Ingersoll Rand Inc.

Q4 2020 Earnings Conference Call

2/23/2021

spk00: Ladies and gentlemen, thank you for standing by and welcome to the Ingersoll-Rand 4Q 2020 Earnings Conference Call. At this time, all participants are in a 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. 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, Chief Financial Officer. Thank you. Please go ahead, sir.
spk02: Thank you, and welcome to the Ingersoll Rand 2020 Fourth Quarter and Total Year Earnings Call. I'm Vic Kinney, Chief Financial Officer, and joining me is Vicente Reynal, Chief Executive Officer. We issued our earnings release and presentation yesterday that we will reference during the call. Both are available on the Investor Relations section of our website, www.irco.com. In addition, a replay of this conference call will be available later today. Before we start, 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 filing, 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. On today's call, we'll provide a company strategy and integration update, review our company and segment financial highlights, and offer 2021 guidance. For today's Q&A session, we ask each caller to keep to one question and one follow-up to allow enough time for other participants. At this time, I'll turn the call over to Vicente.
spk11: Thanks, Vic, and good morning to everyone. Before we start, I want to take a moment to reflect. Think about it. One year ago today, we were five days away from day one as an integrated company of Garnet Vendor and the Ingersoll Rand Industrial Segment. And what a year we selected to take on a transformational transaction. Our newly combined company committed to a purpose to lean on us to help you make life better. and a set of values that included having the confidence to take on the most difficult problems with humility and integrity. And little did we know, we would be tested so quickly. Looking back on 2020, the global pandemic was challenging for everyone. We all had to adapt and learn new skills to ensure our essential worker safety as they worked to provide mission-critical products and services to serve the frontline of the COVID-19 pandemic. And we turn to our innovation and creativity to discover new ways to connect with each other, with our customers, and with our partners. I am proud of every one of our global employees for their resilience, dedication, and determination to think and act like owners, and protect and nurture our one-year-old organization. Our employees are strong. We adapt quickly and move fast. It's part of our culture, and that's not something you can replicate. It's a competitive advantage, and we proved it worked for us this year. The backbone and economic engine is our industry-run execution excellence. But it's our employees who trust and lead IRX every single day. And thanks to them, we deliver strong results and stand ready to grow in 2021 and beyond. Starting on slide three, today we're going to concentrate our remarks around three things. First, how we accelerate it our transformation during 2020. Second, how we are unlocking our true potential as a company as we successfully pivoted to focus on growth and our portfolio optimization. And third, how our focus on growth is supported through strong business segment performance during Q4 with momentum continuing in Q1. Moving to slide four, you have seen this before. It's a framework of building a strong foundation, pivoting to growth, and optimizing the portfolio. all guided by our five strategic imperatives down on the left-hand side. It's a reminder to what we have been executing against to deliver on our commitments. Turning to BI5, that framework shows we achieved substantial traction across all five strategic imperatives and pivoted quickly to offerings around growth and portfolio optimization. from completing the industry-run industrial transaction and integrating complementary cultures to awarding one of the largest equity grants ever given to employees in an industrial company and establishing diversity, equity, and inclusion goals. Our 2020 accomplishments, especially in the area of human capital management, are a differentiator. We see broad-based employee ownership as a game changer. It takes performance to a new level. With thinking and acting like I know them as one of our core values, it changes the mindset from this is the company I work for to this is my company. It's a massive shift. Employees are highly engaged and active participants in our journey to create long-term value. All of these human capital management priorities are part of why we at it operate sustainably as a strategic pillar. More on that in a minute. We enhance our portfolio through bolt-on acquisitions and also the sale of a majority interest in our high-pressure solution sector. Looking ahead to 2021 and beyond, we'll focus on several areas. We're ahead of plan on our integration as we enter year two. We are increasing our integration cost synergy target by $15 million to $300 million. On growth, we're bringing together complementary products across businesses for strategic niche markets such as water. And we're accelerating new product launches into sustainable industrial markets such as hydrogen. All of these while we continue to focus on a strong balance sheet to support our inorganic growth strategy through accretive M&A transactions. Let's turn to slide six. As we successfully appeal to growth and our portfolio permutation, we're unlocking our maximum potential as a company. Capital allocation is a huge part of my personal focus, and I'll come back to you with more thoughts on this when ready. We're actively discussing this with the board. To start, last week we signed an agreement to sell a majority interest in our high-pressure solution system. At the time of close, we will receive approximately $300 million, while retaining a 45% common equity ownership in the business moving forward. We view the $300 million alone as a good value, as it is approximately 24 times 2020 adjusted EBITDA, and also represents a solid multiple of 2021 expected adjusted EBITDA. The remaining terms of the deal are confidential, and we're not going to comment further, but we view our remaining equity as pure upside in the medium to long term. For Ingersoll Rand, the transaction is a meaningful step forward in our transformation. It materially reduces our direct exposure to the cyclical upstream oil and gas market to less than 2% of revenue and results in a much more predictable business performance. And all of these while removing minimal current earnings from the company. On the M&A front, at the beginning of this month, we completed the purchase of two fuel vacuum and blower systems. The transaction is highly complementary to our vacuum and blower technologies and will operate under the iconic and premium brands of NV Pneumatics and Kini vacuum pumps. As we pivot to growth, we accelerate investment in IoT, e-commerce, and digitization. Last week, you may have seen our announcement with Google Cloud for a five-year collaboration to advance connectivity across our portfolio. With real-time data and machine learning for smarter and more innovative products, we are strengthening our capabilities to help our customers be successful for the long term. along with recent new products and wins in strategic end markets we have recently shared with you, like hydrogen, life sciences, and oil-free compressor products. Our work with Google represents one way we are positioning ourselves to accelerate growth in 2021 and beyond. Unlocking our true potential means being focused on sustainable technologies in high growth end markets, And it also means being focused on our commitment to environmental, social, and governance principles, as we see now on slide seven. Yesterday, we joined the growing number of companies who are embracing their leadership responsibilities to help confront the global threat of climate change. The differentiator is that we are placing some ambitious milestones for our ESG efforts, We're committing to be net-zero greenhouse gas emission by 2050, locating to 60% of this goal in less than 10 years, by 2030. In addition, we have also committed to targets for water and waste reduction. As our purpose states, lean on us to help you make life better. We want to be an active participant on this important cause for the long-term sustainability of our planet. A key advantage for us is using IRX to deliver the performance needed to achieve our environmental goals. It will provide an ongoing cadence of transparency and disclosure in our second annual sustainability report being published at the end of May. I will now turn over the call to Vic to provide an update on conventions. Vic? Thanks, Vicente.
spk02: Moving to slide eight, Q4 saw a strong balance of commercial and operational execution fueled by the use of IRX. with ongoing signs of improvement across industrial and markets. We continue to be pleased with the performance of the company in Q4. Total company orders and revenue increased 12% and 13% respectively, as compared to Q3 levels, with strong double-digit orders momentum across each of the segments. In addition, the company continues to drive outperformance on productivity and synergy initiatives using IRX as the catalyst. The company delivered fourth quarter adjusted EBITDA $344 million and adjusted EBITDA margin of 22.8%. This was 150 basis point improvement from Q3. And on a year-over-year basis, despite mid-single-digit revenue decline, margins increased 300 basis points. And when adjusted to exclude the high-pressure solution segment, total company margins improved 350 basis points. Given the strong closing key for, we had our best performance of the year in terms of managing decrementals, with adjusted EBITDA increasing by $30 million on a year-over-year basis, despite the $78 million decrease in revenue. As we've stated before, quality of earnings has been a key focus, and you can see the continued momentum we had throughout 2020 on this metric. Cash flow on the balance sheet was another highlight for the quarter, as free cash flow increased to $397 million, yielding total liquidity of $2.7 billion at year-end. Moving to slide nine, for the total company, orders increased 2% and revenue declined 70%, both on an FX-adjusted basis. This is a meaningful improvement from the comparable 8% and 11% declines we saw in the third quarter. IC&S, Precision and Science Technologies, and Special Vehicle Technology segments all saw positive organic orders growth in the quarter. Starting first with IC&S, the total segment saw 2% FX-adjusted orders growth with both the Americas and EMEA regions showing mid-single-digit orders improvement for core compressor, blower, and vacuum equipment. Precision science saw 6% adjusted orders growth in the quarter, the highest level reached during the entire year. Continued strength in the product lines like medical and Dosatron, both of which saw double-digit growth, were the major drivers given niche and market exposure in areas like lab, life sciences, and water. Specialty vehicles saw continued strong orders performance, up 21% XFX. Specialty vehicles showed positive orders growth each quarter in 2020, and Q4 saw a nice balance with continued strong momentum in consumer vehicles, as well as double-digit growth in golf as well as aftermarket. Overall, we posted a strong book-to-bill of 1.01 for the quarter. This was much better than the prior year level of 0.92. Given the typical seasonality we see in the fourth quarter with strong shipments and book to build below one, we are encouraged by the Q4 2020 book to build being above one as it sets up a healthy backlog moving into 2021. The company delivered $344 million of adjusted EBITDA, an increase of 10% versus prior year. The IT&S, precision and science, and specialty vehicle segments all saw year-over-year improvements in adjusted EBITDA and had strong triple-digit margin expansions. The HBS segment continued to show profitability despite depressed revenue levels and performed largely in line with expectations. And finally, corporate costs came in at $32 million for the quarter, consistent with prior expectations and relatively flat the prior year. Turning to slide 10, quickly touching on the total year, FX adjusted orders and revenue were down 9% and 13% respectively, due primarily to the impact of COVID-19 in both the ITMS and precision and science segments, as well as the known downturn in the upstream energy markets, which impacted the HPS segment. Despite these headwinds, the business delivered adjusted EBITDA of $1.08 billion and adjusted EBITDA margin of 20%, which was up 60 basis points versus the prior year, or 180 basis points, excluding HPS. This speaks to the team's ability to execute during differing business cycles, as full-year decrementals were limited to only 15%, and the three core segments of IT&S, precision and science, and specialty vehicles all deliver triple-digit adjusted EBITDA margin expansion. This is only possible through the power of IRX as an execution engine to drive change in every area of the business. Turning to slide 11, free cash flow for the quarter was $397 million driven by the strong operational performance across the business and ongoing working capital improvements. Inventory management was a particular highlight with a reduction of nearly $60 million we're starting to see benefits of many of the operational efficiency projects the team has been deploying as well as the benefit of the improving commercial environment capex during the quarter totaled 15 million dollars and free cash flow included 17 million dollars of outflows related to the transaction from a leverage perspective we finished it two times which was a 0.5 times improvement as compared to prior quarter due to both the strong cash generation in the quarter as well as the improvement in LTN EBITDA due to the strong Q4 finish. We have now reduced leverage to the same levels we had prior to the RMT and have line of sight to leverage coming down closer to 1.8 times once the HPS sale concludes. On the right side of the page, you can see the breakdown of total company liquidity, which now stands at $2.7 billion based on approximately $1.8 billion of cash and nearly $1 billion of availability on our revolving credit facilities. In total, liquidity has now increased nearly $1.2 billion from the end of Q1. This gives us considerable flexibility to continue our strategy of M&A coupled with targeted internal investments to drive sustainable organic growth. Moving to slide 12, we continue to see strong momentum on our cost synergy delivery efforts. Due to the funnel we have built that stands in excess of $350 million and strong execution, we are increasing our overall target by $50 million to $300 million. To date, we have already executed approximately $175 million of annual life synergies, which is approximately 60% of the overall target and a $25 million increase from prior quarter. In total, we delivered approximately 40% of our new $300 million target in 2020, which equaled approximately $115 million of savings. In addition, we expect to deliver an incremental $100 million of savings in 2021, which would bring the cumulative total to approximately 70% at the end of this year. We expect a cumulative 85 to 90% of the $300 million in savings by the end of 2022, with the balance coming in 2023. The $50 million increase in the target is largely driven from procurement and direct material-oriented initiatives as the team continues to make good strides, both on leveraging the larger spend base of the company, as well as executing on the IQV funnel. IQV is a particular success story. Over the past six months, we have conducted over 20 virtual events with our commercial, product management, and manufacturing teams to both build the funnel and start executing on tangible savings. On the right side of the page, we reported each quarter in terms of our progress on managing decremental margins across the business, and Q4 was no different. I will now turn it back over to Vicente to discuss the segments.
spk11: Thanks, Vic. Moving to slide 13 and starting with industrial technologies and services, overall organic orders are up 1% and revenue down 8%, leading to a book to bill of 0.98 times. Despite the revenue decline, the team delivers strong adjusted EBITDA of 12% and an adjusted EBITDA margin of 26.1%, up 400 business points year over year. Margins were also up 210 basis points sequentially versus Q3. Let me provide more detail on order performance. Starting with compressors, we saw orders up mid-single digits. A further breakdown into Oil-Free and Oil-Liberated codes shows that orders for both were up mid-single digits. Oil-Free order rates slightly outperformed those of Oil-Liberated and speak to the efforts of leveraging the company's expanded Oil-Free portfolio and taking advantage of these channels. Regarding the original split for orders and compressors, in the Americas, North America performed comparatively better at up no single digits, while Latin America was down high single digits. Mainland Europe was up high single digits, while India, Middle East, and Africa saw a nice inflection at up high pin as compared to being down double digits in the past two quarters. Asia-Pacific continued to perform well with orders up mid-single-digit, driven by mid-single-digit growth in China and relatively sluggish growth across the rest of Asia-Pacific. In terms of vacuums and blowers, orders were up mid-team with strong double-digit growth in the industrial vacuum and blower portfolio, as well as mid-single-digit growth in the longer-cycle mass-gear vacuum business. Moving next to power tools and listings, The total business was down no teams in orders. The tools part of the business was down high single digits in orders compared to down high teams in Q3. We expect the people back to positive orders growth in the first half of the year, driven mainly by our enhanced e-commerce capabilities. On the right side, you'll see three market drivers, common to our go-forward segment, which is sustainability, digitization, and shifting demographics. For each segment, I will comment on how they're stepping forward to address these drivers. For ITS, the Google Cloud announcement I referenced earlier is a prime example of how the business is expanding comprehensive data digitization that will help increase the customer's ability to improve energy efficiency to support them on achieving their own greenhouse gas emission reduction. Let me move now to slide 14 and the precision and science technology segments. Overall, organic orders were up 5%, driven by the medical and dosatron businesses, which were both up double digits, as well as healthy growth in the water and general industrial markets from folks like Milton Roy. The momentum on our hydrogen solutions continues to build, and we saw some good orders and funnel activity in this rapidly changing market. Revenue was down 8% organically, with a major driver being two large projects for a large aerospace and defense company that shipped in Q4 of 2019 within the legacy PFS business. Despite the revenue decline, the PSTP delivered strong adjusted EBITDA of 7%. Adjusted EBITDA margin was 30.8%, up 290 basis points year over year. As a reminder, this segment was already generating a very respectable 27.7 adjusted EBITDA margin back in Q1 of 2020. But we're very pleased with how the team continues to transform this business as now in Q4, with comparable revenue as what we did in Q1, this segment is generating 310 basis points more margin. Looking at the market drivers, the positional science team is meeting the demand for more sustainable energy sources and launching into markets like hydrogen. From a digital perspective, many of our new pump technology can be multi-controlled, metering and dosing to ensure the safe and reliable dispensing of chemicals for markets around food sanitation and animal health. And the segment medical business is answering the demand for precise liquid handling technology to help advance personalized medical research. Moving to slide 15 on the specialty vehicle technology segment, Overall, Q4 was another strong quarter for the specialty vehicle team. Orders were up 21% organically and continued to get stronger throughout the quarter as the consumer offering continued to gain momentum and market share. We also saw an inflection on growth that continued into Q1. We believe our lithium-ion battery launch is clearly a market leader and we're taking share in the market. Organic revenue went up 8% with improvements across not only vehicles, but also aftermarket parts and services. We feel we're in the early stages here and see potential as we expand the info base that can be served ongoing with parts and accessories. Adjusted EBITDA of $46 million increased 40% year over year, leading to an adjusted EBITDA margin of 18.7%. And these represent a 420 basis point improvement versus prior year. Again, proving that IRX can be applicable to any business to generate solid improvements. We continue to see runway into the future as the team continues to move rapidly on accelerating initiatives like new product launches and end user lifecycle management. In terms of SVT market drivers, the segment is recognizing and responding to the sustainability and efficiency demand for zero-emission vehicles to replace gas engine vehicles. For example, in Q4, we saw more than 80% unit growth for lithium cars versus the prior year. Digitization is critical also, as owners expect connected cars to provide real-time data on their vehicles. This data can range from maintenance information, location-based data, or infotainment services. And from a demographic shift perspective, we're seeing a higher demand for families to own recreation, near-emission consumer vehicles used for short-distance driving at low speeds. Moving to slide 16 and the high-pressure solution segment, the business performed largely in line with expectations in the midst of continued low demand in the oil and gas markets. Ordnance and revenue were down 51% and 42% respectively, which was an improvement over the decline seen both in Q2 and Q3. Nearly 90% of the revenue base continues to come from aftermarket parts and services, and the business delivered possibly a jubilee of $2.5 million and decrementals of 40%, despite the meaningful revenue declines. Beginning with the first quarter of 2021, And due to the recently announced sale, the HPS business will be classified as discontinued operations in no future periods, and we will retroactively adjust the comparable prior periods. Within the income statement, the historical HPS business results will be presented on a single financial statement lying below operating income. And upon deal closure, we will account for our 45% interest under the equity method of accounting. This means we will record a proportionate share of the HPS business income or loss for the period through a single financial statement line below operating income. Moving to slide 17, we will review guidance for 2021. Given the pending sale, the HPS statement will not be included in our revenue or adjusted EBITDA guidance for the year. Starting with revenue growth, we expect total interest or rent revenue to be up high single digits to no double digits on an action-forwarded basis. This is comprised of mid-single-digit organic growth across each of the three sectors. FX is expected to be a low single-digit tailwind for the business on a total year basis, given the weakening of the U.S. dollar against major foreign currencies like Europe and British pounds. FX assumptions are based on December 2020 exit rates. And finally, we expect the M&A impact to be approximately $60 million driven primarily by the student acquisition in the IPS segment. From a facing perspective, we anticipate the first half of the year to be up no double digits, driven by the prior year impact of COVID-19, particularly in China in Q1 2020, and the rest of the world starting in Q2 of 2020. In addition, the FX tailwinds will be most evident during the first half of 2021. Overall growth in the second half of the year is expected to mobilize a bit comparatively, but still be up high single degrees. As is typical, we expect Q1 to be comparatively lighter than the remaining 2021 quarters. Based on these revenue assumptions, we're introducing 2021 adjusted EBITDA guidance of $1.23 billion to $1.26 billion. includes an expectation for approximately $100 million of incremental transaction-related cost synergies with slight offsets due to two factors. First, approximately $35 to $40 million of temporary cost taken out in 2020 returning to the P&L. And second, some expected material and logistic inflation giving current dynamics across the global supply chain. We continue to monitor overall inflation and will take appropriate incremental pricing actions if and when wanted. In terms of cash generation, we expect full cash flow conversion to adjusted net income to be greater or equal to 100%. CapEx is expected to be approximately 1.5% to 2% of revenues. And finally, we expect the adjusted tax rate to be between 23% and 24%, as compared to the 24.3% rate seen in 2020. Moving to slide 18, as we wrap today's call, I reflect on 2020 as a year that changed us all. We took every measure to prioritize our employees' safety while enabling our essential workers to maintain their livelihood, and that is because our employees mean the most. We concentrated on delivering our mission-critical products and services, to the front line of the COVID-19 pandemic site because our customers need them most. And we even proactively reached out to area healthcare providers to donate the use of sub-degree freezers to store COVID-19 vaccines because communities also need them most. So we take a role as a sustainably minded, employee-owned industry leader series. It can be seen by our clear commitment to reducing our impact on the environment. I am proud of every federal team member in our company for how we came together and delivered to protect the interests of all of our stakeholders this year. What a difference a year makes. On the threshold of our one-year anniversary, it's been a momentous ride, creating a differentiated culture and improving the performance of our company. I am confident we will continue to transform Ingersoll Brand and deliver increased value to all of our shareholders. And with that, I'll turn the call back to the operator and open for Q&A.
spk00: Great. Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. And your first question here comes from the line of Nicole DeBlaise from Deutsche Bank. Please go ahead. Your line is now open.
spk05: Yeah. Thanks, guys. Good morning.
spk00: Morning, Nicole.
spk05: Maybe we could start by just talking about, you know, if you guys are seeing any impact to production or your supply chain relative to COVID and how confident you feel about the ability to ramp up as we move into 2Q when presumably growth should be pretty significant.
spk04: Yeah, Nicole, I'll say that, I mean, we're clearly not immune to what is happening out there in the supply chain, whether, you know, delivering or kind of the logistics side. I think the good news here is I say two things. You know, one, we have always said that we're in the region for the region, so we're really co-located in our factories to really support our customers in the regions. And for the most part, a lot of our supply chain is really co-located within the kind of close proximity of the factory. So that has not been a material impact to us. And I think the second point that it has been good for us is that with the combination of the two companies, we have a larger supply chain And as we have gone through the procurement and the rationalization of suppliers, we're selecting some pretty strong partners that are here to support us from a global perspective. And that is kind of leading to no having that disruption that perhaps others are seeing. So in terms of ramping the capacity, you know, we just don't foresee that to be an issue. I mean, for the most part, most of our factories, they operate under one shift. operations, and if we have to expand, that should be just a matter of expanding capacity from incremental shifts.
spk05: Got it. That's helpful. Thanks, Vicente. And then when you think about the proceeds from HPS once the divestiture closes or the partial divestiture, is the idea that that's going to be used completely to pay down debt? I know you mentioned bringing down leverage on a pro forma basis. And is that indicative of maybe the M&A pipeline just not being very full right now?
spk04: Yeah, I think, Nicole, as we mentioned, I mean, capital allocation is definitely one of my top priorities. And we're having a constant conversation with the board. We'll provide an update here in due course. But, yeah, I mean, we're very excited where we are. You have seen that we're still playing a pretty large addressable market, highly fragmented. Our M&A funnel is really robust, very strong. And it's just a matter of making sure that we're disciplined with current valuations.
spk05: Okay, thanks. I'll pass it on.
spk04: Thank you, Nicole.
spk00: Your next question comes from the line of Mike Halloran from Baird. Please go ahead. Your line is now open.
spk03: Hey, good morning, everyone. Morning. So let's start on the cost outside. So uptick the target from $250 million to $300 million. Funnel is still at $350 million, but obviously you're talking about some upside to that. So two things. Can you talk to the components of what you've seen that gave you confidence to raise it from 250 to 300? And then also maybe talk about what some of the things that are out there that would raise this energy target funnel above that 350 level. Yeah, sure, Mike.
spk02: Vic, I'll take that one. You know, I think like we've said, you know, we had a larger funnel, you know, in the course of $350 million. And, you know, I think the team has been executing really well. You know, I think a large part of the local structural um uh actions are really behind us really most of those taken much more closer to the merger and really what you've seen the momentum building on here is really execution across really the more direct material uh focus components of that funnel so really uh what i'll call procurement as well as now really getting deep into the i2b side of the equation So I think a lot of what you're seeing is just good execution. Like we always said, we had a larger funnel. I'd say that not every idea in the funnel is going to necessarily translate straight to the bottom line, but the team has executed really well. We saw really good momentum, including in fourth quarter. Our annualized synergy number actually increased in fourth quarter compared to where we were in Q3. And so it gave us the confidence to be able to increase its energy target up to $300 million. I think in terms of the second part of your question, what would give us kind of increased confidence to increase it further from there, I think it's really continued execution. You know, what's really ahead of us here is items like procurement, I2B, and footprint. And, you know, we've always been very disciplined in saying that the footprint piece of the equation was always going to come more so towards the back end of the kind of three-year plan. Nothing has changed in that perspective. But I think now as we're moving into kind of our second year as a combined company, you know, now the teams are really starting to kind of build out that footprint funnel and starting to see kind of some of that momentum. So I think that's really time will tell in terms of being able to kind of increase the number from there. optimistic about where we've gone thus far.
spk03: Thanks for that, Vic. And then the second one here, when you think about assumptions embedded in the revenue guidance for the year, maybe just talk a little bit about what the cadence looks like. Obviously, first half, second half dynamics you laid out in prepared remarks as well as in the slide deck, but are you assuming normal sequentials? Are you assuming a pretty conservative ramp through the year? Maybe just get some context on what type of environment is embedded in the assumptions as you look at the three units.
spk02: yeah mike i think in general i think what you can expect is that quarterly phasing in terms of revenue should be quite comparable to what we've seen in 2020 in terms of percent of sales per quarter and what you typically see there is q1 typically the lightest quarter um you know as as customers kind of reload budgets and things of that nature as well as the chinese new year holidays in the first quarter uh second and third quarter in between and q4 typically becomes the heaviest quarter um again the same dynamics that we've seen historically as well as some of our, I'd say, larger project businesses tend to ship more so in the fourth quarter or the second half of the year. So, again, I don't think anything is largely different in that respect when you think about the kind of overall equation. And, you know, 2020 is probably a pretty good proxy to use in terms of the quarterly phasing and applying that to 2021.
spk03: So if I hear you right then, you're basically assuming normal sequentials from the current run rate and no real acceleration in the environment from an underlying perspective from here.
spk02: Yeah, I think that's a fair way to describe it. Like we mentioned in the prepared remarks, I think we continue to see the overall kind of industrial demand environment improving sequentially kind of as you saw through Q4. But I think as you look at it in the context of 2021, we see a fairly similar cadence to what we saw in prior year. Thanks, Jake. Thanks, Jacinta.
spk11: Thank you, Mike.
spk00: Your next question comes from a line of Julian Mitchell from Barclays. Please go ahead. Your line is now open.
spk09: Hi, good morning. Maybe just starting off with that adjusted EBITDA guide for the year. Just wanted to confirm that that implies around a 30% incremental margin or so. um and then you know understand there's a hundred million of extra cost synergies as a tailwind for the ebitda maybe give any color around the headwinds embedded in that guide from say that the scale of temporary costs coming back any kind of input cost headwind that sort of thing yeah sure julian i i'll take that one so i think in terms of the uh
spk02: the incrementals that we're expecting on a total year basis. On an all-in basis, I'd say growth as well as some of the synergies as well as some of the other cost headwinds. It's probably closer to about a 35% incremental or slightly higher depending on some of the quarters, but it's a little bit closer to 35% of the implied incremental on an all-in basis. which we actually see as pretty healthy given kind of the puts and takes. And it does, of course, include reinvestment back into business as we're kind of focused on sustainable organic growth as we move forward. I think in terms of some of the moving pieces, I think you hit it on the head here. In addition to just kind of the organic growth and the M&A and some of the FX tailwinds that we called out in guidance, a couple of pieces I'd probably include. One, the $100 million that you spoke to in terms of the incremental synergy savings. That's the year two of our transaction-related integration savings. The second item then on the headwinds would really be the $35 to roughly $40 million of temp costs really coming back into the equation, really ramping as we move through the back half of the year. And then we have taken, I'd say, a nominal amount of inflation. We're not necessarily quantifying the exact dollar amount, but as you would expect, as Defente mentioned, we're seeing some of the kind of normal, I'd say, supply chain and logistics-oriented inflation that you would expect. So those are probably the major pieces in terms of the – you know, I'd say the components that we're seeing. And, you know, I think that hopefully kind of characterizes the components.
spk09: Thanks. And then maybe my second question just around the free cash flow was, you know, very, very strong in 2020. Just wanted to confirm sort of what's left in terms of, you know, cash costs to achieve synergies, right? and maybe what the phasing of that is, you know, embedded in your free cash flow in sort of 21 and 22.
spk02: Yeah, sure. I think we can keep it relatively high level. I mean, we do definitely have, I'd say, a fair amount of what I'll call continued integration of the company as well as synergy delivery, particularly on the footprint side. So, again, I think we've been saying, you know, roughly speaking, you know, on average about $20 million to $30 million per quarter has typically kind of been what you've seen in terms of cash costs going out the door for execution. I don't think that's a a bad placeholder use for 2021 as you look forward. So again, I think the equation still largely holds in terms of the expectations or the savings and the ultimate amount of cash costs going out the door. The only difference is we've really taken up the synergy number. We don't really feel like we need to increase the amount of cash out the door that we're expecting to spend to be able to deliver it. So again, I think we're pretty encouraged by how we've managed to execute to a higher number in terms of synergies, but continue to keep the cash outflows pretty disciplined. But remember, we do have the footprint piece of this equation ahead of us, which, again, does tend to be a little bit more on the cost side.
spk09: Great. Thank you.
spk00: Your next question comes from the line of Jeff Sprague from Vertical Research. Please go ahead. Your line is now open.
spk02: Thank you. Good morning, everyone. Hey, I just wonder if we could come back to the kind of the margin discussion a little bit and if you could elaborate a little bit on what you're expecting for price realization over the course of 2021. And just to be clear on your comments about cost, were those kind of inflationary pressures net of pricing actions? Perhaps you could just provide a little more color on that.
spk04: Yeah, Jeff, let me kind of give you a little bit of a call on the price. I mean, price, you know, we definitely – we generated price in the fourth quarter. I mean, we have said it very well that, you know, our pros are such a mission critical in the entire process that I would have been highly strategic on the price equation that we will continue to do so as we go into 2021. And, Dave, do you want to comment about the headwinds here?
spk02: Yeah. So, Jeff, I think the way I would think about the headwinds are we'd be able to say the headwinds are kind of separate from the pricing equation that I just mentioned. You know, net-net, we do expect to be price-positive. That's kind of the trend you've seen historically through the business. And I think the other thing you mentioned here is to a degree inflationary pressure has potentially become higher if that's really how things play out. We haven't actually seen that just yet, but we want to continue to look at the price of the lever to be able to pass that through. So, I think right now we see everything as kind of a price-cost positive equation. And can you also give us some thoughts on what you actually expect HPS to do in 2021? Vicente, I think you kind of mentioned a multiple on 21. I didn't catch it when you said it, so that implied an earnings number. Just thinking about what kind of placeholders should be coming through on equity income.
spk04: Yeah, Jeff, we're not providing the guidance on HPS in the 2021 or anything further in terms of kind of the details of the transaction. What I said on the remarks is that when you look at the $300 million of cash equals to roughly 24 times EBITDA of 2020, and also it implies a pretty good multiple based on expected 2021, but we're not guiding to any specific number for 2021. Okay.
spk02: I'm sorry, can I just ask one more quick one? Backlogs were characterized as healthy, but can you just give some context? Are they, you know, where they stand? Maybe backlogs is a percent of kind of forward projected sales. You know, are they normal in that regard? Do they, you know, give you kind of comfort and visibility in the top line forecast?
spk10: I'll stop there. Thanks.
spk04: Yeah, no problem, Jeff. You know, when you look at the three segments, you can characterize, you know, I'll start with maybe the specialty vehicles. You've seen the booting momentum. I mean, definitely they're coming in really strong into 2021 with very, very robust kind of backlog. ITS saw some very good large loan cycle orders as well in the fourth quarter. And also with some of the orders that we received in the third quarter that kind of gets shippable into 2021. So the backlog in ITS is coming in also better than what we have seen historically. And the precision and science is really kind of more in the short cycle. They don't have that long cycle with the exception of the hydrogen orders, and those we saw a few of them that we called out on some press releases in the third quarter, and we continue to see the funnel momentum of that continue to grow. So all in all, we feel pretty good position in terms of where we have the backlog coming into 2021. Thank you. Thank you, John.
spk00: Your next question comes from the line of Josh Porzwinski from Morgan Stanley. Please go ahead. Your line is now open.
spk02: Hi. Good morning, guys. Morning, Josh. So I guess we've come a long way from talking about fluid and pricing, so just really congrats on the overall portfolio transition the last few years. Thank you, Josh. Appreciate it. So in kind of the compressor, vacuum, blower, more traditional side of ITMS, maybe a bit stronger on orders than you would normally see at this stage of recovery. I mean, comps aren't really even truly easy yet. I know you're not big in semiconductor, maybe relative to your other big competitor out there, but can you maybe contextualize what's going on in the market and why orders are bouncing back so hard? It doesn't seem like it would be capacity for your customers, but some sort of debottlenecking or nearshoring or any way you would characterize what seems to be earlier strength.
spk04: Yeah, just know we're obviously excited with what the team has been able to accomplish there. As we have kind of articulated in the past, that vacuum and blower, as you very well said, is mostly industrial. We don't really play in the semiconductor market. And it's really due to the nature of kind of the niche business that we have in terms of applications. And the team on the vacuum side, they continue to win new OEM accounts. And these OEM accounts are basically new, pretty unique applications. and the blower, some good momentum on water and wastewater treatment facilities, as well as some other kind of niche end markets that we have been very actively engaged in opening. And when you combine some of that with the activity that we're driving with demand generation in this kind of highly fragmented end market, it's really what's causing that kind of good, solid momentum to perhaps show the ability to take some market share.
spk02: Got it. That's helpful. And then I guess just speaking to that fragmented end market, you guys are kind of a rarity in U.S. industrials that you've been able pretty consistently to find properties over the last several years at pretty steep discounts on valuation to yourselves. I know the properties in general tend to be on the smaller side, but Are there a lot of, you know, Tuthill's, Albin's, you know, run techs out there to be found? Like, is this a flywheel you guys can keep going? Because obviously the balance sheet and cash flow are in good shape. It's more of a question of do you have a place to consistently put it?
spk04: I will say yes, Josh. It is. You know, it is something that – We spent a lot of time, even in 2020, improving our process. You know how focused we are with process and our M&A process from stage zero in terms of ideas and cultivation has dramatically improved. Also, the level of investments that we have done with the team across the different segments to really support more penetration of M&A and the leverage of even IRX as a way to every week we kind of review some key critical performance indicators on things that we're adding to the funnel and how the funnel velocity is working, particularly in M&A. I think that's working really well. And so to answer your question, yeah, I mean, I think we see some continued period of momentum on the funnel activity and what could translate into acquisitions for us. And, yes, we're also very prudent on the price. We continue to be highly disciplined on that.
spk02: Perfect. Thanks for the call.
spk04: Thank you.
spk00: Your next question comes from the line of Rob Wertheimer from Mellius Research. Please go ahead. Your line is now open.
spk03: Thanks. Good morning, everybody. My question is a little bit just on the Google Cloud announcement that you made. I'm curious if that brings you new revenue models in the next five years. I'm a little bit curious if it puts you ahead of competition, how you thought about the decision strategically, and how it relates to how you interact with customers. Thanks.
spk04: Sure, yeah, Rob. You know, to your question, absolutely. I mean, this should help us become more creative on on new revenue streams over the next five years. You know, and when you think about it, the potential of what we have here is that in North America alone, when you look at all of our assets, when you look at particularly segments of industrial technologies and precision science, we have over a million assets in the field. uh in north america alone so as we continue to find ways on how we connect them and how we harvest the data and how we leverage now the super computing power from google cloud to be able to create better predictive analytics and better uh data uh data data braving streams i think that's the powerful of what we see here over the next few years and we're very excited that uh you know it's a pretty rigorous process we were able to select uh google cloud as one of those partners that can help us really harvest a lot of these data and analytics over the next few years to come.
spk03: Do you have any comment on how connected that asset base is today, what you are doing internally, and what you gain with Google? Is the groundwork done for the analytics starter, or do you have a lot to invest in?
spk04: Some of the groundwork has been done on the compressors. I think the excitement here, too, as well, is now, let's say that you wrote a specific end market, and we alluded to some of this on our last earnings call, on how when you look at the wastewater, we have multiple assets that could be connected to really optimize the entire process. This is what we see the powerful of realizing with the Google Analytics. But what are the early stages on that one?
spk00: Thank you.
spk04: Thank you.
spk00: Your next question comes from the line of Joe Beachy from Goldman Sachs. Please go ahead. Your line is now open.
spk02: Thanks. Good morning, everybody. Morning, Joe. Morning, Joe. hey so um so obviously great job you know navigating um you know really really tough environment uh this year i guess as i'm thinking about the the medium term for you guys from a margin perspective you exited the year really strong in both ips and psp i'm just wondering like how do we think about the the medium term targets for both of those segments um just given the upside synergies like Can ITS be, like, sustainably in the high 20s? I'm just trying to think about this, like, really kind of beyond 21 into 2022 and 2023.
spk04: Yeah, Joe, to answer that question specifically, yes. I mean, we haven't come out with a specific guidance in terms of the medium term of where we see the margin profile to come. But, I mean, look, ITS, I mean, finishing the fourth quarter, 26% margin. And if you remember back in the Garnet Denver days, we said that industrial segment, we wanted to be in the mid-20s. So, but we also said that mid-20s is not the cap, and that's just kind of a milestone, and we see, you know, more room for improvement from there on. When you kind of open the door inside ITNAs, I mean, we have, as you know, we're running P&Ls, and we have definitely P&Ls that are way above that kind of mid-20s. So we know that we have a model on how to get a pack on how to get to that kind of high 20s. And the precision and science, you know, you saw I made some commentary, very proud with the team. When we started with that business in Q1 of this year, the business was doing, you know, respectable high 20s, and we finished at above 30 on an exit rate. So do we see a potential on that continuing? I'll make the same analogy, you know, back. You know, the medical business, when we had that with Garner Denver, we were in maybe the mid-20s, and we ended up in the 30s. And, again, we also said that that was just kind of a milestone, but more room for us to improve on that. So we'll come here maybe sometime soon in terms of kind of how we think about the medium guidance for some of those segments, but we definitely see continued room for improvement from here on beyond.
spk02: Got it. No, that's helpful and great to hear, Vicente. I guess my one follow-up question, and I have to ask you about the portfolio, just given the announcement and HBS. So I guess maybe two questions. One, just on HBS and keeping the 45% ownership here. I guess what's the kind of thought process? Is it to play in some of the upside and potentially then monetize it in the future? And then how are you thinking about the rest of the portfolio because there are other pieces that maybe don't necessarily fit longer term, but I'd be curious to hear any thoughts around that as well.
spk04: Yeah, Joe, I think we're very excited with the HPS for multiple reasons. I mean, one, we found a great partner with AIP, and we're also very excited with the team on them becoming that pure play in the upstream oil and gas with a very premium product and very premium business. You know, I think, you know, with you, we're very, really good because we were able to lock in some cash, but at the same time, as you said, participate in any other potential upside that could come. I mean, as you know, there's multiple cycles that can happen here. And as we continue to see, we got that 45% participation in terms of what could come next. And in terms of your questions, I mean, you know, clearly, as we've said in the past, I mean, we look at all possible scenarios. And to the degree that we can create or hold a value by doing something creative with some of the businesses that might not be that properly aligned, we won't hesitate to explore those options. And I think, you know, we just want to be thoughtful and strategic and disciplined on how we do that.
spk10: Makes sense. Thank you, guys.
spk04: Thank you, Joe.
spk00: Your next question comes from the line of Stephen Volkman from Jefferies. Please go ahead. Your line is now open.
spk08: Hi. Good morning, guys. Maybe just back to Joe's margin question quickly. Any difference amongst the segments in how we should think about incrementals for 2021?
spk02: Yeah, I'll take that one. I think the way to think about it is I think ITS will probably be, at least from a year-over-year perspective, probably the healthiest overall just because, frankly, a lot of the cost synergies, as we mentioned before, are much more isolated or centralized, I should say, in the ITNS segment. In terms of the precision in science, especially vehicle businesses, You know, the incrementals there will be a little bit more muted, just frankly, on a year-over-year basis. You know, frankly, a little bit of balancing in terms of the mix, in terms of the top line. If you remember on the precision in science, we did see a pretty strong inswell of COVID-related demand in 2020 on the medical side that actually came at a pretty good margin premium. That is obviously not expected to recur in 2021, replace a little bit more of a more general and then obviously some of the investments back in. And then the SVT business is kind of comparable as the commercial and golf businesses tend to kind of normalize. You're not going to necessarily see that mix be quite as what it was in 2020. And we obviously continue to invest for new products and growth. So again, I think ITNS is where you'll see it a little bit more pronounced.
spk08: Okay, great. That's helpful. And then if I could just ask about kind of recurring revenue and services and maybe both near and longer term. I mean, are your guys able to get out and do the servicing? Do we have some pent-up demand there? And then longer term, are we getting those types of contracts? I know that's been a target for you guys. It's maybe an update there.
spk04: Yeah, Steve, I think we definitely are able to go get out there and do a lot of these service work. And we have a fantastic team that, you know, being creative, not only by doing that physically, but in some cases even remotely as we kind of connect more and more machines. And as we continue to go forward, absolutely. I mean, we see a lot of good potential here based on our install base and the technologies that we're launching. with iot and then now here here further expanding into with the connectivity with google cloud being able to be more pronounced on how we can create some some unique service agreements okay i'll leave it there thank you thank you your next question comes from the line of nigel co from wolf research please go ahead your line is now open oh thanks good morning uh hopeful as well um
spk07: Not a whole lot else to read one through here, but I did want to go back to the Synges. And obviously procurement's been a big source of cost savings. With the sort of supply chain issues we're seeing out there, is that limiting in any way your ability to get procurement savings in the near term? Doesn't feel like it is, but just wanted to put that in there. And then the second part is G&A's a relatively small part of the Synges mix. I'm just wondering, now you've had IRN for a year now, whether you see a bit more potential for G&A?
spk02: Yeah, sure, Nigel. I'll take both of those. I think on the procurement front, like we said, there is some inflation in the system, but does that prohibit us from being able to deliver on the procurement savings? And I'll just make that even broader, the direct material equation, whether it be classical procurement from leveraging a larger spend base. the i2b savings funnel i think the answer is no you've seen the continued momentum obviously the conviction and raising the uh the synergy target to 300 million dollars so i think that we have a we have a pretty good line of sight and pretty good conviction being able to to deliver those procurement and direct material oriented numbers and then in the G&A side. Again, I'd say, you know, there's always room for opportunity, but I think, like we said, the majority of the more structural related savings and cost takeout, you really saw that much more executed in 2020. So, again, I would say that part is kind of largely behind us, but, you know, we'll always look for room for optimization.
spk07: Okay, great. And then just going back to Joe's question on the portfolio, just curious, you know, just given the performance of SVT, you know, much better than we would have expected, probably a little different than what you expected last How has your view on SVT evolved over the past 12 months? And how confident are you that this kind of performance can be sustained beyond reopening?
spk04: Yeah, I mean, I think, you know, I put it a couple of ways there, Nigel. I mean, I think, you know, what you see on the SVT is clearly great performance based on product launches that the team has done. on the consumer side. When you look at also a commentary that we made, even the Q4 also very good momentum in gold, again, based on new product launches that they have done, particularly with lithium battery cars that they have launched. So we feel that the team has taken some good market share. And, you know, they're not done yet. I mean, was COVID maybe an accelerator or accentuate the decision-making for some consumers to really buy now versus maybe buy later? Yeah, it could be. But I think what's exciting is that the momentum has continued. What is also exciting is that the team is getting ready to make some pretty good product launches in 2021, not only the consumer but also the utility market. that could play very well, not only in the U.S., but also in Europe. So I think the team is really hitting in all cylinders. We're supporting with great investments and more to come.
spk07: Great. I'll leave it there. Thanks, guys. Thank you.
spk00: Your next question comes from the line of Nathan Jones from Stiefel. Please go ahead. Your line is now open.
spk12: Good morning, everyone. Morning, Nathan. A couple of questions on investments in growth here. Can you talk about what kind of level of reinvestment you're making in growth at the moment and what the kind of potential to take that to is? And then the 1.5% to 2% capex seems a little low to me. Can you talk about opportunities to invest more here in order to drive better growth?
spk04: Yeah, I think in terms of investment on growth, multiple ways. You know, one, you know, on the corporate side, I mean, we continue to make some pretty good investments on some of our kind of demand generation activities, as well as what you have seen here with the Google Cloud. And then within the businesses, absolutely, we're making some very solid investments in Maybe some that I can highlight on the precision and science, the thing is making their investments in the hydrogen and really seeing some acceleration in terms of the product launches that they expect to get, as well as commercialization by investing on feet on the street throughout the world. And on industrial technology, you know, heavy investment on product launches. Now that we have the combined two companies, particularly on the compressor side, there's going to be a very good cadence of the execution of what we were planning and delivering and working through 2020 that is getting executed and launched now here to the year. And in terms of CapEx, you know, sure. I mean, absolutely. You know, we think 1.5% to 2%. I mean, we're typically very light CapEx base. But if the team comes in with a great proposal that provides some very good return on invested capital, we look at ROIC even on a CapEx basis, then we'll do it.
spk12: Okay. And then I wanted to ask one about revenue synergies. I know when we put these businesses together, revenue synergies is one avenue for creating value, but was also likely to take longer to really start to kick in. So now a year in, can you talk about, you know, what opportunities you've seen, what successes you've seen and what's expected in the future?
spk02: Sure, Nathan, I'll touch it kind of high level. Obviously, we haven't necessarily quantified growth synergies externally, but, you know, clearly it's strategic and you've seen a lot of the momentum that we're actually driving, whether it be, you know, in the organic growth numbers that we've actually guided to, things around, you know, the water end market, some of the leveraging of the oil-free compressor technologies and the kind of expanded channel of the market that the combined company has brought forward. I think that probably each of the segments, particularly in IT&S and precision science, have a good funnel of what I would call growth synergies that they've been executing to that you're really going to kind of see embedded, what I would tell you, within kind of the organic growth numbers. And I think we're really encouraged. You've seen some of the you know, the healthy order numbers. We talked about kind of the healthy backlog that we have exiting the year. I think you're starting to see some of those revenue synergies starting to click in. So, again, we're not going to necessarily guide them explicitly, but I think you've seen a lot of them mentioned, and what we're going to continue to do is give you those examples and kind of give you that color as we continue to kind of leverage that kind of revenue synergy base in the combined company. Great. Thanks for taking my questions.
spk05: Thank you, Evan.
spk00: Your next question comes from the line of John Walsh from Credit Suisse. Please go ahead. Your line is now open.
spk06: Hi. Good morning, everyone. Morning, John. Hi. Just one here from me. Going back to the free cash flow guidance for this year, the greater than or equal to the 100%, you know, is there another way you guys could kind of articulate what you're expecting in terms of free cash flow, either through a free cash flow margin or maybe a free cash flow as a percent of EBITDA, and then how you kind of think about that going forward as well.
spk02: Yeah, John, I think we're going to, you know, obviously the guidance we gave was greater than or equal to 100% of adjusted debt income, which we think is probably the right way to look at it, clearly taking a lot of the personal accounting implications and things like that out of the equation. I think if you look, for example, at 2020, how we were able to deliver, we were quite pleased. Obviously, we saw some pretty good headwinds, I'm sorry, some good tailwinds in the context of You know, probably a little bit lower than normal CapEx and some pretty good working capital management. But the good news here is we look into 2021, we see some strong equal opportunities, whether it be, you know, cash interest, which is coming down with all of our fixed interest rate swaps having rolled off in the second half of the year, the tax rate expected to be lower, and also some good networking capital opportunities. So, you know, again, I think, you know, the guidance itself, I think, is pretty prudent. We would expect to see, you know, strong cash flow over the course of the entire year, much like you saw in 2020. Obviously, some of the opportunities now, though, are really starting to click in and some of the things we've mentioned before in terms of really the tax rate and working capital.
spk06: Great. I'll leave it there. Thank you.
spk00: Your next question comes from the line of Marcus Mittermeier from UBS. Please go ahead. Your line is now open.
spk10: Yes, hi, good morning, everyone. Just a quick one. Hi, good morning. On procurement execution, obviously good to see the incremental $50 million here. Could you remind us, what's the total spend base here for direct and indirect, and how far through that spend base are you now roughly in sort of, you know, consolidating spend, picking your new suppliers, etc.? ?
spk04: uh just don't get a sense of visibility here for how far that incremental 50 million goes in that in that total spending yeah i'm not sure because i mean i so so we do roughly you know a little bit a little bit above 2 billion it's kind of the mark that we said that we were going to do in terms of rsqs and negotiation and stuff like that and um and we're maybe three quarters of the way uh through there so we still have uh another portion that we still need to go through the process uh as you can imagine you know it's just a lot of detail that the game is going through so we still have uh some uh some way to go to to cover all that two billion plus
spk10: Great. That's very helpful. And then second one, if I may, just on compressors and a follow up to the earlier discussion on order intake. I mean, what sticks out to me is particularly that high single digit Europe order intake. Is that a positive mix for you guys in Europe? Or is there some share gain with some of the obviously strong European peers? How should we think about that in the quarter?
spk04: Yeah, I think the team is really executing pretty well in Europe in the combination of the power of the multiple brands. I mean, as you know, in Europe we had Compare as one of the leading brands in Europe, and now Ingersoll Rand and also Champion. So we have a multi-brand approach, and we're just leveraging the channel across all the regions. And, you know, we feel that, yeah, the team is really executing well and potentially taking some share based on the numbers.
spk10: Great. Thanks a lot. Good luck. Thank you.
spk00: Your next question comes from the line of Andy Kaplowitz from Citi. Please go ahead. Your line is now open.
spk01: Hey, good morning, guys. Hey, Andy. Andy, could you give us some more color into how you're thinking about growth in the APAC region in 21? As we know, it's a strategic area of growth for you. China looks solid, but maybe the rest of the APAC remains a bit weak. Since you have a bigger presence there with the merger, could you update us on your progress in the region?
spk04: yeah uh i mean you know so so obviously two two subsections there i mean china uh the team the team is really doing fantastically well i mean we have we have great leadership uh we just went through uh a lot of the accelerated commercialization based on the combination of the two uh the two brands and the technologies uh just here before uh the chinese new year and uh and it's exciting to see what the momentum they're continuing to build And we always said Southeast Asia is definitely an area of opportunity for us. It was an area of opportunity for not only Garden of Denver, but also Ingersoll Rand. And now with the combination of the two, we can actually really go after a better channel and better end market channel. So we're being very selective. The team is really appropriately investing in that region. So it's just a lot of good potential opportunities that we see in the Southeast Asia.
spk01: Got it. And then, you know, guidance for mid-single-digit revenue growth for the segments makes sense for 21. But just looking at specialty vehicle, you know, you mentioned orders strengthened through the quarter, you know, up over 20%. So, you know, are you expecting some sort of slowdown there? I know the comparisons are more difficult versus the other segments, but it seems like very good momentum versus that guidance for 21 in that segment.
spk04: Yeah, definitely very good momentum. I mean, I think we're being a bit more prudent in terms of maybe some normalization coming here in the second half. And as we continue to see momentum from product launches and kind of market activity, we will update. But I think the team is very focused on delivering to the commitment that they have now. And we're just being kind of more prudent based on the normalization that could be seen here in the second half. And normalization, I mean, just the tough comps. I mean, probably some pretty hefty comps that they need to overcome based on what they were able to execute in 2020. But we see room for improvement. Thanks, Vicente. Thank you, Andy.
spk00: And there are no further questions. I will turn the call back over to Vicente for any closing comments.
spk04: I just want to say thank you to everyone for the interest. I know that in these calls, many of our employees across the world joined to listen to the excitement of what they have been able to accomplish. And to all of them, I just want to pass another big thank you. 2020 was a phenomenal year. We're about to celebrate our one-year anniversary all together here. And what a phenomenal journey it has been. And this is just the beginning. We're getting started. And there's just definitely much more to come. So thank you. Thanks, everyone.
spk00: And ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

Q4IR 2020

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