Earnings Call: Q2 2020

Aug 4, 2020

Good morning and welcome to the Ingersoll Rand's Q2 twenty twenty earnings conference call. My name is Megan and I will be your operator for the call. The call will begin in a few moments with the speaker remarks and then a Q and please limit yourself to one question and one follow-up. I would like to introduce Vic Kenny, you may begin your conference. Thank you, and welcome to the Ingersoll Rand 2020 Second Quarter Earnings Call. I'm Vic Kinney Ingersoll Rand's Chief Financial Officer, with me today is Vicente Reynal, Chief Executive Officer. Our earnings release, which was issued yesterday, and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website, www.irc0.com. In addition, a replay of this morning's conference call will be available later today. Before we get started, I would like to remind everyone that certain of the statements on this call are forward looking in nature and are subject to risks and uncertainties discussed in our previous SEC filings. Which you should read in conjunction with the information provided on this call. For more details on these risks, please refer to our annual report on Form 10 K filed with the Securities And Exchange Commission and our current report on Form Eight K filed with the Securities And Exchange Commission on May 1, 2020, which are available on our website. Additional disclosure regarding forward looking statements is included on Slide 2 of the presentation. In addition, in today's remarks, we will refer to certain non GAAP financial measures, You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release. Which are both available on the Investor Relations section of our website. Turning to Slide 3, on today's call, we will provide an update on the integration efforts as well as review our second quarter total company and segment highlights. We will conclude today's call with a Q and A session. As a reminder, we ask that each caller keep one question and one follow-up to allow for enough time for other participants. At this time, I will now turn it over to Vicente Reynal, Chief Executive Officer. Thanks, Vic, and good morning to everyone. I want to start today's call by thanking all of our employees around the world. The COVID-nineteen pandemic has presented unprecedented challenges to all of our communities around the world and I am extremely proud of how our employees have stepped up to continue to serve our customers, keep our community safe, and execute on the strategy of the company. This speaks highly of the culture we're building here at Ingersoll Rand, and I appreciate all the hard work and dedication that our teams continue to display. Turning to Slide 4, I want to share more about the culture and some of the initiatives we're taking. Our ingressoll brand execution excellence permeates the whole company. And guide how we connect our values, strategic imperatives and execution tools. We do this to drive our company purpose, which is lean on us to help you make life better. But we're able to mentor over 2000 liters globally every week on how to drive immediate execution. We know that to create a unique and single culture of constant and open communication is imperative. So a few highlights to point out. First, During this no travel time, we wanted to create a more direct and open dialogue with our individual site teams. So owning our future forms were born from this idea. These are virtual 1 hour micro town halls with individual sites where 45 minutes are spent on Q And A specific to that location. These have been some of the most meaningful conversations I have had with employees over the last 3 months. In just the last 30 days, have been able to interact directly and live with over 6000 of our global employees. 2nd, the team designed a powerful interactive and fun. Purpose, and values, virtual activation sessions. Employees are having fun as they really get to know and decide how to apply our values every day in the roles 3rd, we recognize the responsibility we had as a newly combined company. To create a safe space for employees to have deep conversations on important topics. We recently hosted 5 sessions where Black Employees openly spoke about their racial experience And we had a lot of employees attending, listening and reflecting, and it was an emotional and inspirational session. So when you think about everything that has happened since the merger took place, including the pandemic and its impact on the work environment, as well as restructuring and streamlining of the organization is very highly of the foundation we're building at Ingersoll Rand as we're still able to maintain a strong sense of unity, culture and ownership mindset. And this is what makes us highly differentiated. Moving to Slide 5, I want to take a moment to update everyone on the integration of the company and how we're executing in a thoughtful sales approach linked to our strategic imperatives. The 1st phase and one that we started even before the formal transaction closed at the end of February is building a strong foundation. As we have indicated a number of times over the past few quarters, our integration planning began in mid-twenty 19 soon after we announced the transaction. Turning first, with deploying talent, as I described on the previous slide, we're creating a unified culture across our entire workforce that is central to who we are. And a major milestone will come later this summer when we plan to issue the all employee equity grant that we view as central to our strategy in terms of driving accelerated engagement ownership mindset and sustainable long term shareholder value performance. This foundation can also be seen in the areas of expanding margins and allocating capital effectively. With the help cost. We also built a strong balance sheet with ample liquidity. And finally, we're embarking on our newest strategy of operating sustainability. As you will see on the following slide, we're taking very proactive efforts to embed sustainability through an ESG mindset and develop a cadence of transparency and disclosure as we move forward. As we look ahead, having a strong foundation in place will allow us to transition to the next phase of our integration, which is pivoting for growth. Growth in the organization will take on many fronts, whether it be organic growth, where we have initiatives designed to drive further product and service penetration, for inorganic growth as we have a large funnel of bolt on M and A opportunities given our $40,000,000,000 plus addressable market. And as we continue to optimize the business, this will lead us to the 3rd phase of our integration, which is portfolio optimization. While our focus right now is to continue to improve the underlying nature of our businesses, we will continue to thoughtfully evaluate the assets within the portfolio, as well as adjacent markets that allows us to grow the current 40,000,000,000 addressable market I just mentioned. Turning to Slide 6, I wanted to talk about progress we're making on our newest strategic imperative, which is operating sustainably. It starts with building a culture that embraces various points of views, backgrounds, and experiences. And I believe that it must start at the top of the house. Our Board of Directors is 50% diverse. We want to be surrounded by the best, and that means high levels of diversity in race, gender, thought processes and perspectives. I have been laser focused on these in the last few years. I'm having such a strong experience board In addition to being 50% rate and gender diverse, it's a point of pride. Our culture is also behind the strength of our COVID 19 response and why customers, employees and communities are living on us. Increase reporting on ESG measures is important. Recently, we completed a materiality assessment that determined our most impactful ESG topics. And details of this are in our first sustainability report published last week and can be found on the Investor Relations section of our website. More important are the actions we're already taking. One example here is on energy use, which in our facility in Louisiana, China, has grown solar. This will reduce the Weixin plant CO2 emission by approximately 3800 tons every year. And that's equivalent to be electricity used by more than 5 fifty homes. So let's talk about putting operating sustainably along with our other 4 strategies into execution and move to Page 7 to talk about our Q2 financial highlights. Overall, the business performed very well given the expected revenue declines due to COVID-nineteen pandemic and the downturn in the high pressure solutions segment. As we indicated during our last earnings call, our goal was to manage protecting the bottom line and ensuring ample liquidity. The teams did exactly that as they delivered adjusted EBITDA of $241,000,000 and adjusted EBITDA margins of 19.1 percent. This was a 270 basis point improvement from the first quarter on relatively flat revenue. On a year over year basis, margins were down 50 basis points, But when adjusted for the High Pressure Solutions segment, total company margins improved 160 basis points. The teams executed very well as we continue to accelerate synergies, which now stand at $125,000,000 on an annualized basis, or 50% of our stated target of $250,000,000. The team also managed short term costs extremely well, which ultimately led to a total company decremental margin of only 22%. From a cash flow and capital structure perspective, we saw similar strong performance in the quarter as free cash flow was $230,000,000 and liquidity now stands at $2,200,000,000. Leverage also stayed flat to prior quarter at 2.6 times. Overall, I am very pleased with the efforts of the team as they remain execution focused and delivered strong results despite a challenging macroeconomic backdrop. I will now turn over the call to Vic to walk through the financials in more detail. Thanks, Vicente. Turning to Slide 8, you will see the Q2 financials for the company. We've provided the 2019 historicals on a supplemental basis as if the transaction had occurred on January 1, 2018, to assist in clean comparatives for the quarter. From a total company perspective, FX adjusted orders and revenue declined 21% and 19%, respectively, and continued to be impacted by COVID-nineteen. This impact was seen within the IT and S segment where the Americas and EMEA regions saw challenging conditions, particularly in April and May, partially offset by return to positive revenue growth in China. Encouragingly, all regions saw improvement in order trends in June. The High Pressure Solutions segment also saw the expected declines of over 80% in both revenue and orders due to continued overcapacity in the market and reduced activity levels. Overall, this led book to bill to finish at 0.96 for the quarter, which is generally in line with the levels seen in the prior year at 0.98. The company delivered $241,000,000 of adjusted EBITDA, a decline of 23%. This was driven mostly by volume declines in the ITNS segment and Precious Solutions segment as well as the impact of an increase in our accounts receivable reserve for the High Pressure Solutions segment due in large part to a single customer that declared bankruptcy. We will walk through this in more detail in the upcoming segment Moving to Slide 9, free cash flow for the quarter was $230,000,000, including $17,000,000 of CapEx. The free cash flow was driven by the strong profitability performance of the business combined with continued improvements in working capital management, particularly accounts receivable, as well as Q2 prudency measures, including reductions on non critical CapEx. Free cash flow included $43,000,000 of outflows related to the transaction, comprised of $28,000,000 of synergy delivery expense and $15,000,000 of stand up related spend. From a leverage perspective, we finished a 2.6 times which was flat to prior quarter despite $72,000,000 of lower LTM adjusted EBITDA. While we do expect to see some short term increase to leverage, we've shown the ability to delever historically. On the right side of the page, you can see the breakdown of total company liquidity, which now stands at $2,200,000,000. Within the quarter, we executed on an opportunistic term loan B debt placement of $400,000,000, which was completed at attractive rates of LIBOR plus 2.75 OID of 98.5 and a 0% LIBOR floor. The new term loan B has the same covenant line structure as the remainder of our debt and also matures in 2027. At the same time, we also increased our existing revolving credit facility by $100,000,000. Together with the cash generated in the quarter, total liquidity increased $50,000,000 from the end of Q1 giving us ample dry powder to execute on our growth strategies as we look ahead, including continued discipline bolt on M and A. Moving to Slide 10, our cost management efforts in the quarter were very strong. Starting first with an update on synergies, Our funnel remains in excess of $350,000,000 and the teams continue to add incremental opportunities to the funnel, particularly as we build out more plans in areas like I2V and facilities. Vicente noted that our executed annualized synergies now stand at $125,000,000, which consists of structural and procurement synergies. Let me address each of these in turn. Within the quarter, we did accelerate the phasing of our synergy delivery as we now have already executed on $100,000,000 of annualized structural cost reductions with approximately $80,000,000 of savings expected to deliver in 2020. These savings are coming from incremental headcount actions taken in the 2nd quarter and reflect a $10,000,000 increase to both the annualized figure and our 2020 in year synergy delivery expectations as compared to Q1. Progress on procurement synergies continue to go well and we remain in line with the figures communicating Q1 of approximately $20,000,000 to $30,000,000 of executed actions with approximately 15 and 35% to 40% of our overall synergy target in 2020, which is approximately $95,000,000 of savings. As we communicated we are keeping the overall cost synergy target at $250,000,000 over a 3 year timeframe at this time to remain prudent on volume dependent synergies like procurement and I2V given the current environment. We also continue to expect to incur approximately $450,000,000 of expense in conjunction with both achieving these cost synergies and the associated stand up with the new company. On the right side of the page, we continue to show solid progress on managing within the company. For the 2nd consecutive quarter, we managed decremental below 30% despite double digit revenue decline, with very strong performance in our IT and S, Precision And Science And Specialty Vehicles segments. In addition to synergy delivery, a strong contributor was the additional short term cost reductions we saw given the market conditions which yielded approximately $40,000,000 of savings in Q2. All of the teams did a great job managing discretionary spend as well as rightsizing their cost structures given the operating environment within the quarter. While we do currently expect that approximately $30,000,000 to $35,000,000 of these costs will return to the P and L in Q3, we're monitoring the environment closely. And will redeploy many of these measures in the market recovery is slower than expected. I will now turn it back to Vicente to discuss the segments. Thanks, Vic. And moving to Slide 11, starting first with Industrial Technologies And Services. The IT and S segment 2nd quarter order intake was $788,000,000, down 23% versus prior year ex FX. The auto figure is contained 2 large debottings amounting to $20,000,000 of all the projects that we've been not shippable and decided to cancel. These were 2 isolated situations, and we do not expect any similar debulkins or cancellations of this magnitude as we look ahead. Revenues in the quarter were $830,000,000, down 17% ex FX and leading to a book to bill ratio of 0.95 including the debookings. As I have said in the past, the immediate focus in IT and S was utilizing IRX to create the proper organizational structure and to execute synergies. This will allow us to demonstrate that our combined organization can focus on controlling quality of earnings and resulting much better incremental margins once the market gets back to more normalized growth. With this in mind, we're very pleased with how the team performed despite the tough environment as we were able to limit decremental margins to only 8% leading to 280 basis points of margin expansion and a record adjusted EBITDA margin of 22.2%. From a commercial perspective, we feel it is important to break the IT and S into its respective product lines as it creates better comparison and understanding of the performance. So let me first grant you on the composition of the segment. First is a compressor, which are 60% of the total segment, and compliance largely of oil lubricated and oil free product categories. Orders for the compressor category were down low to mid teens. With oil free compressors flat and oil lubricated offerings down in the mid teens. 2nd is industrial vacuum and blowers. Which comprise 15% of the total segment. Orders were down in the high teens. These businesses are largely based in Europe where customer closures early in the quarter drove order declines in the 30 plus percent range, while the last month of the quarter came back relatively strong. We're not implying that the strength in June will sustain, but we're monitoring that closely. Next is the pressure on vacuum solutions, which is 15% of the total segment, as a longer cycle business containing NASH, Garo, and multi stage geared centrifugal compressor offering. Orders were down in the low 20s, driven largely by a record quarter in Q3 of twenty nineteen on the multi stage centrifugal business. Creating tough year over year comps. We also see our funnel currently weighted towards more projects being booked in the second half of the year, which is not typical in this business, but we believe attributable to some of the deferred investment decisions from our customers due to the environment. And finally, power tools and lifting, which is 10% of the segment. In PTL, orders were down nearly 40%. Where the lift inside of the business, orders were down more than 50% while Tools business was down in the high 30s. What we find encouraging is that the tool business saw much better performance in June as compared to AprilMA not only in orders, but also on point of sale performance from our customers. And from a regional perspective, the Americas orders were down mid to high teens while Europe, Middle East, India and Africa regions was hit the hardest, with orders down low 30s due to complete government countrywide shutdowns in certain countries within the quarter due to the COVID-nineteen. Asia Pacific performed comparatively better as orders were down a little more than 10% with China flat and the rest of Asia Pacific down in the low 30s. And from a facing perspective, we saw the month of June much better across all the regions as compared to earlier in the quarter, so sequential improvement was encouraging to see as well. From first highlights, this quarter, we want to highlight the oil free PA Nx5000. Customers have a strong need for oil free compressed air offering that can deliver airflow in the range of 4000 to 7000 cubic feet per minute. Will be in both highly efficient and tailor economically to the specific site requirements. Current offerings at this type of range are either very large compressors that need to be highly modified creating lower efficiencies or small compressors that become an economically with all the added axillaries that need to be placed. The TA NX5 plasma plays very well in this midsized market. Offering a very modularized product that can meet customer needs while delivering best in class energy efficiency. Moving to Slide 12, we'll review the Precision And Science Technology segment. Overall, the segment had solid performance as orders were $201,000,000 down 6% ex FX. Revenue was $196,000,000, down 8% ex FX for book to bill greater than 1. As a reminder, Precision And Science Technology segment is composed of mission critical flow creation technologies that run across 7 P and Ls and 14 different premium brands, many of which have leadership positions in very attractive niche markets. In Q2, we saw orders growth of 7% ex effects in the medical business with continued demand for pumps that go into oxygen concentrators ventilators and other products focused on filing COVID-nineteen, as well as strong demand for products on our Dositron business, offset by some of the other product lines like Miltonroy, MPP pumps and Overdoffer that saw a decline more in line with other industrial end markets. As you can see on the right side of the page, dosatron is a fluid power, non electric chemical and dosing injector pump. Making it the easiest and most reliable way to accurately inject chemicals into water lines. Dosotron injectors work using volumetric proportioning, ensuring that chemical mixtures remain the same regardless of variations in pressure and flow, and the technology is mostly used in niche end markets. Like nutrient delivery systems, water treatment, food safety incitation, and animal health. This business continued to cease strong growth in this environment with order rates up in excess of 20%. Moving to adjusted EBITDA, Precision And Science segment delivered 59,000,000 dollars in the quarter. And adjusted EBITDA margin was resilient at 30.3%, up ninety basis points year over year and up 260 basis points sequentially, driven by the use of IRS tools to drive productivity, leading to decremental margins of only 21%. Moving to Slide 13 and the Specialty Vehicle Technology segment. As we indicated in Q1, our main priority for this business to continue to capture growth in a more profitable manner, utilizing IRX and commercial tools like demand generation and e Commerce. With that in mind, the Specialty Vehicles segment delivered on both ends with strong commercial and margin performance. Orders were $208,000,000, up 5% ex FX. And revenue was $218,000,000, down 7% ex FX. As a reminder, we expected revenue to be down as the second quarter of last year saw increased shipments due to some supplier issues that shifted revenue from Q1 to Q2 as well as expected declines in the commercial and utility product offerings. While those factors did play out, the business saw continuous strength from the consumer product offerings such as onward. Highlighted on the right side of the page. We continue to find success with our direct to consumer or DTC approach to educate consumers while leveraging our broad channel to sell and service the vehicles. With this focus, the business saw a record in terms of consumer vehicle shipments in the quarter. With a nearly 50% increase in terms of units. Moving to adjusted EBITDA, specialty vehicles delivered $41,000,000. And adjusted EBITDA margin of 18.9 percent, which was up 2 seventy basis points despite the revenue declines due to strong product mix as well as continued use of IRX tools to drive productivity improvements. Moving to Slide 14 and the high pressure solutions segment. The business performed in line with expectations during what it was considered 1 of the toughest quarter in the oil and gas industry. Orders were $13,000,000, down 87%, which includes $6,000,000 of cancellations, primarily from customers looking to reduce the spend. Revenue was $22,000,000, down 82% and was generally in line with expectations as frac fleet counts were up approximately 85% sequentially from Q1 to Q2, and our sequential revenue was down 78%. The majority of our revenue base continues to come from aftermarket parts and services, with consumables being the most resilient piece of the portfolio. Even in this environment, we continue to bring differentiated innovation with our newest valve offering highlighted on the right side of the page. Products like the red line V3 valve, which increases useful life by nearly 40% will be differentiators as we look to continue to win share the by the decline in the market. From an adjusted EBITDA perspective, we were on track to be nearly breakeven. However, we took $15,000,000 in charges. Due to increases to our accounts receivable reserves, resulting in adjusted EBITDA for the quarter of down $50,000,000. The major driver was a specific provision for a customer that declared bankruptcy mid July, which required us to reserve $12,000,000 based on our internal policy. Given the bankruptcy proceedings are still working their way through the court, It is uncertain how much will be being collectible, and we have always taken a very prudent approach in view to reserve our entire outstanding AR balance in these situations. In addition, due to the current environment, we took a more conservative approach on our accounts receivable reserve, making an additional $2,000,000 charge in the quarter. We are actively working with each of these customers and expect to collect our outstanding receivables here in the second half of the year. As we pivot to the back half of the year, we don't expect the market conditions to materially change and while fleet count is expected to sequentially rise to about 80 fleets in third quarter, the continued overcapacity of horsepower in the market and cannibalization of equipment will limit the growth. As a result, we will continue to be very prudent on cost and push for breakeven profitability or better. Moving to Slide 15, we wanted to provide a quick snapshot of how the business has performed thus far in the third quarter. Through July, the total company is down mid teens in orders with book to bill greater than 1. The Industrial Technologies And Service segment is largely trending in line with the total business as orders are down 15% to 20%. The Precision And Science Technology segment is currently flat. Although we do expect that rate to trend a bit more negatively as the quarter progresses. Specialty Vehicles continues to see strong momentum as order rates are currently positive, largely driven by ongoing consumer vehicle demand. And not surprisingly, is down over 90% as we continue to see limited activity in the market. We're not providing Q3 or total year guidance at this time, from a high level perspective framework, we expect a continued low market recovery in Q3. In addition, we expect we will see normal seasonality that we have seen in prior years, including the impact from European holidays and the typical downturn in specialty vehicle in the growth cycle. From a margin perspective, we will continue to manage the incrementals, but we do expect some headwind versus the level seen in the second quarter as $30,000,000 to $35,000,000 of short term costs, I expect it to re enter the P and L, with a partial offset from the continued ramp of synergies. We will also plan to continue to invest for long term growth as we want the business to be well positioned when the overall market environment stabilizes. I will also add that we will continue to be very vigilant on our leading indicators, and we intend to act quickly. Moving to Slide 16, As we wrap today, we just want to leave you with some takeaways. We're very excited as we're still early in our transformation. Our employees have been able to drive tremendous performance even in this difficult environment. And soon, we will make our employee owners of this amazing company. From Rachel and the compressor assembly line in Campbell, Kentucky facility to Paolo, one of our machines in Brazil. And from Gonglin, who works in an assembly sale in Wuxian China, Mohammed, in our distribution center in Charlotte. And Max, who's an assembly line worker in Zimmer Germany to Palani, a shop maintenance team member in Chennai, India. These are among the more than 16,000 employees globally who will soon not only be able to say they work for an amazing company, with a day owned part of an amazing company with skin in the game on our long term transformation. 1, that we're mapping out as a multi phase approach, executed by utilizing our IRX tools and all center on our values and our ultimate share purpose for customers, employees and communities. So with that, I'll turn the call back to the operator and open for Q And A. Our first question is from Julian Mitchell with Barclays. Your line is open. Hi, good morning. Maybe Just a first question Vicente around, that slide 15, on the right hand side, the discussion around temporary costs. So think at the Q1 earnings you talked about maybe a sort of 30% -ish incremental margin for the balance of the year, you did come in better than that in Q2, but is that the rough sort of placeholder for the second half we should dial in as you sort of balance cost control with some reinvestment for the pending up term? Yes, Nathan. I think the way we're thinking about it is, as you saw, you said, Q1 and Q2, both decrementals were below 30%. What we're saying here is, Q3, we'll see a little bit of more pressure due to some of these discretionary items coming back, offset by some of the synergy ramp, but that, that being said, we said, we the incremental to be in the low 30s range. Okay. So low 30s for the second half? Yes. Okay. Perfect. That's clear. And then secondly, the free cash flow makes extremely strong in Q2. Receivables was about $100,000,000 or so. Tailwind to that in the second quarter. Maybe just help us understand the puts and takes within that, how you see the second half free cash flow playing out, particularly around working capital performance? And also what level of cash charges should we expect for the year relating to, synergy extraction and restructuring? Yes, Julian, this is, this is Vic. I'll take that in two pieces here. So you're absolutely right. In second quarter, really pleased with the free cash flow performance, very good progress on the receivable side, generally across the portfolio. Clearly, some more opportunity to go, but really pleased with the strong performance there in Q2. As we look ahead for free cash flow, kind of just in total, we do see opportunities, continued on the working capital side. I'd say that the biggest area continues to be on the inventory side of the equation. I'd say receivables and payables, you've seen good progress over the first half of the year, continue to see some opportunities there, but inventories put in the piece that going to continue to look to right size and we have a lot of, I'd say, opportunities and initiatives in place right now across the majority of the portfolio. In terms of the second part of your question, we said at the end of the first quarter that to see roughly about $100,000,000 of cash spend for the balance of the year, around restructuring related costs or synergy delivery costs and stand up. We delivered right around $40,000,000 of cash spend in 2Q and still largely on track. We would expect about $60,000,000 in the back half of the year, which right now you can kind of equally split between the two quarters and we'll see how the timing plays out, but that should be a good placeholder for right now. Great. Thank you. Your next question is from Mike Halloran with Baird. Hey, good morning, everyone. Good morning, Mike. Hey, so just want to parse out the on slide 15 again, just what you mean by the sequential commentary is still recovery. Obviously, there were some shutdowns that impacted the revenue trends in the quarter. When you looked for that sequential 2Q to 3Q, are you saying that sequentially we should see normal sequential patterns, I mean, excluding kind of the high pressure business, but pretty normal sequential patterns for the other three pieces? Or is this just key or is this more of a just keep in mind that there are some softening that you have to worry about within a few of the pieces, but all else equal, you still do have a better 3Q on a revenue line than 2Q? Yes. So maybe, Mike, let me just probably take that into some of the pieces, but, by segment, so IT and We do see typically seasonality in the Q3 due to the holidays, particularly in Europe. However, that is likely going to get offset by improving conditions throughout the quarter And, so assuming that we do not see any second wave of COVID, of course. And, and as you saw, IT and A's orders were down 15%, 20% in July, which is comparable performance to what we saw in June and better than what we saw in April and May. But again, we're watching this cautiously, given the uncertainty that's still accessed. And Precision and similar conditions apply that, that I just made reference to the IT and S, orders have started the quarter as well, as you have seen, very flat performance, continued improvement from the months of June. And specialty vehicle is the business that does tend to see much more seasonality in versus Q2, particularly driven by the gold cycle. And you can see from historical periods that Q3 revenue does tend to be down about 15% to 20% sequentially. Currently, consumer demand is helping to offset this a little bit. But we will continue to watch this consumer orders as we go through the quarter? And finally, high pressure, we just don't expect any material shift in demand patterns. As we look really to the second half of the year. Thanks for that. On the industrial tech side, really appreciate the granularity of the moving pieces there. How do you guys think about what share looks like and how that tracked? Maybe there was a little selling against you as the original, combination of the 2 companies was materializing. But when you look at the trends you're seeing within the compressor blower vacuum out of the pieces, how do you think you're performing versus market and any regional commentary would be appreciated? Yes, sure, Mike. I mean, last quarter, we did a lot of commentary around the compressor side, particularly based on the association reports that, that are kind of the most known and we have access to, and we said that we felt in the first quarter, on the compressor side, we took some share on the small to medium. And some share on the large compressors in the U. S. What we saw in the 2nd quarter is kind of holding, holding share. So no, no taking or no losing share on the compressor side. And what we see on the, on the vacuum blower, which is kind of primarily mostly in Europe through, through OEMs or, end markets like wastewater treatment for the blower side. Again, fairly, fairly consistent in terms of holding shares. So Again, we saw a second quarter where obviously tough across the world, but one that we're not concerned on losing share at all. Appreciate it. Thanks for the time. Yes, thank you. Your next question is from Jeff Sprague with Vertical Research. Your line is open. Thank you. Good day, everyone. Just first, if I could, just to follow-up on cash flow. Dick, I think you said, leverage is going to go up a bit in the back half. And just looking at kind of the likely, LTM EBITDA, right? It doesn't change a lot. I don't think. And the, you know, the cash restructuring didn't sound particularly on risk they described to joubling in there. Is there some other cash item in the third quarter in the back half that takes the leverage up? Yes, Geoff. I think what we're referring to here is that on the LTM adjusted EBITDA, there will be a little bit of noise there as we kind of continually either lapse some of the previous quarters of 2019. In terms of the back half of the year, nothing major would call out. Obviously, we do have some of the normal cash taxes and some of that will play itself out generally in line with what we've said for the total year. But again, when we say there might be a little bit of pressure to the leverage at levels we're at now, we're not expecting meaningful uptick still in that 2.6 to higher 2 round, but not much higher than that at all. Again, continue to see a good path to delevering like you've seen us do historically at the legacy Gardner Denver. So again, not meaningful uptick, but in and around the levels where you are right now and maybe slightly higher. Great. Thanks. And then, Vicente, you mentioned a very active bolt on M and A pipeline. Is the organization ready to take that on? Are you just cultivating a pipeline and we should expect things kind of further out into the future. What's your general view on that? Yes, Jeff, I definitely feel the organization is ready for it. And we said in the past, particularly around the Precision And Science Technology, it's just a lot of focus that we're putting on that one. And, and as we have said in the past, too, as well, I mean, there's not a lot of kind of cost heavy integration structurally on that segment. So the team is definitely ready to take on more. And on the industrial, tech and services, as well, I mean, we were cultivating a very good pipeline. Primarily kind of channel and some key technologies, but it's one that the team also feels good about taking on. Thank you. Thank you. Your next question is from Andy Kaplowitz with Citi. Your line is open. Hey, good morning guys. Good morning, Andy. Good morning, Andy. Sande, if you look at some of your smaller businesses in IT and S, especially power tools, there are businesses that seem to have been a little weaker so far during the pandemic. You did mention the stronger June in these businesses, but is there more you can do to balance out the performance of these segments for instance, subsegments are you increasing new product intros in this business? And then could you talk also about the legacy IR compressor business, the larger business. Is that business at all having lagging in terms of orders given its focus on large projects? Yes, on the first, on the first question around the power tools, mean, yes, you saw the softness, we alluded to some of the softness early on the even on the last earnings call, to the fact that kind of a shift of some of our customers on what they were, you know, putting more attention to from an online perspective. We saw actually in the month of June, some pretty good pickup in orders, but also point of sales, on the tool side. What we continue to see softness is on the lifting side, kind of the material handler and lifting, And that, that's out of the business, the end markets that, that performs. It's just not improving at this point in time. I mean, it's got some it has some oil and gas exposure to it. But to your question in terms of what we're doing to accelerate growth, I mean, coincidentally, last week, we had a 4 day session of our long term planning review strategic plan sessions where we look at 21, 2022, and 23. And, and there's some very good activity that, that we're putting forward here on the tool side. That the team is putting forward that we think, you know, kind of selling more of what we have to do more unique channels. So I think we'll expect see a better momentum, but it'll just take time to really kind of readjust that business. We were we have been very focused on really the cost adjustments and now we're pivoting more towards the growth. On the legacy IR, the larger, compressor side, I think you're referring to the multi stage centrifugal. This business is one that we saw really strong demand, in Q2 of last year. So I wouldn't say that, that is getting really soft but I mean, last year, there was actually a lot of good, momentum on Refining And LNG markets. And, and just as an example, Q2 of 2019, there was just a single project that it was worth upwards of $40,000,000 in Vietnam. Just seeing kind of some tough comps based on some of the larger projects that kind of really happened in the second quarter of last year versus this year, we're not seeing the momentum on those large projects happening here now. However, the team is fairly encouraged because they see really strong funnel and, and potentially momentum here on the second half as things that are kind of going back to normality in some of the, some of the countries. Thanks for that, Vincent Day. And then just thinking about your overall synergy target, understanding that it's early and you haven't changed it yet, but you are creeping up in your synergy forecast in terms of now expecting 35 percent to 40 percent of the savings in 2020. I think you said 35 percent last quarter. So does that give you more confidence in the $250,000,000 target even with the procurement being volume dependent? Yes, Andy, this is Nick. I'll take that one. I think the answer is absolutely yes. In terms of the confidence, you know, you've heard us kind of reiterate the confidence the last few quarters. Obviously, we have a higher funnel, but given that a meaningful piece of that funnel procurement and I2B and supply chain, which is all kind of volume dependent. And we're not at 2019 volume levels, which is when a lot of that base lining work was done. That's why you just haven't seen us kind of take the target up higher. But again, still feel confident and obviously have a healthy funnel that we're executing to. Thanks guys. Thanks, Andrew. Your next question is from Nicole DeBlase with Deutsche Bank. Your line is open. Yes, thanks. Good morning, guys. Good morning, Nicole. Good morning. I guess maybe going back to the temporary cost actions coming back in the third quarter, what's the nature of those? And I guess the reason I ask is it feels like the environment isn't getting, I mean, clearly got a little bit better in July, but not accelerating, you know, significantly. And so I'm just curious, you know, what would be your appetite to keep temporary actions in place in 3Q if we kind of remain in in in the current, level of revenue decline? Yes. Sure, Nicole. This is Nick. I'll take that. So clearly, we did mention last quarter that we were going to take roughly $40,000,000 to $50,000,000 in discretionary spend controls over Q2 and Q3. We really kind of outpaced that. We delivered approximately $40,000,000 in Q2 alone. And to answer your kind of your first part of the question, there are still components of that equation that are staying in terms of cost savings, things around reduce compensation for executive management and senior leaders, merit deferrals and certain discretionary spend reductions. But as we kind of look forward to Q3 here and then we start to see a slow recovering market, we're currently not expecting the same level of action, things like furloughs. Example, it's kind of a bigger piece of the equation. And we would expect to see some of the discretionary spend start to return. To your second point of your question, absolutely. If the markets slower to recover than expected. We will implement many of the same cost saving measures that you saw in Q2. And you show our ability to ramp up those cost savings in Q2 and exceed our prior expectations and we'll be prepared to do the same thing if market conditions warranted. And the other thing I'd probably mention here is, we have kind of continue to make some prudent, I'd say, growth investments in the context of Q2 and we expect to do so going forward, which you'll kind of see just in the run rate of the number things around demand generation, things that we're kind of setting ourselves up for future growth that we expect to have really strong payback. Okay, got it. Thanks, Dick. That's helpful. And maybe just a follow on around the cost synergies projected for 2020, the $95,000,000 now. I guess, can you just give some color on what has been achieved so far predominantly in 2Q. And then how that ramps in, in 3Q and 4Q? Yes, sure. So I think at a high level, very simply stated, $95,000,000, it's about $80,000,000 of in year structural savings, which is really coming from headcount oriented actions. You've seen us take the majority of those actions here. Over the 1st 120 days. I wouldn't say that we're necessarily 100% done, but you see that kind of coming into conclusion here pretty quickly, just given the actions we've taken. And then, right now, about $15,000,000 of in year procurement savings, again, very consistent with what we said first in the first quarter. The procurement piece is really meant to start ramping up in 2021 onwards. So in terms of the overall synergy number, $95,000,000, expecting between 35% 40% year. That's in year from a total year of a total of $250,000,000 synergy target. And as we look ahead to 2021, that will start to ramp. Obviously, you're not going to see the same magnitude of headcount related synergies and things of that nature. Ramp at the same pace. So we are expecting probably about 50% to 60%, 55% roughly of the synergies in 2021 and then 75% delivered in year 3. You obviously get the full run rate into year 4 thereafter. So very consistent on the back end of this as you've seen us historically report. Our next question is from Josh Poklinski with Morgan Stanley. Your line is open. So, Vik, just following up on that last question, I wasn't able to run the math and real time there. How should we think about the temporary savings rolling off in the next year versus the incremental pickup that you have on the synergy funnel, just given that you pulled more forward into 2020? Sure. Yes. So let me kind of take them in pieces here, Josh. I think in terms of the short term actions, by and large, you should see those largely back in the run rate as we exit the year. As we mentioned, we took about $40,000,000 of savings here in Q2. Would expect the majority of those to trickle back into the P and L here in Q3 and Q4. And then some of the smaller items around merit deferrals and things like that, we expect to obviously come back cost structure next year. But again, you should largely see those reentering the cost equation here as we exit 2020. And then in terms of the synergy ramp, and I think Nicole's question before, like we said, we've done about $80,000,000 of in year headcount actions. That's the major piece of the equation. You could probably expect at around $20,000,000 to $25,000,000 that in 2Q and then ramping kind of ratably between Q3 and Q4. So Q3, Q4 being a little bit higher probably closer to that $30,000,000 per quarter And then the procurement piece of $15,000,000 of the year, that's largely all second half weighted. You really haven't seen any material amount of, I would call, integration related or transaction related synergies when it comes to procurement just yet. We've launched a lot of the RFQs, have a lot of good momentum on some of the initial waves you should expect to see that really more in the back half of the year, year, Q3 and Q4. Got it. And then I guess next year, the temporary bleed off versus the incremental synergy funnel is it won't quite be a push, but there'll be kind of a small number that nets out of that. That's right. That's a fair way to think about it. Got it. Okay. That's helpful. And then, just on the oil free side of the house the sense that you made some opening comment remarks about some new products there. I think over time, oil free comes up pretty regularly as Hey, we got new product, new commercial initiatives, something on that front. Obviously, you have a big competitor who's pretty dominant there. Anything that you can share with us on growth rates in the product line, anything that you think you're doing on market share gains? Because it seems like still kind of a small piece of the portfolio and maybe not a big driver of overall performance, but is this something that we should expect to be a larger piece over time, just given that it's probably one of the more attractive areas of the market. Yes, no, George. So I mean, I'll say that, for sure, it is an area that we're putting a lot of focus into it too as well here. And, oil free outperform, oil lubricated, oil free is kind of basically flattish. Revenue performance. So it's actually good in terms of speaking about the resiliency and the strength of the end markets that it serves and why we continue to be excited about what our future holds in this product line. So yeah, I mean, I definitely, without going into a details of our strategies and what we want to accomplish here, it is definitely an area that we are putting some focus attention and that we definitely want to continue to outgrow. Great. Thanks for the color. Be well, guys. Our next question is from Joe Ritchie with Goldman Sachs. Your line is open. Thanks. Good morning, everyone. And congratulations on the promotion to CFO. Thank you. Maybe just kind of starting off I know, Vicente, you mentioned, that the cancellations you don't expect to repeat, going forward, but maybe provide a little bit more color on what end markets they were related to and what your conversations with your customers are like today on what's already been booked into backlog? Yes. And so your question, Joel, just to be more specific is really along the kind of the loan side right, the kind of the larger loan cycle products? Yes. That's right. Yes. So I think the most most of our long cycle businesses is kind of within these, the industrial technology in the business unit that we call PVS or pressure and vacuum solution. And as a reminder, it's just like 15% of the total segment. When you can even split that business into 2 main areas. 1 is kind of the legacy Gardner Denver kind of what we call the NASHGARO, which used to be in the downstream side of the business. That business actually performed fairly well. I mean, they saw order rates being positive in the second quarter and actually on a year to date, basis, positive high single digits or book to bill of like 1.3. So that's good and encouraging because that's exactly what we want. We always said that bookings of that longer cycle business, we wanted to be strong in the first half of the year so that we can start making the shipments in the second half of the year. And the commentary in terms of, of the multistage or kind of the larger compressors, those are the ones that solve really meaningful comps. I mean, second quarter of 2019, it was a record quarter, for that business. And it was really more on end market as LNG and gasification and process gas. So a lot of the kind of maybe momentum that was getting into those end markets earlier into 2019. And what we're seeing now is basically a little bit of a shift. We're putting a big shift in terms of new end markets. So we are putting focus on utilizing these large compressors for food and beverage. And, and so we expect that as we kind of rebalance the end market that we should see probably a better stability moving forward. But in terms of the backlog, I think we're fairly well positioned, for here, for the 2nd half. So, these are kind of more orders that, that we still expect to hopefully get here in the 2nd half based on the funnel from the team. So it's not order cancellations. It's just in some cases, order push outs. And just a more smaller orders as to compared to the large big orders that were coming through in the early part of 2019. Okay, got you. That's helpful color Vicente. And maybe just my follow on question, just taking a look at the specialty vehicle segment and the performance this quarter. It was really nice to see the margin improvement there. I guess just sticking about this, and I know this question comes up a lot around kind of portfolio optionality and deleveraging. But again, just how are you kind of just thinking about the different pieces today? And your ability to potentially monetize parts of the portfolio to help maybe accelerate the deleveraging plans across the organization? Yes, Joe, I think no change in strategy on that one. I mean, I think we still see that our current number one priority is to create integration, stabilize the businesses, drive some performance. And that's exactly what you see that we're doing. And not only in this case, an specialty vehicle from an order perspective on revenue, but also from a margin side. And I think when the time is right and the moment comes in that, that if we can look into all the potential alternatives, we'll definitely be ready. As we said on the, on the opening remarks, I mean, we have kind of this is a multi phase transformation and we have a phase 3 that we're doing a lot of work in terms of strategically understanding each of the businesses and the path forward, while at the same time, we put a good foundation to invest and really drive some good improvement performance. So Yes, I mean, I think this is what really exciting in our story. We got some optionality here for later than the road, while we continue to really fix the businesses. Okay, great. Thank you. Your next question is from Nigel Coe with Wolfe Research. Your line is open. Thanks. Good morning. Can you hear me okay? Yes, perfect, Nigel. Yes, hi, Nigel. Yes, great. Thanks. Hey, so I just want to address aftermarket you know, mainly within, you know, Industrial Tech, a big portion of that business is aftermarket. And obviously that business was impacted by the shutdown. So just curious how that tracked during the quarter and what your sort of outlook is in the back half of the year for services? Yes, Angelica. So, you know, aftermarket for the business or recurrent revenue, roughly 40% of the total segment, a pretty large, sustainable, large and one that we definitely want to continue to invest. Sequentially, Q1 to Q2, we saw original equipment growing faster than the aftermarket, which is a good sign, of capital investment and, but at the same time, good sign of future aftermarket growth. As we are creating more machines in the field. And also, it was in line with expectations from a pent up demand in China and other markets. I mean, clearly, in the second quarter, service on the aftermarket side was a bit more impacted due to COVID and the associated customer closures and the inability to be on the site. I mean, however, we see these as a really great opportunity, moving forward as we would expect this to be a tailwind in future quarters assuming that market conditions, and these machines will need to be serviced. We're also encouraged by our IoT plan and the remote monitoring capabilities, which allows for remote diagnostics of the machine. And in some cases, the ability to service the machine associated technology. And we did some of that work actually here in the second quarter as well. So yes, I think a lot of good signs for long term continuation of improvement of that side of the business. Just to clarify, so aftermarket within IT and unperforms the benchmark or the segment average during 2Q? Both were about the same. Most of the same. Okay. And then just my follow on question is really, within, high pressure solutions, I think you mentioned the ambition get back to breakeven or better performance in the second half of the year. I'm just curious how you're balancing the opportunities in the market with there's some credit risks that you obviously saw in 2Q. What is the potential for further credit problems in your customer base in the back half of the year? Yes, Daniel, I mean, we believe that this segment will continue to return to the breakeven 3rd quarter. I mean, obviously, in 2nd quarter, it was going to be the case, if you're looking for this kind of one situation. In the 2nd quarter, we were in pace, as I said, due to breakeven. We would not expect that to be a repeat moving forward, and also worth noting that we continue to take cost out in the business including continued restructuring efforts through the first half of the year, there are not 100% seen in the financials just yet. So While we don't expect market conditions to improve meaningfully in the second half of the year, we're focused on those items within our control, which is prudent cost control, and being very proactive with our customers to ensure proper collection of any of the outstanding ARs. That's great. Thank you. Your next question is from Rob Withermere with Melius Research. Your line is open. Thank you. Good morning, everybody. Good morning, Rob. My question is just on pricing in general and then some of your initiatives in specific, how did it hold in? And then I know it's early days on the, IR assets, but, some of the tracking and monitoring and price discipline maybe is the right word, but just management. Is it too soon to see effect on that on either margin or how it might shape your product portfolio evolution. Thanks. Yes, Rob. So I'll say, in the second quarter, we saw price up. I mean, we actually saw, if you look at the different segments, industrial tech and precision and science price all between 1.5% to 2%. But you still haven't seen the uplift or the changes that we're making based on the composition of the company in the P and L yet. So and to your questions, yes, absolutely. There's definitely opportunities that we see here to, to be more prudent and more precise on price. I mean, as we have said in the past, at, we believe in quality of earnings and that's one of our key areas of focus. Perfect. And then your oil free comments were pretty helpful in contextualizing your results, but, you don't seem to think you lost any head to head share, I suppose, in the quarter in any meaningful way. Is that right? No, I mean, that's correct. I mean, based on all the indicators that we see, that's correct. I mean, one of the indicators obviously here that I just spoken a lot about is the orders, on order patterns and as well as some of the third party, reports that we see and, you know, not that we can think of. Okay. Thanks, Vicente. Thank you. Our next question is from David Raso with Evercore ISI. Your line is open. Hi, thank you. Can you help us with price versus cost during 2Q and how you see that progressing the next couple of quarters just on what you're seeing in your backlog and what the market trends are like? And sort of separate from your longer term cost actions where you're taking structural cost out more of a kind of on an operating basis, what are you seeing? Yes, David. I agree. Typically on ITS, but the whole company call would be great too. Yes, I think the easy answer kind of following up on what Vicente said is that the price cost equation, particularly looking at price versus really the procurement equation continues to remain positive. We have seen good momentum on procurement initiatives. I'd say kind of more than normal course procurement is that it kind of been in place as the two companies were coming together showing a little bit of a tailwind there. And as Vicente mentioned, price was up in both the IT and S and Precision And Science segments, which are the kind of 2 largest, between 1.5% and 2%. So continue to see pretty good cost equation there, price cost equation there, which obviously was seen in the margin profile. So again, continue to see good momentum there and especially with regards to price. Wouldn't expect to see dramatically different results as we look to the second half of the year. So again, continue to be very quality of earnings that both show it. That's my question. So the price cost, you don't feel the price erosion or the increase of diminishing will be greater than the procurement cost savings. I'm just trying to make sure that pricecost spreads you see continuing or do you think it even could widen? Maybe we see yes, we see continue actually improvement on on the pricing in a sense that we executed here in the second quarter a lot of our pricing actions that are not seen yet in the P and L. Okay. So with the procurement savings and you're expecting the price cost has to be better in the second half than the second quarter? That's exactly correct. It will trend positively. That's correct, David. Yes. Terrific. Okay. Thank you very much. Thank you. Your final question is from John Walsh with Credit Suisse. Hi, good morning and thanks for fitting me in here. Absolutely, Jim. Maybe just clarification question first. And I don't know if it has to do with maybe the timing of the in closing or if any of the deal assumptions have changed, but just wanted to ask about kind of the amortization expense stepping up as I look across the different schedules, Q1 to Q2, it's a little bit greater than we thought. Yes, John. Keep it pretty simple here. It really just has to do with some of the, the purchase price adjustments that we're still working through as we work through Q2, obviously saw us true those up. And I'd say, given that we were only 30 days, frankly, into the transaction through Q1, saw kind of a normalization of that in Q2. So again, the level that you're seeing in Q2 should be largely indicative of what you'd expect going forward. But again, is really nothing more than just the timing of the deal Q2 was a pretty good run rate to use going forward. Okay, excellent. That's very helpful. And then I guess maybe just a follow-up question I don't think I heard any mention of supply chain in the prepared remarks. Is there anything to call out there or does everything seem to be up and running now perspective. I mean, nothing to that I will call out, that is creating issues at this point in time. Great. Thank you for taking the questions. Thanks, John. We have no further questions at this time. I the call back to Vicente Reynolds for closing remarks. Thank you. I just want to thank everyone for their interest in Ingersoll Rand on participating on the call today. Also want to thank again our employees who many of them are actually on the call listening, to their performance. So thank you for the great performance in the second quarter. We believe we're in a very exciting path. And, we look forward to speaking with many of you over the next few days weeks. So thank you. Have a great day. This concludes today's conference call. You may now disconnect.