Ingersoll Rand Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Q1 Start: Delivered 10% total order growth with a book-to-bill of 1.1 times, organic orders up 3.3%, and record Q1 free cash flow of $223 million. April orders showed stability.
• In-Region,-For-Region Advantage: Built a footprint to serve customers locally with technologies offering high ROI, leveraging a proprietary demand generation tool.
• Capital Allocation: M&A is top priority; Board authorized an additional $1 billion of share repurchases, total authorization $2 billion; expect to execute up to $750 million of share repurchases by end-2025. Nine deals under LOI, over 200 companies in acquisition funnel.
• Tariff Mitigation: In-year tariff exposure ~$150 million; pricing actions taken in April and May to offset tariffs, and supply chain mitigation efforts like tariff war rooms underway.
• Recurring Revenue Focus: ITS recurring revenue grew double digits year-over-year, highlighting progress in aftermarket and recurring revenue.

Segment Performance

• ITS (Industrial Technology Solutions): Q1 orders up 6% year-over-year with a book-to-bill of 1.1 times. Organic orders grew 3.5%. Revenue finished down 2%. Recurring revenue grew double digits year-over-year. Adjusted EBITDA margin declined due to organic volume flow-through, dilutive impact from recently acquired companies, and commercial investments. Compressor organic orders up mid-single digits, industrial vacuum and blower organic orders up low single digits, power tools and lifting organic orders up low single digits.
• PST (Precision Technologies and Solutions): Q1 orders up 28% year-over-year and up mid-single digits sequentially. Organic orders finished up 3%. Revenue finished up 23% year-over-year (driven by M&A) and down 3% organically. PST delivered adjusted EBITDA of $106 million, up approximately 16% year-over-year with a margin of 29.1%, improving 150 basis points sequentially.

Guidance

• Maintained total revenue guidance despite tailwinds from organic orders, tariff pricing, FX, and M&A; included contingency in organic volume, leading to adjusted EBITDA and EPS changes.
• Anticipate adjusted tax rate ~23%, net interest expense ~$220 million, CapEx ~2% of revenue.
• MQLs up double digits in Q1 2025, large loan cycle funnel activity robust, April orders stable.

Risks

• Tariff impacts and supply chain uncertainties that may take time to fully mitigate.
• Potential impact of pricing actions on customer go/no-go decisions for projects.
• Macro environment uncertainties affecting acquisition opportunities and customer behavior.

Q: Book-to-bill and order expectations for the year?

A: Not guiding on orders, but encouraged by Q1 momentum, MQLs, and loan cycle activity; expectation is no dramatic changes from historical book-to-bills.

Q: Q1 margin performance and acquisition noise?

A: ITS EBITDA margins up 260 basis points y/y despite organic decline; PST saw sequential improvement; still runway for margin improvement through innovative value initiatives.

Q: Services growth and equipment cycle perspective?

A: Aftermarket growth 6% encouraging, but equipment down; focused on recurring revenue, holding share through associations, encouraged by installed base and equipment growth potential.

Q: Tariff resolution impact and guidance contingency?

A: If tariffs resolve, potential accelerated growth; contingency in guide is prudent, evaluating situation if tariffs come off.

Q: Tariff sizing by region and China impact?

A: Majority of tariff impact China-oriented, relating to imports from China; third-party spend major driver, pricing actions commensurate across segments.

Q: Volume vulnerability and product price points?

A: Prudent view on volume, taking offset in organic volume; products mission-critical, customers pursue projects based on payback, no significant hesitation on price points seen.

Q: Tariff impact on competitive positioning and Europe order activity?

A: In-region-for-region model provides competitive advantage; pleased with Europe organic orders, mid-single digits growth in ITS segment there.