Ingersoll Rand Inc.

Ladies and gentlemen, thank you for standing by and welcome to Ingersoll Rand's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Kirkham Kinney, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you, and welcome to the Ingersoll Rand 2020 third quarter earnings call. I'm Vic Kinney, Ingersoll Rand's chief financial officer, and with me today is Vicente Reynold, 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.irco.com. In addition, a replay of this morning's conference call will be available later today. Before we get started, I want to remind everyone that certain 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. Please review the forward-looking statements on slide two for more details. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, which are both available on the investor relations section of our website. Turning to slide three, on today's call, we will provide an update on the integration efforts of the company, as well as review our third quarter and total company and segment highlights. We will conclude today's call with a Q&A session. We ask that each caller keep to one question and one follow-up to allow for enough time for other participants. At this time, I'll turn the call over to Vicente.

Thanks, Vic, and good morning to everyone. I want to start our call by thanking all our employees around the world for their hard work and commitment to the health and safety of our teens and their families. as we continue to navigate the COVID-19 pandemic, as well as their dedication to serving our customers at the highest level. Their focus and consistent contribution coupled with the continued proliferation of IRX throughout our organization delivered strong results we can all be proud of. Turning to slide four, I want to spend some time on our culture because it is a competitive advantage for us. particularly in the midst of a COVID-19 pandemic, our progress has been impressive. Let me point out a few examples of the in-flight initiatives that are helping to foster our unique culture as we integrate both companies. We have now rolled out our purpose and values activation to nearly the entire company. These are highly engaging one-on-one sessions where we work with our employees to discuss our purpose and values. and what it means to leave them every day. In addition, we have continued the Owning Our Future forums, which are virtual micro town hall meetings to create open dialogue. Today, we have engaged and heard from over 7,000 employees, and their feedback is helping us simplify our internal processes. In the third quarter, we also conducted our first all-employee engagement survey. We had a 95 participation rate across the entire company, which is nearly 15 percentage points higher than the manufacturing index we benchmark, and puts us in the top quartile of participation. Our high engagement level is a positive reflection of employee satisfaction with working at Ingersoll Run, and employee happiness is very important to us. And a great example of our employees living our purpose and values and making a positive impact in our community is the Dosatron team, which sits in our precision and science technology segment. The Dosatron team helped develop a method to deliver clean drinking water to an orphanage in a remote location in Madagascar using our technology of electricity-free dosing pumps. Examples like these are happening around the company and are a strong proof of the culture we're building at Ingersoll Grand, which firmly supports our purpose of leaning on us to help you make life better. Moving to slide five, one of our key values is thinking and acting like an owner. In the third quarter, we took a major step forward in bringing that value to life by making all of our employees shareholders of the company. On September 21st, we were proud to virtually ring the opening bell at the New York Stock Exchange and announce the issuance of $150 million in equity awards across our entire employee base. This is a meaningful distribution equal to 20% of an individual's base cash compensation. And as I have said before, this is not a thank you note to the team. Instead, this is a catalyst to have all 16,000 owners all moving in the same direction to drive change and create value for all shareholders, including themselves. And like we did at Garner Denver, we're tying the equity grant to a specific initiative of improving networking capital. We're training all employees on what it means to be an owner. And when we launched this in 2017, we improved working capital as percentage of sales at Garner Denver by over 500 basis points in less than three years. So for us, we feel the future is extremely bright at Ingersoll Grand, and with 16,000 employee owners moving in a common direction, I am confident in our ability to create meaningful value. Turning to slide six, let me now provide an update on our integration efforts. We have built a strong foundation and are now pivoting to growth with a specific focus on executing our talent priorities, continuing to capture supply chain synergies, and driving free cash flow. which is allowing us to accelerate investments in IoT, digital and e-commerce initiatives. And finally, advancing our work on the ESG front as we look to be a recognized leader in corporate social responsibility. It is an exciting time at Ingersoll Run, and as we continue to meld complementary cultures, as well as leverage our deep product portfolio to serve niche end markets and accelerate growth. Speaking about growth, let's turn to slide seven to showcase a few examples. The first example is focused on how we're leveraging a differentiated compression technology to penetrate the hydrogen refueling and dispensing niche market, which is a high growth and rapidly changing market. As part of the integration planning process, we did a lot of work to better understand these end markets and the potential it could bring to our combined company. Haskell, with over 70 years of industry experience, is one of the world leaders in offering the most reliable high-pressure equipment and technology today. We're very excited about Haskell's comprehensive portfolio of specialized compression solutions, as we're well-positioned to win share, with turnkey refueling stations used for heavy-duty vehicles and buses. and light-duty passenger vehicles, we have now over 100 stations across the world and a technology leadership edge that we created over the past 12 months. One example of our investments in innovation here is the launch of a new small-scale, cost-effective standalone hydrogen fueling station, which is designed for small, simple plug-and-play installations. But with a complexible configuration, it can be relocated from one location to another very easily for forklift applications. As we look ahead, the growth prospects in this space are extremely promising, as the continued penetration of hydrogen fueling into key markets is expected to create a $2.5 billion addressable market for us by 2027. Turning to slide A, This second example demonstrates how we can leverage the breadth of our technologies across multiple segments to win in targeted end markets like water and wastewater. Take, for example, a wastewater treatment plan shown on the picture. We have begun to leverage our technologies across the ICS and PST segment to drive further penetration in what is estimated to be a nearly $5 billion addressable market with a five-year CAGR of at least two times GDP. Utilizing IRX tools, we're focused on capturing quick wins within our combined broader portfolio. First, we're focused on increasing customer share wallet by offering a broader set of product solutions. We have identified already by more than 50 new sales channels to penetrate. Second, we're coordinating internally our large project funnel. to ensure all relevant businesses and brands are involved in bids with the goal of maximizing the content of Ingersoll Rand products in any project. And third, by combining demand generation database contact across the two segments, we have now over 32,000 contacts with an expectation to increase by 40% in the US alone as part of our impact data management process. We're now beginning to educate this entire universe of potential customers of our technologies and solutions to dedicated digital campaigns. And while we're still in the early days, as we just launched this initiative, we have already seen an increase of over $30 million in our funnel. This commercial synergy is just the beginning of what we believe will be a future where we connect all the technologies to optimize the entire process. And given the work we are already doing on IoT, we feel that we're well-positioned to capture this opportunity, given our deep know-how of the types of sensors and controllers required in our products to best optimize the data acquisition and analytics. Let me now turn over the call to Vic for an overview on the financials. Vic?

Thanks, Vicente. Moving to slide 9, overall, we are extremely pleased with our performance in Q3, as industrial end markets saw a gradual sequential momentum through that quarter. We saw a similar trend across the majority of our businesses, as total company orders and revenue increased 13% and 6%, respectively, as compared to two Q levels with strong double-digit momentum in the industrial technology and services, specialty vehicles, and high-pressure solution segments. The precision and science segment saw slight sequential declines in orders, which was in line with expectations due to the large COVID-related orders for medical pumps we saw in the first half of the year that we did not expect to repeat. As we continue to navigate these uncertain times, our goal is to continue to manage those areas that are in our control by utilizing IRX to maximize the value capture on productivity and synergy initiatives and maintain ample liquidity. And the teams did exactly that, as they delivered adjusted EBITDA of $284 million and adjusted EBITDA margins of 21.3%. This was a 220 basis point improvement for the second quarter. On a year-over-year basis, despite double-digit revenue climbs, margins were up 150 basis points, and when adjusted for the high-pressure solution segment, total company margins improved 240 basis points. The teams are continuing to execute extremely well on capturing cost synergies, and our annualized savings now stand at $150 million, or 60% of our stated target of $250 million. Our strong commercial and operational execution led to company-wide decrementals of only 6%, which marks our lowest level seen thus far in 2020. From a cash flow and capital structure perspective, we saw similar strong performance, as free cash flow grew to $179 million, liquidity now stands at $2.3 billion. And as a reminder, historical financials, as provided in this deck, are on a supplemental basis, as if the transaction had happened on January 1st, 2018, to insist in clean comparatives for the quarter. The detail of assumptions and adjustments used in these supplementals can be found in the appendix to these slides and earnings release. Turning to slide 10, from a total company perspective, FX adjusted orders and revenue declined 8% and 11% respectively, which is a meaningful improvement from the comparable 21% and 19% declines we saw in the second quarter. While COVID continues to create challenges, we saw continued stabilization in core markets in the Americas and EMEA, particularly in the IT&S segment. Both regions saw high single-digit order declines on a total quarter basis for core compressor, blower, and vacuum equipment, with the strongest month occurring in September. And Asia Pacific continued to show positive trends on both revenue and orders led by China. Specialty vehicles saw strong orders performance, up 29% XFX, as the momentum for consumer vehicles continues at record levels. And as expected, the high-pressure solution segment saw order declines of slightly over 80% due to continued overcapacity in the market and depressed activity levels. Overall, we posted a strong book-to-bill of 1.02 for the quarter, which was slightly better than levels seen in the prior year of 1.0. The company delivered $284 million of just EBITDA, a decline of only 3% versus prior year, even with the headwinds caused by that pandemic. The IT&S, Precision & Science, and specialty vehicle segments all saw year-over-year improvements in adjusted EBITDA and strong triple-digit margin expansion. Offsets were seen in the high-pressure solution segment, as well as higher corporate costs, which saw a large benefit in prior year costs due to reduced incentive compensation costs, as well as in-year investments primarily around infrastructure and growth initiatives to stand up a new company. Turning to slide 11, free cash flow for the quarter was $179 million, driven by the strong operational performance across the business, working capital improvements, and continued cost savings and CapEx prioritization initiatives in the current uncertain environment. CapEx during the quarter totaled $8 million, Free cash flow included $26 million of outflows related to the transaction comprised of $13 million of synergy delivery spend and $12 million of company stand-up related spend. From a leverage perspective, we finished at 2.5 times, which was an 0.1 improvement as compared to prior quarter despite $10 million of lower LTM adjusted EBITDA. We would expect to continue to see leverage remain in the 2.5 times range or slightly better as we finish the year. And we feel comfortable with our current leveraged position and see a path to being at 2.0 times or better in the relatively near term. On the right side of the page, you can see the breakdown of total company liquidity, which now stands at $2.3 billion based on $1.3 billion of cash and nearly $1 billion of availability on our revolving credit facility. During the quarter, we terminated our legacy receivables finance agreement, which was due to expire at the end of the year. We were not intending to renew the RFA moving into 2021 due to our enhanced liquidity profile and given the fact that the overall impact on liquidity from the RFA exit was less than 2%. As of September end, all of the company's legacy fixed interest rates loss have now expired. This is expected to yield an approximately $5 million cash interest benefit in Q4 as compared to Q3 at current interest rate levels. And as the company's debt profile is now 100% fully floating, we'll be examining the appropriate fixed versus floating structure moving forward from a risk management perspective. In total, liquidity has now increased $730 million from the end of Q1, giving us ample drive power to execute on our organic and inorganic growth strategies. Moving to slide 12, we continue to see strong momentum on our cost energy delivery efforts. Within the quarter, we accelerated the phasing of this initiative, and we have now already executed $150 million of annualized synergies. This includes $105 million of permanent structural cost reductions with approximately $80 to $85 million of those savings expected to be realized in 2020. On procurement synergies, we have captured $40 to $50 million with approximately $15 to $20 million of those savings expected to be delivered in 2020. This represents an increase of $20 million of executed actions as compared to prior quarter. And as a reminder, our funnel for direct material-oriented synergies are based on 2019 direct material spend. In total, we now expect to deliver approximately 40% of our overall synergy target in 2020, which is approximately $100 million of savings. In addition, we now expect to deliver approximately 70% of our cumulative synergy savings by the end of 2021 and approximately 85% by the end of 2022, with the balance coming in 2023. And as we have previously communicated, we are keeping the overall cost energy target at $250 million over a three-year timeframe to remain prudent on volume-dependent synergies like procurement and ITV given the current environment. And we'll provide an overall update when we give 2021 guidance during our February 2021 earnings call. We also continue to make strong progress on lowering defermental margins. Total company decrementals were only 6%, with IT&S, precision and science, and specialty vehicles all seeing strong flow through, and high-pressure solutions managing decrementals below 40% for the first time this year. We also mentioned last quarter that we were expecting to see approximately $30 to $35 million of the short-term cost actions that were taken in Q2 come back to the P&L. The teams did a nice job managing those costs, and we only saw approximately $10 million come back to the P&L. Given the gradual recovery of the overall market, as well as very recent COVID-related lockdowns in several countries, we are now expecting the full return of that $30 to $35 million cost base to extend into 2021. I will now turn it back over to the Senator to discuss the segments.

Thanks, Vic. So moving to slide 13 and starting with the industrial technologies and services, overall this segment performed better than expected with organic orders and revenue down 8% and 9% respectively, resulting in a book-to-bill ratio of 1. Despite the revenue decline, the team delivered strong adjusted EBITDA that was up 9% and an adjusted EBITDA margin of 24% up 370 basis points year-over-year. Moving to commercial performance, while we know that many like to compare the entire ITS segment against some of our peers, that comparison can be a bit challenging, given that we have several different businesses in this segment. Last quarter, we broke down the segment based on our internal business structure. In the spirit of transparency and desire to help you understand the business, we are now showing a product line breakdown. Starting with compressors, which represents about 65% of the segment, we saw orders down mid-single digit and revenue down low single digit. A further breakdown into oil-free and oil-lubricated products will show that oil-free was up low double digit in revenue, which we believe demonstrates the success of our strategic focus in this category, as well as market resiliency for oil-free products. From an oil-lubricated perspective, Otis and Regni were down mid to high single digits, mainly driven by small rotary compressors, while large compressors continued to outperform. Regarding the regional split for Regni on compressors, in the Americas, the North America team performed comparatively better at down low single digits, while Latin America was down in the mid single digits. Mainland Europe was down low single digits, while India, Middle East, and Africa continue to see a decline in the mid-teens, which is a great improvement from Q2 levels of down nearly 40%. Asia Pacific continues to be the best performer with revenue up mid-single digits, driven by positive growth in China, while Southeast Asia is still seeing declines due to COVID shutdowns in some countries. Moving to backing on blowers, which represents approximately 20% of the segment, orders were down low single digits driven by mid-single decline in the blower business, partially offset with positive order momentum in our longer cycle Nash and Garrow backing businesses. We were encouraged also to see that the industrial backing business in Europe was relatively flat compared to down double digits in the second quarter, which is a sign that our OEM customers are seeing some underlying improvement in their markets. Moving next to the power tools and lifting, which is 10% of the segment, the total business was down high teens in orders and mid-20s in revenue. The encouraging sign here is that the rapid improvement from last quarter, where we were down low 40s in orders. The tool business has materially improved from the second quarter, while lifting and material handling business remain depressed. And as we have said in the past, our focus here has been to materially improve the profitability of this business. and we're very happy with how the team has executed, delivering 270 basis points of sequential adjusted EBITDA margin expansion. In this quarter, we want to highlight one of our growth synergies, which is the expansion of our oil-free compressor launch in Europe. You may recall we launched a radical new technology in the oil-free space within Gardner Denver just a few years ago. This patented technology delivers completely oil-less air with a value proposition unmatched in the market. At that time, the Garnet Denver channel was not properly set up and experienced enough to sell such a unique product focused on total cost of ownership in the oil-free space. However, the Ingersoll Rand team has a lot of experience in selling oil to products. And within a matter of months, we have relaunched the product under the Ingersoll Rand brand and leveraged the Ingersoll Rand channel. We have also trained over 400 channel partners, and our funnel has increased to $15 million in a matter of months. It is good to note that more than 20% of that funnel increase was generated purely with demand generation efforts. Moving to slide 14, we'll review the precision and science technology segment. Overall, organic orders were down 9%. As expected, total order levels were down 3% sequentially But when normalizing for the COVID-related orders that we saw on the medical side of the business in the second quarter, the sequential improvement was actually positive. Revenue performance was quite strong at down only 1% organically. Driving the strong performance within the business were the dosatron and medical businesses, which delivered double-digit revenue growth. The precision and science technology team also delivered strong adjusted EBITDA that was up 14% on relatively flat revenue. This led to a very resilient adjusted EBITDA margin of 30.7%, up 350 basis points year over year, and 40 basis points sequentially. Again, driven by solid execution and use of IRX tools to drive productivity enhancements. On this call, we're excited Albion is a leader in the manufacturing of electric peristaltic pumps, which is one of the highest growth positive displacement technologies. We see strong commercial synergies as we leverage Albion alongside of ARO and Milton Roy Brands and plan to leverage the precision design global network and channel to accelerate growth at Albion. This is a great example of the type of Bolton acquisitions we're very excited about for the company. Moving to slide 15 and the specialty vehicle technology segment, overall Q3 was another strong performance for the specialty vehicle technology team, with organic orders and revenue up 29% and 1% respectively. Adjusted EBITDA of $38 million increased 36% year-over-year, leading to an adjusted EBITDA margin of 19.7%, which represents 510 basis points employment versus prior year. Proliferation of the IRX toolkit is allowing the specialty vehicle team to capture strong end market demand in the consumer vehicle segment and grow our share. The strength is based on continued digital demand generation activities, compelling new product launches, including lithium and a six-passenger offering, and extremely consistent production and channel performance. We're also pleased with the traction on the launch of a second-generation lithium battery for the golf cart market, where we're seeing an improvement in cost, reliability, and range, which we believe is now leading in the industry. Aftermarket also continues to be a strong focus, including our Club Car Connect platform, which is showcased on the right side of the slide. With over 100,000 connected vehicles, Club Car Connect is a GPS-enabled technology platform that provides fleet managers with car control features such as geofencing and location-based speed control, as well as asset management tools such as the ability to monitor the location of the golf cars and report vehicle diagnostics. Moving to slide 16 and the high-pressure solution segment, the business performed largely in line with expectations, and it continued low demand in the oil and gas industry. Orders and revenue were down 81% and down 68% respectively. Nearly 90% of the revenue base continues to come from aftermarket parts and services, with consumable continuing to be the most stable component of the revenue base. I am extremely proud of the team for their proactive efforts and productivity improvements around cost management controls, which allows us to deliver positive adjusted EBITDA of $1 million. and decrementals below 40% despite the meaningful revenue declines. As we look ahead to the fourth quarter, although we're seeing some market recovery, we have the unknown of extended holidays later in the quarter, as well as continued pandemic headwinds. Looking forward to 2021, we remain encouraged with how the business is positioned from a product offering and cost structure perspective. We feel there is some pent-up demand in the market, which will return at some point beginning with the service and repair work, and we're well positioned to capture this opportunity with the premier service centers like our permanent facility that is highlighted on the right side of the slide. Moving to slide 17, we want to provide a quick snapshot of how the business has performed thus far in the fourth quarter. Through the first three weeks of October, the total companies now meet single digits in orders, with book-to-bills at greater than one. Within the industrial technology and services segment, the regions are largely trending in line with the year-over-year order trends that we saw in the third quarter. And the power-to-business continues to see sequential improvements. The precision and science technology segment is currently positive year-over-year. and the specialty vehicle segment is continuing to see healthy momentum on the consumer side, coupled with growth seasonality. The high-pressure solution segment is down 30% to 35%, which is encouraging, but we see limited expectations for activity in December. We're not providing formal Q4 or total year guidance at this time, but from a high-level perspective, we expect the gradual market recovery to continue in the fourth quarter, with revenue trending positively on a sequential basis. The industrial technology and specialty vehicle segment should support most of that strength given normal functionality in the shorter cycle components of industrial technology, as well as larger projects that will ship later in the quarter. For the precision and science technology and high-pressure solution segments, we expect a comparable revenue performance relative to the third quarter. From a margin perspective, we will continue to aggressively manage decrementals and expect to be below 30%. We're expecting some headwinds in the fourth quarter compared to what we saw in the third quarter, mainly unfavorable product mix, imprecision in science, due to a lower contribution from medical, as the COVID-related backlog has largely shifted, and especially to vehicles, as mix shifts more towards growth, which carries a lower margin than the consumer, which has been very strong. We also expect the cost base to increase slightly as we continue to invest in organic initiatives to fuel long-term growth. It is also worth noting that this assumes no additional material headwinds from the pandemic. We haven't seen any noticeable impact on order rates just yet, but we're monitoring closely and we will be ready to execute our playbook as we have successfully done this year to react quickly to any business interruptions. Moving to slide 18, as we wrap up today's call, I want to reiterate that we're excited by our progress. While we're still in the early stages of our transformation, we have taken meaningful steps forward in creating a differentiated culture and improving the performance of the company. And now, with 16,000 employees who are now owners of the company, I am confident that we can continue to transform Invisalign and deliver increased value to all of our shareholders. So with that, I'll turn the call back to the operator and open for Q&A.

Thank you. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press the pound key. Your first question comes from Julia Mitchell from Barclays. Please go ahead. Your line is open.

Hi. Good morning. Good morning. Maybe just the first question around the operating leverage as we look ahead to a more normalized sort of recovery stage. You had 60% sequential incremental margins, I think, in Q3, so extremely high level and understand that those incrementals will moderate as the recovery matures. But maybe any kind of placeholder, as you're thinking about the net off of temporary costs coming back, the ongoing synergy extraction, and the extent to which you'll manage those incrementals via ongoing reinvestments as well.

Yeah. Hey, Julian. This is Vic. I'll start with that and let Vicente weigh in as well. You're absolutely right. I think Q3 was an extremely strong quarter for all the reasons you mentioned. I think as we think forward, as we look into Q4, as we mentioned, we don't expect the sequential you know, incrementals to look quite as strong. You know, our view as we look kind of forward and frankly even look into 2021 is that we think that, you know, normalized incrementals kind of across the portfolio on a base level should play in that kind of 30% to 35% range with obviously some upside opportunity for this energy extraction. Remember, there are some cost normalization and things of that nature that will continue to kind of unfold as we move into 2021. as we mentioned. But I think 30% to 35% is probably a good base level to use with some upside opportunity as synergies start to materialize into 2021 and thereafter.

That's very helpful. Thank you. And then my second question, really around the free cash flow, very strong in the nine months, 470 million odd, 125% conversion to adjusted net. realize that it's the first sort of year of the combined entity um and maybe there are some one time pieces moving around the working capital move perhaps a bit abnormal this year so Just wondered, you know, what you could indicate in terms of free cash conversion expectations as you look out. And also within this year's number, what's the total synergy and stand-up cash outflow for the year, please?

Yeah, Julian, I think we would expect to be greater than or equal to 100% of objective mid-income in a free cash flow perspective. I think what we're excited about is that, yes, you have seen some very good momentum on the free cash generation. And the most important piece here is that we still feel we have plenty of levers for us to improve. You know, clearly one that we just talked about here is how we're rallying up all 16,000 employee owners in the company around the working capital as a percentage of sales and how we believe we can unlock a good amount of cash by getting everyone focused on that perspective as we did with the Garden of Denver in the past. And then other levers such as, you know, tax or tax rate. We spoke a lot about that, that, you know, that's also offering a good meaningful opportunity. And so I think, you know, the exciting piece here, Julian, is that we still have more improvement opportunities.

Yeah, and Julian, on the second piece in terms of some of the moving components and kind of what we've spent thus far from a free cash flow perspective, specifically on the synergy and stand-up costs, in the first half of the year, we had about $80 million between the first and second quarter of cash outflows. And then you can see in Q3, we had about $26 million. So you've had a little over $100 million of cash outflows thus far, specifically for synergy and stand-up related spend for the first three quarters. And we would expect right now that Q4 should look comparable to what you saw in Q3 as we've got it before. So I can kind of give you an idea of kind of just the, I'll call it one time, but really the synergy and standoff related spend that has flowed through free cash flow.

Fantastic. Thank you.

Thank you.

Your next question comes from Michael Halloran from Baird. Please go ahead. Your line is open.

Good morning, gentlemen. Morning, Mike. So why don't we start with some thoughts as we're thinking about next year? Just a lot of uncertainty out there qualitatively. How are you guys positioning things internally in your core businesses as we sit here? What's the only thought process? How are you guys going about iterations for next year? Any kind of high-level thoughts on that side?

You know, Mike, you know, clearly, you know, we're now in the midst of that cycle of kind of getting with the teams through a budget cycle for 2021. And this is part of our process as we completed our strategic plans a couple of months ago. You know, while we don't have full visibility, I mean, we like what we see from the micro indicators, PMI, ISM, I mean, across the world showing some continual gradual improvement. So we're encouraged about this. But, you know, we know that there's some uncertainties with COVID in many of the global markets and lockdowns. I think the most important thing for me to highlight here, and we're highlighting with the team, is that I believe that we have been able to demonstrate how we're able to adjust and adapt to whatever environment looks like. And you can see that from the down market and how we have controlled our decrementals very well at the same time while investing. So I think, you know, the way that we're working with the teams is, you know, have a perspective in terms of good gradual continuous sequential, nothing but more important, making sure that we're making the right investments while controlling, you know, the cost and continuing improvements in our company. I would say, too, as well, maybe, Mike, to add to that is, you know, right now we feel good about kind of the backlog in terms of our long-cycle businesses, like, you know, like we have with our large compressors or some of our larger vacuum businesses, and also with the specialty vehicles. I mean, they have a very solid backlog, too, as well, heading into 2021. At least at this point in time, I mean, we're going to be working with the teams on the budgets and building as we kind of go for 2021 with a high level of just flexibility.

That makes sense. And then maybe help with some puts and takes on the capital optionality side. One, how do you think about the current portfolio as it sits here today, the changes there, and then secondarily, You know, you're in a good balance sheet position. You know, Vic mentioned earlier towards two times in the near future here. How are you thinking about M&A? What's the funnel look like? And then secondarily, are buybacks something you guys are considering in the near term?

Yeah, Mike, I think I think this is, uh, as you as you saw, you know, we got our three faces and you know, we spoke a lot openly about our kind of face three or portfolio optionality that just gives us plenty of opportunity for us to evaluate that. And that is equal on both sides. As you said, you know, optionality on on potential divestitures. But at the same time, on the mna and and the mna the mna i tell you the funnel is very very active uh we're very excited with uh albin uh the acquisition that we just made a lot of these acquisitions as well. I think the interesting thing is that we continue to source those ourselves in the sense that we're finding that being proactive and working with a lot of these companies in our relationships is really unlocking the opportunity to be able to be more prudent and disciplined in the terms of multiples that we pay. So I think the M&A funnel is very, very active and we're really excited about what we have ahead of us in that case.

In the buyback side, any thoughts there?

Not at this point, I would say, Mike. I mean, because we see very good opportunities for us in the M&A, and you have seen how we're able to, you know, from a pre- and post-multiple, reduce the post-multiple synergy dramatically. So we just see greater payback right now in the M&A.

That makes a lot of sense. Thanks, Centec. Appreciate it. Thank you, Mike.

Your next question comes from Jeff Sprague from Vertical Research. Please go ahead. Your line is open.

Thank you. Good morning, everyone. Hey, just coming back to kind of the synergy question, you know, what – if you think about kind of the funnel, right, I just wonder if the funnel really – the complexion of the funnel is changing at all. And, you know, some of your concern just about kind of – The ability to travel and all these sorts of things, kind of getting at the 250 doesn't really seem to have kind of borne out, right? It seems like you're actually getting at it maybe a little bit quicker than you thought. So really kind of two questions, the speed with which you can, you know, kind of continue to knock out the 250 and whether there's anything really moving around on the 350 and when that might move from kind of funnel to actual firm targets.

Yeah, sure, Jeff. This is Vic. I'll take that one. You're absolutely right. We've been pretty pleased with how we've been actually able to execute on the Synergy funnel at this point in time. As we mentioned, I don't think that, frankly, the COVID environment has really prevented us from executing on the funnel. We started with, frankly, a lot of the activities, particularly on the structural side, and I'd say the beginning phases of the procurement process. frankly, before the merger even was really completed. So that's really been able to accelerate what we've been able to see. And you've seen that we've actually, sequentially every quarter, we've even accelerated the cadence, including now where we're saying about 40% of the savings to be delivered here in 2020, 70% by next year, and then 85% by the year thereafter, which is considerably, I'd say, sped up compared to what original expectations are. So I'd say at this point in time, continuing to kind of move forward, I don't think the COVID environment has dramatically stopped things. We've even found ways to do things like ITV and workshops and teardowns in a virtual manner, not how we planned it originally, but still being able to execute. And then in terms of the larger funnel in excess of 350, I'd say the complexion, to your point, is still largely the same. Really what's ahead of us here is much more direct material-oriented savings as well as footprint. And as we mentioned, the direct material side does have a big component that's obviously tied to the volume equation, which As Vicente mentioned, as we get better visibility to 2021 and thereafter, I think we'll be able to give it an update accordingly. And the footprint piece largely has not changed. I'd say that's the piece that clearly in this environment is probably a little bit more difficult to execute on. The good news is the funnel is continuing to progress quite nicely, and we'd always planned to be executing on that footprint funnel really into 2021 and 2022. Nothing's really changed in that manner. So I'd say we're still pleased with how things are progressing, and we've largely accelerated what's within our control.

Great. Thanks for that. And just back to IT&S, on some of the kind of heavier CapEx-oriented parts of the business, you gave us the order of color, and I appreciate that. I just wonder if you could give us a little bit more color, though, just on what your customers are saying, how the CapEx outlook in some of these vertical markets that are more industrially sensitive look as we perhaps look into at least the first part of 2021.

You know, I think the good, I mean, we're encouraged in terms of how we're seeing the conversations with the customers. I mean, obviously we spoke earlier in the year how things were kind of slow, but we are seeing some fairly good momentum on some of these kind of non-cycle businesses that require some very large capital investment. So we're encouraged with the conversations that our teams are having it. We saw also some of that here in the second quarter and, you know, We always said that the fourth quarter is a quarter where we expect a lot of these kind of orders to get closed and booked into the orders. So at least we're encouraged with that. And that was a little bit of the commentary I made about, you know, going into 2021 that we're at least positive in terms of the backlog that we have coming into the year with these businesses. And obviously more encouraged about how our teams are pursuing, you know, more aggressively a lot of these kind of large investments that are kind of getting freed up.

Great. Thank you.

Thank you, Jeff.

Your next question comes from Nigel Coe from Wolf Research. Please go ahead. Your line is open.

Thanks. Good morning. Good morning. So I wanted to switch to upstream oil and gas, high pressure, HPS. Obviously, encouraging trends there. It seems like we've found a floor, and we're starting to improve sequentially. A couple of questions there. One, would you say a disproportionate amount of the temporary cost measures have gone into that business to sort of preserve the margins. And should we be dialing in some modest sequential improvement in that business, similar to what we've seen in prior recoveries from here?

Yeah, so definitely a good amount of temporary, but I mean, I would say similar in nature to what we have done. If you remember, I mean, the HBS is a business that even back in the second half of last year, we started to restructuring and the business looks really different from a footprint perspective and also from the capex investment that we have done. So I think we're encouraged with what the team have been able to rapidly adjust. And I think that is really encouraging as we see some of that kind of come back that we're seeing in the market.

And then sequential growth from here. Do you think that's reasonable based on customer conversations and what you see in the market?

We think so. We think so. I mean, we're being kind of thoughtful and prudent from the perspective only just because you never know what's going to happen on some of the holidays here after Thanksgiving and into Christmas. But based on, you know, fleet count continues to increase sequentially. Our order rates continue to increase. You saw now, you know, year over year, as we pointed out in the first week in October, we're down only 30% to 35%, which is also encouraging. But we still also feel that the pent-up demand has not come through. So I think that's also highly encouraging, I would say.

Okay, great. And then my follow-up question on ITS is, first of all, thanks for all the detail. I think you preempted about 10 questions with this detail. But how did services track, you know, within that mix? I mean, I know that was hit pretty hard by the shutdowns. I'm just wondering if we've seen, you know, some pent-up demand coming through there and whether we're back to growth in services.

Yeah, no, good, good, good question. Uh, I would say that, uh, you know, the big service business that we have is really mainly, uh, I would say mostly in the U. S. Uh, and Europe where we mostly in many places will go direct. We saw the good sequential improvement through the quarter. And what we have seen is that, you know, aftermarket and services, all that holistically is roughly two times better than the whole groups, than the complete. So I wouldn't call it as a massive pent-up demand. I'll just say kind of more gradual improvement as people are kind of getting and opening the locations to allow us to kind of go in. But nothing dramatic. Just good gradual improvement. Sure.

Great. Thank you.

Your next question comes from Rob Wolfheimer from Mellius Research. Please go ahead. Your line is open.

Hey, good morning, everyone. Good morning, Rob. So, Cynthia, I think you've touched a couple times on sort of long cycle versus short cycle dynamics, but I wonder if you could just tell us underlying demand, you know, sort of trends. Is there a very wide gap between the two? How wide is it? Is it already narrowing down so you know that the longer cycle stuff is, in fact, you know, coming up, we're not just relying on the short cycle stuff?

It feels that way, Rob. I mean, it feels that definitely, you know, we can tell you that, you know, on the long cycle business was actually positive from our perspective in the third quarter. So, again, that could be sometimes spotty based on the size of the project that you see. But we're seeing some good momentum in CO2 capture. We're seeing some good momentum in air separation and industrial gases. uh we're seeing some uh some kind of projects that are more related to onshoring getting kind of released and and allowing us to uh to implement our technology on those uh so so we're seeing some good good you know i'd say sequential improvement on that uh i guess for me more encouraging is the conversations that are that our teams are having with the customers seem to be just much more active than what it was in the past so but is there a big separation between the two Not dramatically, I will say, but encouraging signs on both.

Okay, that's very helpful. Thank you. If I can ask just one other on, you know, pivot to growth on phase two, I wonder if you can characterize where you think you have the organization focused. Has the intense focus been on synergies the past few months and you've already internally sort of pivoted the growth, you know, with some of the focus you're doing and that will show up in the next few quarters or where would you say you put the organization right now? Thanks.

sure yeah rob that was a great great question and you know one of the things that that we're able to do in our business with the increased amount of agility and nimbleness that we're driving with the use of irx and and as you know we have you know over 200 of those kind of every week uh with an impact daily management And so, yeah, I mean, I can tell you that in our conversations, we talk a lot more about growth synergies now that we see some good momentum on the cost synergies. So, you know, we still have the KPI on the cost synergies, but now we have added the KPI on the growth synergies. So the conversation is really people think more towards that. It takes time to see that solid momentum in the business. But again, you know, we were able to pivot and pivot kind of right in the, you know, I'll say, you know, we did a mid-third quarter kind of pivoting to that. And so, again, more encouraging. And as kind of we go into 2021, that we could see some of the fruit of those actions that we're taking.

Thanks very much.

Your next question comes from Stephen Biltman from Jefferies. Please go ahead. Your line is open.

Hi. Good morning, guys. If I could just go back, Vic, to some of your comments about the margin incrementals. You know, I think we had originally thought about 30-ish percent this quarter, and obviously you kind of blew that away and talked about some of the temporary costs not coming back as you expected. I'm just trying to understand, how does that work? I mean, it sounds like you don't actually kind of drive that from a top-down perspective. Maybe it's more driven by the businesses and Obviously, I'm trying to think about how that all plays out in the fourth quarter. Thanks.

Yes, I'll cut to where I said. I mean, it's always been driven. I mean, our teams, as I said, even as we are preparing our budgets for 2021, our teams are really attuned in terms of what incrementals and decrementals are kind of being viewed as for best in class. And we've tried to get to those. I think when we provided some of the kind of conversation, no guidance, but a framework as we were going into Q3, there was a lot of discretionary cost that was supposed to come that obviously not all of that showed up into the third quarter. But I tell you that, you know, our teams just pay, you know, close attention to a lot of these leading indicators that we're tracking. And I think in our commentary, we'll just kind of be more attuned in terms of just telling you kind of what we expect to see, but obviously with the room for our teams to be able to drive further improvements to that.

Okay, so just to be clear, then mentioned, I think 35 ish percent incrementals. Is that the right way to think about the fourth quarter?

No. So, Steve, I think the way we were thinking about it is that was kind of more of a longer term in 2021. From a four-quarter perspective, and if you look year over year, I think in our prepared commentary, obviously we're still going to see a challenge view versus prior year. We mentioned that decremental should be lower than 30%, and frankly, we would expect to be able to control it, frankly, lower than that level, more in line with probably levels you saw earlier. in the 2Q realm or slightly better. Clearly not as well as Q3, which was at 6%. Clearly a lot of, you know, good tailwinds in some of the margin mix items we talked about. But I think Q4 specifically continues to be decremental, well below 30%. But I think as we look further out, and as hopefully the business turns to more of a growth mode, that was kind of the comment as we look ahead.

Great. Thank you. That's exactly what I was looking for. I should have said decremental. Sorry. So that's all I got. Thank you.

Great. Thank you. Your next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.

Hey, good morning, guys. Good morning, Andy. Good morning. Andy, can you give us a little more color on what you're seeing in terms of the growth within precision and science? You mentioned the expected decline in the foreign PFS business. It was down 6% in Q3. GDI Medical, I think, was up 10. But then you mentioned the overall segment is positive through the first weeks of Q4. So is PFS continuing to turn more positive, or does it really strengthen that GDI Medical business? And could you give us more color on what's driving the improvement in PFS?

Yeah, Andy, I'll say that most of the businesses are kind of continuing to strengthen with the position in science. And that's, you know, clearly you're seeing some of that here in early October. And when we saw throughout the quarter, in the third quarter, we saw continued improvement through the months of Q3.

And then, Vicente, obviously you spent some time talking about hydrogen. Obviously ESG becomes more important every day. You just mentioned onshoring and the initiatives there. So if you look at all these sort of newer trends together, Is it having an impact on your business overall right now? And as you think about 21, how well positioned are you to sort of grow above market because of all these new trends that you guys are exposed to?

You know, that is, I think, the exciting piece there, Andy, that a lot of these kind of trends continue to go in our favor from that perspective, and not just by pure luck, but mainly because of the, I'll say, self-help innovation that the team is doing. I mean, we find some of these kind of growth secular trends, and then we evaluate how can our technology be applicable to those trends, and then we go deeply and then create some unique differentiated innovation. I think that is what is very different. in our case is that our teams are pretty agile on that. So, yeah, I mean, I think it's more going to be indicative in 2021 and further. You can see, I mean, expectations for hydrogen are just kind of massive in terms of growth. And we want to be participants with our new kind of unique technology. But it's going to be kind of more, I'll say, medium to long term. Thanks, Sente. Thank you.

Your next question comes from David Razo from Evercore ISI. Please go ahead. Your line is open.

Hi. Thank you for the time. A question about what's in the backlog for each business. The color you provided on ITF appears to be a positive mix when I hear that the bigger compressors are strong. And then within precision, just thinking about medical, maybe that driving the growth diminishes a little bit. Should we think about that as maybe potentially a little bit of a less positive mix moving forward? So I'm just trying to get a sense of what's in the backlog, what we have seen so far in October to better understand the mixed developments of the revenue within those two segments.

Sure, David. I'll start kind of the inverse order. You hit it on the head with precision in science. We did definitely have, I'd say, an elevated medical backlog that we were really leveraging through second quarter, third quarter, largely kind of shipping through here as we got to the beginning of the fourth quarter. And the medical piece definitely had a little bit of a margin upside, comparatively speaking. So it's not to say that the balance of the precision in science um it's actually healthy healthy margins it's just not quite at those those medical covered related orders so again that'll normalize here as we move through fourth quarter and into 2021 on the itnf side it's actually not dramatically different um you know each project is a little bit unique but i would say that the the margin profile is actually kind of comparable to what you see on the on the typically shorter cycle compressors or blower and vacuum um equipment and you know as such i would i would say that q4 margin profile should be comparable to what you saw in q3 it's Project by project can look a little bit different, but I think in totality it's relatively comparable, especially given the momentum we've seen on margins across the balance of the short cycle.

That's helpful. And lastly, on the COVID impact, especially some of the lockdowns we've begun to see in Europe, and hopefully we don't see any here, but when you think about a potential impact, are you trying to get ahead of that a bit, maybe securing some kind of buffer component inventory

rate and as it unfolds it unfolds i'm just curious how you're reacting to potential uh impact i i i wouldn't call that we're accelerating any uh any inventories uh as we speak no so uh you know what our teams have been doing is that they based on the lessons learned i mean they clearly work with the suppliers so that the suppliers can hold more buffer inventory for all this is us holding that inventory And so I think we're prepared and working with the supply chain to be able to service us proactively.

And so far, no implications on any facilities from some of the French or UK or some of the lockdown lights we've seen in Germany? No. Terrific. No implications.

No.

Terrific. Thank you. Appreciate it.

Thank you. Sure.

Your next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.

Thanks. Good morning, everybody. me uh vicente can you maybe just touch on that um that opportunity that you're seeing uh specifically on the oil free side uh with with with selling through your your your european channels i'd love to know any kind of thoughts on you know cadence of that opportunity over the next couple years yeah joe i think this is actually uh uh i mean as you remember we were pretty excited with uh with a combination of the two companies because of the complementary technology

and how much we consider oil-free to be just a good kind of growth and market just based on the market that it plays. And so this is a very good opportunity because the Ingersoll Run team definitely has a lot of good experience selling oil-free compressors. And I would say that at this point in time, we're just kind of scratching the surface still on just purely kind of aligning the technologies to where the best channel could be served for those technologies. So what you saw here is basically our kind of launch of that oil-free technology that we developed during the Garnet Denver days and having the Invisalign team have access to that through their channel. And the teams are very excited. I mean, our channel partners as well as the direct teams are very excited positioning those technologies into the primarily food and pharma end markets.

That's helpful, Caller Vicente. Thanks. I think maybe my one follow-up, I know we touched on this a little bit earlier on an ITS short cycle versus long cycle. Can you just remind us how much of your ITS business is tied to short cycle with the ISM improving versus long cycle project related?

You know, Joe, I'll take that one. This is Vic. I would say that, you know, probably I would ballpark it about 80%, roughly speaking, is probably shorter cycle, kind of typical standard fare compressor, blower, vacuum, power tool type equipment. You know, 15% to 20%, somewhere in that range, is probably a little bit more tied to the longer cycle components, so things around the larger centrifugal compressors as well as things like the Nash-Ferro kind of vacuum liquid ring pump and compressor business. So that's probably a pretty good indication. Great. Thanks, guys. Thank you.

Your next question comes from John Walsh from Credit Suisse. Please go ahead. Your line is open.

Hi. Good morning. Good morning, John. Hi. I was wondering if you could just first kind of touch on maybe your customer inventory levels. I'm thinking about kind of those distributors that are stocking the smaller side of the compression range.

Yeah, John, you know, most, we don't have that many distributors that will stock a lot of our compressors. And our exposure to the kind of smaller reciprocating compressors, that basically kind of will be maybe the, either the do-it-yourselfer, we also don't play on that. So I would say inventory levels are just definitely not seen by anybody kind of stocking anything. It's kind of a sell-through.

Great. And then I guess just thinking about some of the adjustments and as we go into next year, you know, I guess there was a non-cash impairment this quarter. The acquisition-related expenses are ramping down. I mean, there's puts and takes, but how do we think about those items as we, you know, update our models for next year? Is there visibility into Any big adjustments as you see it today?

Sure, John, I'll take that one. So, you know, I think in terms of, as we've said, you know, whether it be kind of the restructuring or acquisition-related items, you can see that, you know, the large majority of the purchase accounting items have bled themselves through. So, again, you saw that dramatically decrease from Q2 to Q3. And I think with regard to some of the restructuring items, you'll see, you know, a normal cadence of that as we move into 2021, as we still do have, you know, restructuring in the form of footprint optimization and things like that ahead of us. In terms of the trade name item, you are correct. We did have a small trade name impairment specific to the power tools and lifting unit within the IT&S segment. Very discreet and technically just a reflection of some of the revenue declines that we've seen in the power tools and lifting fees specifically on the trade name side. So, again, I would say that was one time in nature. You know, as we look forward, we would expect that the nature of adjustments to be very comparable to kind of the trajectory you're seeing with regards to restructuring some of the normal course adjustments. Are there large adjustments and things of that nature? No, we wouldn't expect those. Those are very discreet and unique in terms of what you've seen in the first two to three quarters of this year.

Great. Very helpful. Thank you.

Your next question comes from Nathan Jones from Steeple. Please go ahead. Your line is open.

Good morning, everyone. Good morning, Nathan. I've got a bit of a follow-up to questions Joe and Andy asked before. On these new product developments and adjacent markets that you're moving into, and maybe if you're looking at it over a little bit of a longer term, markets are going to grow what they're going to grow. Do you guys have a number that you're targeting in order in growing that addressable market over time? Like, do you think you can grow the addressable market 50 basis points a year, 100 basis points a year through these new product developments? and acquisitions to get yourself into new markets to really expand that addressable market consistently over time?

That's a really great question, Nathan. You know, clearly, you know, we have always been, can I say, speaking not openly, but how the addressable market for us and how we want to, if you remember the days of the medical team, how we doubled that addressable market over a course of like two years. So I think it depends on the business, but clearly we want to continue to expand the addressable market. We don't have it pegged at a number, but in the precision and science team, it is clearly kind of dramatic in terms of how we want to increase the addressable market based on penetrating with the new technologies that the team is working. But specifically to a number, I don't have it. We don't have it, Peg. We just have it more as a holistically over the strategic period, which is three years. We want to double the visible market in some of the specific businesses that we're focusing ourselves.

Fair enough. One other number that caught my eye was the 29% order growth in SVT. Can you talk about what's driving that number up, how that impacts the outlook for fourth quarter, and what's an average kind of book to ship in that business?

Yeah, so the impact, I mean, the team is just executing really well on a lot of initiatives, and particularly one around, you know, the launch of new products on the consumer side. So basically, these are kind of golf carts that are customized to your needs. You can go online, which, I mean, you should do, I think, go online and then kind of customize to your specific kind of desire. And basically, that's kind of a pretty unique solution for personalizing the vehicles for the individuals. And we have seen tremendous demand of that over the past couple quarters. You know, I'll say that, you know, we're typically, I mean, based on the demand that we're seeing, it's typically, you know, maybe weeks, but not quarters in terms of kind of the backlog. And specifically, I don't want to call it a number just because we view it as kind of being very strategic in terms of how we quickly we can deliver uh those uh those those those golf carts uh for the consumer side but it's driven by by a lot of the initiatives that the teams are doing around you know direct direct to consumer demand generation uh as well as you know kind of new launches of product we're launching new lithium battery that extends the range of these consumer cards. And also, you know, we spoke today on the call about the connectivity, and the connectivity platform is also providing some good recurring revenue streams for that team.

Great. Thanks very much.

Thanks, Nathan.

Your last question comes from Yvonne Andolewska from Gordon Haffnett. Please go ahead. Your line is open. Good morning, guys.

So just to follow up on specialty vehicles, what's driving this margin, significant margin improvement? And is MIX a big driver and how do you expect it to kind of develop going forward?

Sure. Q3 was obviously an exceptionally strong margin performance, really driven by kind of two main factors, one being the consumer piece, second being the aftermarket piece. So I think the mix, frankly, was the single biggest driver. Consumer, as we've spoken about before, is the highest margin profile component of the entire portfolio, and frankly, aftermarket is right there with it. So when that comprises a healthier component of the mix, you can see kind of the margin profile that goes with it. And then we've obviously done a lot with regards to I2V, you know, self-help, IRX initiatives, which are seeing kind of play themselves out. I think as we think about Q4, and as we mentioned, again, consumers still expect to be strong, but this becomes a very typical, very strong golf shipment quarter. And golf just does, frankly, have a slightly lower margin profile, comparatively speaking, to consumer and the aftermarket component. So, again, we would expect to see the kind of margin profile normalize a little bit, but that's really mix-driven. But even then, you're going to see meaningful margin expansion year over year. So, again, we're quite pleased with kind of how the team is executing both on the self-help productivity side as well as just, frankly, the top line side of the equation.

Got it. And then one question on ITNS, how do margins compare between your core businesses, compressors and blowers, versus power tools and other? And what do you see as medium to long-term targets for each company?

Sure. So, you know, we don't break down necessarily the subcomponents of the portfolio, but let's just say that I think that the, you know, as we've historically said, the compressor, blower and vacuum components actually all have, I'd say, fairly comparable margin profile. While there tends to be a little bit of mix between original equipment and aftermarket, what you can expect here is, though, compressors tend to have a higher aftermarket component, which tends to be a little bit healthier margin. And as such, I'd say the compressor, blower, vacuum piece tends to be a little bit healthier. Clearly, components of the portfolio, like power tools, tend to be a lower margin profile. We've said that before. But I think we're quite encouraged by the steps the team has taken. Defente mentioned the prepared remarks, you know, 270 basis points of sequential improvement as we move from Q2 to Q3. I think in terms of medium to longer-term targets, like we've said, we feel very good about where the profile of the total segment is, kind of preaching that mid-20s range. You know, I think that's, you know, frankly, we want to see kind of those levels, and we have, frankly, a lot of opportunity with regards to synergy execution, things like that that are going to start delivered in 2021 onwards. So again, we haven't put a formal, I'd say, target on it, nor have we put a cap on it. But I think we're encouraged by what we're seeing. And yes, we would frankly still expect that the core component of the portfolio, compressors, blowers, and vacuums, to have a higher margin profile than the balance.

Thank you.

Thank you.

We have no further questions. I would like to turn the call over to Zinfante Reynold for closing remarks.

Thank you, and thank you, everyone, for the interest in Ingersoll Rand, and I'm very appreciative of the tremendous amount of work that our employees are doing here, even in this kind of difficult environment, and delivering tremendous results. So thank you, and thanks to our employees. Thank you. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.