, just do you see a year of setting up where some uncertainty might influence the types of deals that move forward? And then do you see more kind of single-double small deals rather than any sort of ILC Dover type acquisition moving across?

Absolutely. I would describe our pipeline as primarily focused on bolt-on acquisitions. We are effectively utilizing the current geopolitical situation to encourage family-owned companies to consider transactions, helping them avoid the stress of uncertainty. This approach is progressing well. Think of the companies in our pipeline as similar to those we've announced today, such as SSI Aeration, Excelsior Blower, and Toshniwal. They share the same bolt-on characteristics, possess excellent technologies, and are being acquired at favorable multiples, which expands our addressable market.

Okay. And as it pertains to ILC Dover, sticking with M&A, I know that's kind of a new platform you intend to probably add on to. Are there other deals in that kind of life sciences arena you see in that pipeline? And then do you plan to get into kind of adjacencies with medical consumable selling to MedTech, maybe less so for life sciences application, but for other medical applications?

Yes, Andrew, we actually have two companies in the letter of intent that are focused on the life sciences sector. These would be bolt-on acquisitions that could greatly benefit our team if they progress. This demonstrates how quickly we've been able to identify promising opportunities. Additionally, we are involved in the medical device segment within our ILC business, catering to MedTech companies, particularly in specialized components. We've discussed our expertise in silicone injection molding and extrusion, which are highly specialized and can be integrated with many of our pumps to offer a comprehensive package. We are indeed exploring more companies in this area. While there isn't anything in the letter of intent phase right now, we are assessing various technologies.

Okay. Got it. Thank you.

Thank you.

This concludes the question-and-answer session. I'll turn the call to CEO, Vicente Reynal, for closing remarks.

Thank you, Sarah. I just want to say thank you all for your interest in Ingersoll Rand. And a very special thanks to all of our employees who I know many of them are listening to the call and continue to think and act like owners that you are, to continue to drive another strong performance in 2025. So with that, I conclude the call, and have a great day.

This concludes today's conference call. Thank you for joining. You may now disconnect.