Ingersoll Rand Inc.

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.

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.

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.