Ingersoll Rand Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Ingersoll Rand First Quarter 2020 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. We ask that you please limit yourself to one question and one follow-up. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Vic Kinney, Head of Investor Relations. Thank you. Please go ahead.

Thank you, and welcome to the Ingersoll Rand 2020 First Quarter Earnings Call. I'm Vic Kinney, Ingersoll Rand's Investor Relations Leader, and with me today are Vicente Reynolds, Chief Executive Officer, and Emily Weaver, Chief Financial Officer. Our earnings release, which was issued this morning, and a supplemental presentation, which will be referenced during the call, are both available on the investor relations section of our website, www.irco.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 the 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 8-K filed with the Securities and Exchange Commission on May 1, 2020, which are available on our website at www.irco.com. 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 release, which are both available on the Investor Relations section of our website. I will also remind everyone that in both our earnings release and today's presentation, we have included both as reported financials and supplemental financial information to assist with analysis and comparatives. The as reported financials only include the Ingersoll Rand industrial segment results from the closing date of the transaction on February 29, 2020. and the supplemental financial information provides results as the transaction had occurred as of January 1st, 2018 to provide a full quarter of comparable results. Turning to slide three, on today's call we will provide an update on the top priorities of the company in the current operating environment as well as review our first quarter total company and segment highlights. We will conclude today's call with a Q&A session. As a reminder, we would ask that each caller keep to 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 Renal, Chief Executive Officer.

Vicente Renal Thanks, Vic, and good morning to everyone on the call. I would like to kick off today's presentation by sending our thoughts to all who have been affected by COVID-19 and all the dedicated healthcare workers, first responders, and volunteers who are on the front lines all over the world battling this pandemic. I would also like to take a moment to say a sincere thank you to all of the Ingersoll Rand employees around the world. The pictures on slide four are just a few examples of our dedicated global workforce who have adapted to the new realities of the work environment to continue to serve our customers. Every day I hear of new examples of our businesses providing mission-critical products to our customers, and I am proud of what our company represents and how our employees have responded to these unprecedented times. While there continues to be a lot of uncertainty about the future, one thing I am sure about is that Ingersoll Brand will continue to keep the safety of our communities, and serving our customers at the center of everything we do. And that wouldn't be possible without the dedication and hard work of all of our employees. Moving to slide five, I would like to ground everyone on the critical priorities we're following during these challenging times. When we closed the transaction a little over two months ago, we could have never anticipated that within a matter of weeks, we would be dealing with a global pandemic, causing disruption to our customers' supply chain and the day-to-day operations of the company. Our response speaks to how the IRX toolkit has effectively helped us plan, accelerate, and adapt our actions to act quickly and decisively around three core priorities. First, ensuring the safety of our employees, customers, and the community. Second, around keeping a strong focus on the integration and execution to ensure the financial stability of the company through this uncertain time. And finally, continuing to execute on the strategy of the company, as we have multiple catalysts to drive ongoing value creation. The strength of Ingersoll Rand Team aligned around these three priorities will position the company to emerge from this crisis as a stronger and more unified company. The next slide is a reminder that our purpose and values as well as our execution engine that we call IRX are really at the heart of how we operate as a company, especially in these unprecedented times. During the integration process, we spent a lot of time thoughtfully creating the company's purpose, one that is centered around our stakeholders, where we know that they can lean on us to help make life better. This purpose, when combined with the four key values that our teams live on a daily basis, creates a framework of what we want to achieve as a company. And the basis of how we do it is the interest-run execution excellence process. The simplicity and effectiveness of this is allowing us to accelerate the creation of a single culture across Ingersoll Run. Turning to slide seven, I would like to briefly update you on the company's response to the COVID-19 crisis, since it has been swift and focused around two major components. First is the health and safety and well-being of our employees, customers, and communities. And second, business continuity, not only within operations, but across the larger supply chain. Starting first with health and safety, we activated our COVID-19 task force in February and had a full coordinated company approach in early March, just weeks after the creation of the new company. Our execution approach has served us very well as we're able to quickly implement enhanced site safety protocols and a mandatory work-from-home policy for those employees who can work remotely. And it is very encouraging that our quick actions have been successful, as we currently have had fewer than 30 confirmed cases of COVID-19 amongst our more than 17,000 global employee base. But it's more than just implementing safety protocols. It's also about supporting and engaging the employee base. As a result, we have implemented a number of measures, including a global outreach program to solicit employee feedback. Our employees reacted quickly and with a true ownership mindset. provided more than 200 suggestions when we asked for cost savings ideas. Not only did our team volunteer to take individual pay cuts, furloughs, and forego vacation time this year, they had thoughtful, in-depth suggestions, many of which we're actively implementing today. From a business continuity perspective, starting first with our operations, as we previously communicated, we have seen plans largely in China, Italy, and India impacted due to COVID-19. China was largely impacted in the months of January and February, and has seen steadily improved capacity and output through March and into April, as things are now largely back to normal. Italy and India saw about a two-month lag to China, with operations being impacted in late March and into April. And in this time, our sites around the globe are 98% operational, with India still being the most impacted due to governmental restrictions on returning to work. The supply chain has seen a similar trend, as the impact in China is largely behind us, and we currently have no meaningful delivery issues. The Americas and EMEA regions are stabilizing, as impacted suppliers in the US and Italy have started to come back online. In the past few weeks, we have seen the number of impacted suppliers drop by more than half, which is a very good sign, and we're supplementing supply from dual sources from other regions where possible. Much like operations, India continues to be the most impacted aspect of the supply chain. And we expect the situation to improve in the later half of May when governmental restrictions begin to ease. We are addressing the current environment head on by actively managing those areas within our control. Let me tell you about what we're doing here. Starting with slide eight, through the use of IRX, we have been able to build the cost energy funnel to over $350 million. with increases across all major savings categories, and we continue to identify areas of incremental opportunity. As a reminder, we expect to be able to realize the anticipated transaction cost synergies of approximately $250 million by the end of year three after closing. We expect to incur approximately $450 million of expense in connection with both achieving these cost synergies and the associated stand-up of the new company. As we have stated multiple times over the past few quarters, the spacing of synergy delivery was always an area we believe we could accelerate based on market conditions, and that is exactly what we have done. We have dramatically increased the pace, having already executed on $90 million of annualized structural cost reductions, with approximately $70 million savings expected to be delivered in 2020. The majority of these savings are coming from headcount actions already taken in the past two months, as we streamline the company and reduce layers within the organization. In addition, we have deployed the first wave of procurement initiatives, with RFQs for nearly one-third of our historical direct materials plan base already launched, as well as some quick-win initiatives being deployed. In total, we're now expecting to deliver approximately 35% of our overall synergy target in 2020, which is approximately three times higher than the original year one expectation of 10 to 15% realization. We're keeping the overall cost synergy target at $250 million over a three year timeframe at this time to remain prudent on volume-dependent synergies like procurement and I2B given the current environment. It is not only the structural cost that we have taken out, but also how we are supplementing our synergy delivery activities with thoughtful short-term cost reductions to protect margins. So let's move to slide nine to talk about that. In Q1, despite the 15% revenue decline that we saw collectively across the business on a pro forma basis, we were able to limit adjusted EBITDA decrementals to less than 30%, with the strongest performance coming from our two largest segments. We expect that these additional actions would yield $40 to $50 million of incremental cost savings in the P&L this year, with the majority coming in the second quarter and third quarter. We will continue to reevaluate on a monthly basis, and if the demand environment does not accelerate in the second half of the year, we will potentially extend some of these actions and increase our savings target accordingly. While we're making some tough decisions to control cost, one area that we're not cutting back is strategic growth initiatives across the enterprise. Much like we did back in 2015 at Garden Denver, when we invested through the downturn to capitalize on market share gains and new growth opportunities, we're following the same playbook today. Investments in R&D are being maintained at similar levels as prior years, and we continue to fund targeted commercial initiatives such as demand generation and our IoT platforms. This is all part of the strategy to play offense, now especially as we bring the two companies together through the integration. Moving to slide 10, let me talk about liquidity. The company continues to have a strong balance sheet with ample liquidity. At the time of the merger, we took the opportunity to reprice our legacy debt by placing the new $1.9 billion term loan to close this transaction. All of our debt is a term loan B structure with very attractive pricing as the U.S. components are LIBOR plus 175 and the Euro component is a Eurobor plus 200. The term loans have no financial covenants from a maintenance perspective and there are no maturities until 2027. Liquidity also remains strong at $1.6 billion as we finish the quarter with $556 million of cash on the balance sheet and over a billion dollars of capacity on our existing credit facilities. As we look ahead, we continue to see several opportunities to unlock cash, as we remain very prudent on preserving liquidity. Opportunities exist across working capital and cash taxes, and we will continue to see tailwinds from interest expense in the second half of the year, as all $825 million of legacy fixed interest rate swaps will expire by September of 2020. Even though we feel our level of liquidity is proper, we're evaluating incremental debt or other liquidity vehicles given the attractive rate and covenant environment. Turning to slide 11, our commitment to our long-term strategy remains unwavering. You have heard me already reference several elements of our strategy as we're building the culture of Ingersoll Rand with our employees at the core. We will continue to act quickly and prudently to protect margins and preserve liquidity. And at the same time, we will position the company for future growth both organically and through opportunistic targeted bolt-on M&A. Our business operates in a very fragmented market, and we see opportunities to add niche technologies to the portfolio. And importantly, our newest strategic priority of operating sustainably is taking shape as we launch several of our ESG-oriented initiatives already. Overall, we have several value creation levers as we look ahead. and we will continue to execute despite the uncertain macroeconomic landscape. I will now turn it over to Emily to walk you through the financials. Emily?