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    IR
    Earnings call· Dec 2024(Q4 FY24)

    Ingersoll Rand Inc. IR

    Feb 14, 2025 Source

    Executive summary

    Ingersoll Rand Q4 FY24 — Double-Digit Adjusted EPS Growth and Strong Free Cash Flow

    Ingersoll Rand delivered strong Q4 FY24 results, marked by double-digit adjusted EPS growth and robust free cash flow, driven by its economic growth engine and IRX. The company continues its aggressive M&A strategy, expanding its total addressable market, and is well-positioned for continued growth in 2025 despite a dynamic global market and anticipated flat organic growth in the first half.

    Highlights

    5

    • Full-year adjusted EPS grew 11% year-over-year to $3.29.

    • Q4 adjusted EBITDA increased 6% year-over-year to $532 million, achieving a near-record margin of 28%.

    • Full-year adjusted EBITDA margin reached a record 27.9%, up 190 basis points from the prior year.

    • Q4 free cash flow was $491 million, delivering a robust 26% free cash flow margin.

    • Acquired approximately $625 million in annualized revenue from 18 acquisitions at less than 14x pre-synergy adjusted EBITDA multiple in 2024.

    Concerns

    4

    • Q4 organic orders for ITS were approximately flat, with revenue down low single digits organically, primarily due to China.

    • PST Q4 adjusted EBITDA margin declined year-over-year to 27.6% due to lower volumes in ILC Dover's Aerospace and Defense business and organic volume declines from China.

    • FX is expected to be approximately a 2% headwind for full-year 2025 revenue.

    • Organic growth is expected to be approximately flat in the first half of 2025.

    Guidance & targets

    20
    CategoryTargetConfidence
    Total Revenue Growth
    3% to 5%
    high materiality
    High
    Organic Growth
    1% to 3%
    high materiality
    High
    FX Impact on Revenue
    approximately a 2% headwind
    medium materiality
    High
    M&A Revenue Contribution
    $300 million
    medium materiality
    High
    Corporate Costs
    $165 million
    medium materiality
    High
    Adjusted EBITDA
    $2.13 billion and $2.19 billion
    high materiality
    High
    Adjusted EPS
    $3.38 and $3.50
    high materiality
    High
    Adjusted Tax Rate
    roughly 23%
    medium materiality
    High
    Net Interest Expense
    about $220 million
    medium materiality
    High
    Capital Expenditures (CapEx)
    around 2% of revenue
    medium materiality
    High
    Annualized Inorganic Revenue Acquired
    400 to 500 basis points
    high materiality
    High
    Total Revenue Growth Phasing
    consistent across both the first and the second half of the year at approximately 3% to 5%
    medium materiality
    High
    Q1 Revenue Growth
    low single-digit total revenue growth
    medium materiality
    High
    Adjusted EPS Phasing
    46% to 54% split between the first and second half of the year
    medium materiality
    High
    Organic Growth Phasing
    approximately flat in the first half of the year, with approximately 4% growth expected in the back half of the year
    high materiality
    High
    Americas Regional Growth
    upper end of the low single digits
    medium materiality
    Medium
    Mainland Europe Regional Growth
    lower end of the low single digits
    medium materiality
    Medium
    China Regional Growth
    completely flattish
    medium materiality
    Medium
    Middle East, India, and Rest of Asia Regional Growth
    mid-single-digit range
    medium materiality
    Medium
    ILC Dover Spacesuit Agreement
    $150 million plus
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Industrial Technologies and Services (ITS)
    Organic revenue decline primarily due to China. Full-year adjusted EBITDA margin reached a record level, meeting 2027 targets 3 years early.
    Q4 Orders: up 3% YoYQ4 Organic Orders: approximately flatQ4 Organic Orders (excluding China and Power Tools & Lifting): low single digits growthFull-year Adjusted EBITDA Margin: 30.2%Compressor Orders: up low single digitsIndustrial Vacuum and Blower Orders: up mid-teensPower Tools and Lifting Orders: down mid-single digits
    		down low single digits organically——30 basis points expansion
    Precision and Science Technologies (PST)
    Revenue and orders largely driven by M&A. Adjusted EBITDA margin decline due to lower volumes in ILC Dover's Aerospace and Defense business and organic volume declines from China. Full-year adjusted EBITDA margin finished at approximately 30%.
    Q4 Orders: up 29% YoYQ4 Organic Orders: slightly down year-over-yearQ4 Organic Orders (excluding China): low single-digit growthQ4 Adjusted EBITDA: $107 millionILC Dover Life Science Business Revenue Growth: double digits
    		up 24% year-over-year——27.6% adjusted EBITDA margin

    Operational metrics

    28
    Adjusted EPS
    $0.84
    Q4 FY24
    Adjusted EPS
    $3.29up 11% year-over-year
    FY24
    Adjusted EBITDA
    $532 million6% year-over-year improvement
    Q4 FY24
    Adjusted EBITDA Margin
    28%50 basis point year-over-year improvement
    Q4 FY24

    Near-record adjusted EBITDA margin.

    Adjusted EBITDA Margin
    27.9%up 190 basis points from the prior year
    FY24

    Record levels for full-year adjusted EBITDA margin.

    Corporate Costs
    $32 milliondown $15 million year-over-year
    Q4 FY24

    Due to management incentive costs.

    Corporate Costs
    $155 milliondown $18 million year-over-year
    FY24

    Largely attributable to reduction in management incentive costs.

    Free Cash Flow Margin
    26%
    Q4 FY24
    Total Liquidity
    $4.1 billion
    Q4 FY24
    Leverage
    1.6 turns1 turn increase year-over-year, 0.1 turn improvement sequentially versus Q3
    Q4 FY24

    Year-over-year increase driven primarily by the purchase of ILC Dover.

    M&A Deployment
    $200 million
    Q4 FY24

    Cash outflow for M&A.

    Share Repurchases
    $63 million
    Q4 FY24

    Part of capital returned to shareholders.

    Dividend Payment
    $8 million
    Q4 FY24

    Part of capital returned to shareholders.

    Book-to-bill
    0.95
    Q4 FY24

    Finished in line with previous guidance of above 1x in H1 and below 1x in H2.

    Book-to-bill
    0.98
    FY24

    Finished largely in line with expectations.

    MQL Activity
    low double digitsup year-over-year
    Q4 FY24

    MQL activity remains strong.

    MQL Activity
    low double digitsup year-over-year
    FY24

    MQL activity remains strong.

    Long-Cycle Pipeline
    low double digitsup year-over-year
    FY24

    Pipeline for long-cycle projects.

    Recurring Revenue
    nice pickup
    Q4 FY24

    Seen across the board, with a margin premium, largely on the ITS side.

    ILC Dover ROIC Target
    mid-teens
    by end of 3rd year of ownership

    Expected ROIC for ILC Dover acquisition.

    Employee Wealth Creation
    $700 millionincremental
    to date

    Created through ownership equity grants and company performance.

    Total Addressable Market Expansion
    $12 billion
    2024

    Expanded through product diversification and acquisitions.

    Annualized Inorganic Revenue Acquired
    $625 million
    2024

    Acquired from 18 acquisitions.

    M&A Purchase Multiple
    less than 14x
    2024

    Average multiple for 2024 acquisitions.

    M&A Purchase Multiple (3 highlighted acquisitions)
    less than 10x
    recent

    Average multiple for SSI Aeration, Excelsior Blower Systems, and Toshniwal.

    Organic Growth Price/Volume Split
    75% price, 25% volume
    FY25

    Expected split for 2025 organic growth.

    Adjusted Tax Rate
    23.4%
    Q4 FY24
    Adjusted Tax Rate
    22.2%
    FY24

    Industry KPIs

    3
    MetricValueDetails
    Tariff cost impactsingle-digit percentage%
    Parts aftermarket businessnice pickup
    Order backlog order intake by segment—

    Orderbook & backlog

    1
    ILC Dover Spacesuit Business Multiyear Agreement$150 million plusDecember 2024

    Long-term deal incorporated into 2025 guidance.

    Product announcements

    2
    ProductTypeDetails
    Pure Air oil-free compressorlaunch
    Diaphragm metering pumplaunch

    Deals & partnerships

    7
    Multiple (18 acquisitions)Bolt-on acquisitions focused on high-growth sustainable end markets.$625 million annualized revenue

    Ingersoll Rand acquired approximately $625 million in annualized revenue from 18 acquisitions in 2024, expanding its total addressable market.

    Multiple (7 transactions)Bolt-on acquisitions in high-growth sustainable end markets.

    Currently have 7 additional transactions at the Letter of Intent (LOI) stage, with a strong M&A funnel of over 200 companies.

    Multiple (6 companies)Includes channel acquisitions.

    Six companies, including channel acquisitions, have closed since the Q3 earnings call.

    SSI AerationBolt-on acquisition aligned to M&A strategy.

    Acquisition highlighted as highly aligned to M&A strategy, expanding capabilities in core technologies.

    Excelsior Blower SystemsBolt-on acquisition aligned to M&A strategy.

    Acquisition highlighted as highly aligned to M&A strategy, expanding capabilities in core technologies.

    ToshniwalBolt-on acquisition.

    Mentioned as a similar bolt-on acquisition to SSI Aeration and Excelsior Blower Systems.

    ILC Dover Aerospace and Defense customersMultiyear agreement for legacy spacesuit business.$150 million plusmultiyear

    Reached a significant multiyear agreement in December for the legacy spacesuit business.

    Risks & headwinds

    6
    Dynamic Global Market2024 and 2025

    very dynamic global market

    Mitigation: Company remains nimble and prepared to pivot; leveraging IRX and economic growth engine.

    China Organic Volume DeclinesQ4 FY24

    low single digits organic revenue decline in ITS; organic volume declines impacted PST margins

    Mitigation: Pivoting investments to underpenetrated regions; localizing technology and targeting specific end markets in China.

    Lower Volumes in ILC Dover Aerospace and DefenseQ4 FY24

    impacted PST margins

    Mitigation: Secured $150M+ multiyear spacesuit agreement; restructuring and integration activities for ILC Dover.

    FX HeadwindFull-year 2025

    approximately a 2% headwind

    Mitigation: Not explicitly stated, but generally managed through pricing and operational efficiencies.

    Elongation of Decision-Making for Long-Cycle ProjectsOngoing

    decision-making and things not happening as fast as historically has been

    Mitigation: Increased customer conversation activity; actively working with customers to unblock projects; strong MQL and long-cycle pipeline.

    Potential for Incremental Tariffs2025

    single-digit percentage of cost of goods sold (domestic U.S. purchases from China)

    Mitigation: No explicit tariff impacts in guidance; largely in-region for-region manufacturing; tiered mitigation plans including global supply chain shifts and pricing actions; confident in ability to manage as in 2021.

    What to watch in Q1 FY25

    5

    PST Segment Margin Recovery

    Q1 FY25 and sequentially improving
    Current27.6% (Q4 FY24)
    Targettowards 30% range

    Why it matters

    PST margin recovery is key to overall profitability and achieving long-term targets, especially with ILC Dover integration synergies.

    So we would expect to see returning back to that 30% EBITDA margin profile as we progress through 2025.

    Q&A highlights

    6

    What underlying demand cadence is assumed for 2025? Any end market improvement or stability? Order growth expectations?

    Guidance assumes relative stability in end markets. Organic growth is expected to be flat in H1, then 4% in H2 (half from pricing). Americas upper end of low single digits, Mainland Europe lower end of low single digits, China flattish, Middle East/India/rest of Asia mid-single digits.

    “Relative stability from where we sit here today, yes.”

    asked by Michael Halloran · answered by Vicente Reynal

    3 min read7 chapters

    Detailed Narrative

    01

    Economic Growth Engine & IRX

    Ingersoll Rand's economic growth engine and IRX framework are credited for outperformance in 2024, delivering double-digit adjusted EPS growth and strong free cash flow despite dynamic global markets. The company emphasizes its employee ownership model and sustainability leadership, ranking #1 in its industry in the Dow Jones Best-in-Class Indices and CDP's A List. This model has created approximately $700 million of incremental wealth for employees.

    02

    Strategic Transformation & M&A

    Since the 2020 merger, Ingersoll Rand has transformed into a growth compounder, divesting cyclical businesses and reinvesting $5.4 billion into accretive acquisitions in high-growth sustainable end markets. This strategy nearly doubled its total addressable market in three years, expanding it by approximately $12 billion in 2024. The company acquired $625 million in annualized revenue from 18 acquisitions in 2024 at less than 14x pre-synergy adjusted EBITDA multiple.

    03

    M&A Funnel & Outlook

    The M&A funnel remains robust with over 200 active targets and 7 additional transactions at the LOI stage. The company expects to acquire an additional 400-500 basis points of annualized inorganic revenue in 2025, incremental to current guidance, maintaining a disciplined approach with an average sub-10x pre-synergy adjusted EBITDA purchase multiple for recent deals and a mid-teens ROIC target by year three. Six companies, including channel acquisitions, have closed since the Q3 earnings call.

    04

    China Dynamics & Regional Focus

    China's organic orders were softer than anticipated in Q4 due to timing of📎 large orders, but book-to-bill was approximately 1, indicating some stability. Excluding China, organic orders grew low single digits. The company is pivoting investments to underpenetrated markets like Latin America, Middle East, India, and APAC (excluding China), which showed robust growth. Momentum is encouraging in countries like Vietnam and Australia, reflecting a strategic shift away from China.

    05

    PST Segment Performance & ILC Dover

    PST's Q4 adjusted EBITDA margin declined to 27.6% due to lower volumes in ILC Dover's Aerospace and Defense business and organic volume declines from China. However, the ILC Dover life science business grew revenue double digits. A multiyear agreement for the legacy spacesuit business ($150M+) was secured in December, incorporated into 2025 guidance, and is expected to contribute to margin recovery in PST, with the segment targeting a return to the 30% EBITDA margin range in 2025.

    06

    Demand Signals & Project Elongation

    MQL activity remained strong, up low double digits in Q4 and full-year 2024. The long-cycle pipeline also grew low double digits for the full year. While decision-making remains elongated, customer conversation activity has increased, suggesting potential conversion of projects in 2025, with no significant project cancellations. The company is actively working with customers, even deploying engineers to help unblock large projects.

    07

    Pricing Strategy & Cost Mitigation

    The 2025 organic growth guidance includes 75% from price and 25% from volume, with pricing expected to accelerate in the second half due to planned mid-year actions. The company has tiered mitigation plans for potential tariffs, leveraging its in-region for-region manufacturing and global supply chain. Domestic U.S. purchases from China represent a single-digit percentage of COGS, and the company expects to mitigate impacts through pricing actions, similar to its successful navigation of tariffs in 2021.

    AI-generated summary of the company’s earnings call. Not investment advice.