Ingersoll Rand Inc. (IR) Q3 2020 Earnings Report, Transcript and Summary

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 speakers' presentation, there'll be a question-and- answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Vikram Kini, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you and welcome to the Ingersoll Rand 2020 third quarter earnings call. I'm Vik Kini, Ingersoll Rand's Chief Financial Officer and with me today is Vicente Reynal, 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 information provided on this call. Please review the forward-looking statements on Slide 2 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 3, 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 the 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 the Vicente.

Thanks, Vik and good morning to everyone. I want to start our call by thanking all our employees around the world for the hard work and commitment to the health and safety of our teams 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 4, 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 inflight 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 an engaging one-on-one sessions, where we work with our employees to discuss our purpose and values, and what it means to lead 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 Rand, and employee happiness is very important to us. And a great example of our employees leaving a purpose and values and making a positive impact in our community is those champions which fits in our Precision and Science Technologies segment. That those champions have developed 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 our strong tools for the culture we build in our Ingersoll Rand which firmly supports that purpose of lean on us to help you make life better. Moving to Slide 5, 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 announced the issuance of $150 million in equity awards across our entire employee base. This is a meaningful distribution equal to 20% of an individual 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 a Gardner Denver reward at the time the equity grant to a specific initiative of improving net working capital. We're training all employees on what it means to be an owner. When we launched this in 2017, we improved the working capital as a percentage of sales that Gardner Denver by about 500 basis points in less than three years. So for us, we feel the future is extremely great that Ingersoll Rand, and with 16,000 employee owners moving in a common direction, I am confident in our ability to create meaningful value. Turning to Slide 6, 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 investment 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 Rand. And as we continue to mail complementary cultures, as well as leverage our deep portfolio to serve niche end markets and accelerate growth. Well speaking about growth, let's turn to Slide 7 to showcase a few examples. The first example is focus 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. A part of 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. Haskel 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 Haskel's comprehensive portfolio of specialized compression solutions. As we are well positioned to winning share, with turnkey refueling station 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 we continue the penetration of hydrogen fueling into key markets is expected to create a $2.5 billion addressable market for us by 2027. Turning to Slide 8, the second example demonstrates how we can leverage the breadth of our technologies across multiple segments to win in a targeted end markets like water and wastewater. Take for example, at wastewater treatment plant shown on the picture, we have begun to leverage our technologies across the ICS and PST segments to drive further penetration in what is estimated to be nearly $5 billion addressable market, with a 5-year CAGR of at least 2 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 to 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 Daily 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 knowhow of the types of sensors and controllers require in our products to best optimize the data acquisition and analytics. Let me now turn over the call over to Vik for an overview on the financials. Vik?

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 throughout the 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 2Q level with strong double-digit momentum in the Industrial Technology and Services, especially 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 controlled 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 margin of 21.3%. This was a 220 basis points improvement in the second quarter. On a year-over-year basis, despite double-digit revenue funds, margins were up 150 basis points, and when adjusted for the High Pressure Solutions 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 lead to companywide 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 on a supplemental basis, as if the transaction had happened on January 1st, 2018, to assist in clean comparatives for the quarter. The detailed assumptions and adjustments using these supplemental to be found in the appendix of these slides and our 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 of period in September, and Asia Pacific continued to show positive trends on both revenue and orders led by China. Specialty Vehicles saw strong order performance up 29% ex-FX as the momentum for Consumer Vehicles continues at record levels, and unexpected, the High Pressure Solutions 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 is slightly better than the levels in the prior year of 1.0. The company delivered $284 million of adjusted EBITDA, a decline of only 3% versus prior year even with the headwinds caused by the pandemic. The IT&S, Precision and Science and Specialty Vehicles segments all saw a year-over-year improvement in the adjusted EBITDA and strong triple-digit margin expansion. Offsets were seen in the High Pressure Solutions segment as well as higher corporate costs, we 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 the 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 expense. 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 leverage position and clear path to be in at 3.0 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 availability on our revolving credit facility. During the quarter, we terminated our legacy Receivables Financing 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 the company's legacy fixed interest rates loss have now expired. This expected to yield at 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 is now increased $730 million from the end of Q1 given its ample dry powder to execute on our organic and inorganic growth strategies. Moving to Slide 12, we continue to see strong momentum on our cost synergy 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 million to $85 million of those savings expected to be realized in 2020. On procurement synergies, we've captured $40 million to $50 million with approximately $15 million to $20 million of the 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 led to synergies are based on 2019 direct materials 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 previously communicated, we are keeping the overall cost synergy target at $250 million over a three-year timeframe to remain prudent on volume-dependent synergies like procurement and i2V 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 decremental margins. Total company decrementals were only 6% with IT&S, Precision and Science, Specialty Vehicles all seen strong flow through and High Pressure Solutions managing decrementals below 40% for the first time this year. We also mentioned in last quarter that we were expecting to see approximately $30 million 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 of 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 lockdown in several countries, we are now expecting the full return of that $30 million to $35 million cost base to extend into 2021. I will now turn it back over to Vicente to discuss the segments.

Thanks, Vik. 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, orders and revenue were down mid-to-high single-digits, mainly driven by small rotary compressors while large compressors continue to outperform. Regarding the regional split for revenue on compressors in the Americas, the North American team performed competitively better a 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 continued 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 Vacuum and Blowers which represents approximately 20% of the segment. Orders were down low single-digit driven by mid single decline in the Blower business partially offset with positive order momentum in our longer cycle Nash and Garo Vacuum businesses. We were encouraged also to see that Industrial Vacuum 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. More 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. 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 remained 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 Garner Denver channel was not properly set up an experience 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-free products. And within the matter of months, we have re-launched 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. Although 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 that 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 to introduce Albin Pump to the Ingersoll Rand family. Albin is a leader in the manufacturing of electric peristaltic pumps, which is one of their highest growth positive displacement technologies. We see strong commercial synergies as we leverage Albin alongside our ARO and Milton-Roy brands and plan to leverage the Precision and Science global network and channel to accelerate growth as Albin. This is a great example of the type of bolt-on acquisitions, we're very excited about for the company. Moving to Slide 15, under Specialty Vehicle Technologies segment, although 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 improvement versus per year. Proliferation of the IRX toolkit is allowing the Specialty Vehicles team to capture strong end market demand in the Consumer Vehicle segments and grow our share. The strength is based on continued digital demand generation activities, compelling new product launches, including lithium, and a 6-passenger offering and extremely consistent production and channel performance. We're also pleased with the traction on the launch of the second-generation lithium battery for the golf car 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 geo-fencing 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, under High Pressure Solutions segment. The business performed largely in line with expectations. And its continued low demand in the oil and gas industry. Orders and revenue were down at 81% and down 68%, respectively. Nearly 90% of the revenue base continue to come from aftermarket parts and services, with consumable continuing to be the most stable component of the revenue base. I'm 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 decremental below 40%, despite the meaningful revenue declines. As we look ahead to the fourth quarter, of the worst seasons of 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 these opportunities with the premier service centers like our Permian 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 company is now mid single-digits in orders, with book-to-bill at greater than 1. Within the Industrial Technologies 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 Tool business continues to see sequential improvements. The Precision and Science Technologies segment is currently positive year-over-year. And the Specialty Vehicles segment is continuing to see healthy momentum on the consumer side coupled with growth seasonality. The High Pressure Solutions 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 for 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. Industry Technology and Specialty Vehicles segment should support most of that strength given normal personality in their 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 Solutions segments, we expect a comparable revenue performance relative to the third quarter. From a marketing 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 in Precision and Science due to a low contribution for Medical as the COVID related backlog have largely shipped, and Specialty Vehicles has mixed 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 notable 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 products. 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 Ingersoll Rand 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. [Operator Instructions] Our first question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.

Hi, good morning.

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 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 an ongoing reinvestments as well?

Yeah and hey, Julian, this is Vik, 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 still to look quite as strong. You know, our view as we look kind of forward and frankly even looking to 2021 is that, we think that you know, normalized incrementals kind of across the portfolio on a base level should play in that 30% to 35% range without using some upside opportunity for the synergy 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, you know, 30% to 35% is probably a good base level to use with some upside opportunity as synergy start to materialize into 2021 and thereafter.

That's very helpful, thank you. And then my second question really around the free cash flow, you know, very strong in the nine-month, you know, what, $470 million or 125% conversion to adjusted net. I realized that was the first sort of year of the combined entity. 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 in stand-up cash outflow for the year, please?

Yeah, Julian I think we would expect to be greater than or equal to 100% of adjusted net income on a free cash flow perspective. I think what we're excited about is that, yes, you have seen that there are 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, what, you know, clearly one that we just talked about here is, how we're rallying up, all 16,000 employee owners in the company, are on their working capital, as a percentage of sales and how we believe we can unlock good amount of cash by getting everyone focused on that perspective as we did with the Garner Denver in the past, and then all the levers such as, you know, tax or tax rates that we spoke a lot about that, you know, that's also offering a good meaningful opportunity. And so I think, you know, the regarding this year, Julian is that we still have more employment 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 could 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 through the first three quarters. And we will expect right now that Q4 should look comparable to what you saw in Q3 as we've guided before. So I can kind of give you an idea of kind of just the - I call it one-time of really the synergy and stand-up 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.

Hey. Good morning, gentlemen.

Good morning, Mike.

Good morning, Mike.

So why don't we start with some thoughts as you'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, just to hear your thought process of how you guys going about the iterations for next year? And any kind of high-level thoughts on that side?

Yeah, Mike you know, clearly, you know, we're now in the midst of that cycle of kind of getting with the teams to do through our budget cycle for 2021. And this is part of our process. And as we completed our strategic plans a couple of months ago, you know, well we don't have full visibility. I mean, we like what we see from the macro indicators, BMI, Exane, 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 that with COVID in many other global markets and lockdowns. I think the most important thing for me to highlight here, and we're highlighting with the team is that, you know, 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, I 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 continue improvements in our company. I would say to you 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, you know 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. So, at least at this point in time, I mean, we're going to be working with the teams under budgets and building as we kind of outlook for 2021 with a high level of just flexibility.

Makes sense. And then maybe help with some puts and takes on the capital optionality side. One, how you're thinking about the current portfolio as it sits here today, any changes there, and then secondarily, you know, you're in a good balance sheet position, you know, Vik mentioned earlier towards 2 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 this is, as you saw, you know, we got our three phases and you know, we spoke a lot openly about our kind of phase three or portfolio optionality that gives us you know, plenty of opportunity for us to evaluate that, and that is equal on both sides, as you said, you know optionality on potential debt securities, but at the same time on the M&A, and the M&A, I tell you the formula is very, very active. We're very excited with Albin, that acquisition that we just made, you know, a lot of these acquisitions as well, I think the interesting thing is that, we continue to source those ourselves and the things that we're finding that being proactive and working with a lot of these companies, in our relationships is really unlocking opportunity to be able to be more prudent and discipline in terms of multiples that we paid. 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.

And the buyback side, any help 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 reviews that pulls multiple synergy dramatically. So we just see just greater payback right now on the M&A.

That makes a lot of sense. Thanks, Vicente. 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.

Good morning.

Hey, just coming back to kind of the synergy question. You know, what, as 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 concerns just about kind of the ability to travel and all these sorts of things kind of getting at the $250 million doesn't really seem to 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 million. And whether there's anything really moving around on the $350 million, and when that might move from kind of funnel to actual firm target?

Yeah, sure, Jeff, this is Vik, 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, you know, 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, frankly, before the merger, even, you know, 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, you know, stead-up compared to what our 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 didn't found ways to do things like i2V 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, you know, in excess of $350 million, I did a complexion to your point, it's still largely the same, really what the 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 an update accordingly. And the footprint fees largely have not changed, I'd say that's the piece that clearly in this environment by a little bit more difficult to execute on. The good news is the funnel is continuing to progress quite nicely. And we'd always plan 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. So just, you know, you gave us the order color and appreciate that. I was wonder if you could give us a little bit more color though just on, you know, what your customers are saying? You know, how the CapEx outlook in some of these vertical markets that are more industrial sensitive, you know, look as we perhaps look into at least the first part of 2021?

Jeff, 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 on how things were kind of slow. But we are seeing some pretty good momentum among 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 second quarter. And you know, we always said that the fourth quarter, it's a - is a quarter where we expect a lot of these kind of orders to get closed and built into the orders. So at least we're encouraged with that. And that was a little bit of a commentary I made about, you know, going into 2021, that we're at least are 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 accounted and freed up.

Great, thank you.

Thank you, Jeff.

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

Thanks, good morning. So I wanted to switch to your upstream on gas, the High Pressure, HPS. Obviously encouraging trends, there seems like we've found a flow so we're starting to improve sequentially. Couple of questions there. One, would you say, a disproportionate amount of the temporary cost measures, you know, have gone into that business to sort of preserve the margins? And, you know, should we be down in some modest sequential improvement in that business? You know, similar to what we've seen, you know, in prior recoveries from here?

You know, Nigel, so definitely a good amount of temporary, but I mean, I would say similar in nature to what we have done, if we remember, I mean, the HPS is a business that even back in the second half of last year, we started to restructuring and the business was really different from a footprint perspective and also from the capital investment that we have done. So I think we're encouraged with what the team had been able to rapidly adjust. And I think that is really encouraging as we see similar kind of comeback that we're seeing in the market.

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

We think so - we think, Nigel, 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 the Christmas. But based on you know, fleet count continues to increase sequentially, our order rates continue to increase. So now, you know, year-over-year, as we pointed out in the first week of October, we're bound only 30% to 35%, which those are encouraging. And but we still also feel that the pent-up demand has not come through. So I think that's also a highly encouraging, I would say.

Okay, great. And then my follow-up question on ITS. First of all, thanks for all the detail. I think you preempted about 10 questions with a 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 and services?

Yeah, no, good, good, good question, Nigel. I would say that, you know, the big service business that we have is really mainly, I would say, mostly in the US and Europe, where we mostly in many cases, we'll go direct. We saw the good sequential improvement through the quarter. And what we have seen is that, you know, aftermarket and services all done holistically, is roughly 2 times better than the whole goods so then to 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 do allows us to go on and kind of go in, but nothing dramatic. Just good gradual improvement. Yeah, sure -

Great, thank you.

Yeah.

Your next question comes from Rob Wertheimer from Melius Research. Please go ahead. Your line is open.

Hey. Good morning, everyone.

Good morning, Rob.

So Vicente and I think you've talked a couple of times on sort of long cycle versus short cycle you know 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 to the you know, the longer cycle stuff is, in fact, you know, coming up, we're not just relying on the short cycles stuff?

It feels that way, Rob, I mean, it feels that definitely, you know, you know, we can tell you that, you know, on the long cycle business it was actually positive from our perspective in the third quarter. So, again, that can be sometimes spotted based on the size of the project that you see. But we're seeing some momentum in CO2 capture, we're seeing some good momentum in air separation and industrial gases. We're seeing some kind of project that are more related to onshoring kind of release and allowing us to implement our technology and those. So we're seeing some good you now, I would say a sequential improvement on that. I guess for me more encouraging is the conversations 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 would 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 in and that will show up the next few quarters? Or what would you say you put the organization right now? Thanks.

Sure, yeah, Rob that was a great question. And, you know, one of the things that we're able to do in our business with an increased amount of agility and nimbleness that we're driving with the use of IRX, and as you know, we have, you know, almost 200 of those kind of every week 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 synergy. So the conversation is really people pay more towards that, it takes time to see that solid momentum in the business. So but again, you know, we were able to pivot and people kind of writing the - in the, you know, I'd say, you know, we did a mid third quarter kind of field team do 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 so much.

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

Hi. Good morning, guys. If I could just go back to some of your comments about the margin incrementals. You know, I think we had originally thought about 30%-ish 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.

Our categories that I mean, is always driven, I mean, our teams, as I said, you know, even as we are preparing our budgets for 2021, our teams are really attuned in terms of what incrementals and decrementals cannot be - been view as the best-in-class. And we'll try to get to those. I think when we provided some of that kind of conversation, no guidance, but, you know, framework as we were going into Q3, there was a lot of discretionary costs that was supposed to come that obviously, not all of that showed up into the third quarter. But I'd 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, Vik mentioned, I think, 35%-ish 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 into 2021. From a fourth quarter perspective and if you look year-over-year, I think in our prepared commentary, obviously, we're still going to see a, you know, a, you know, a challenge view versus prior year. We mentioned that decrementals should be lower than 30%. And frankly, we would expect be able to control it, you know, frankly, lower than that level, bringing to more in line with probably levels you saw 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, continue to see decrementals well below 30%. So I think as we look further out and I hope that 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 decrementals, sorry. So that's all I got. Thank you.

Okay, thank you.

Your next question comes from Andrew Kaplowitz from Citigroup. Please go ahead. Your line is open.

Hey. Good morning, guys.

Good morning, Andy.

Vicente, 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 forum, 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 has that really strengthened that GDI Medical business could you give us some 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 Precision and Science. And that's you know, clear you're seeing some of that here in earlier quarter. And when we saw throughout the quarter in the third quarter, we saw continued improvement through the month 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, you know, 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 the thing exciting to you there, Andy that a lot of these kind of trends continue to go on our favor from that perspective, and not just by pure log, but mainly because of the I'd say, I'll call 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 that 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, 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, efficiency for hydrogen are just going to be 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 would say medium to long-term.

Thanks, Vicente.

Thank you.

Your next question comes from David Raso with 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 ITS, 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. So 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 for the revenue within those two segments?

Sure, David. I'll start kind of inverse order. On the head with Precision and Science, we did definitely have a I'd say an elevated Medical backlog that we were really leveraging through second quarter and third quarter and largely kind of shipping through here as it gets in the beginning of the fourth quarter and the Medical piece definitely has a little bit of a margin upside comparatively speaking. So it's not to say that the balance of the Precision and Science, it's actually healthy margins, it's just not quite at those Medical COVID related orders. So again, that'll normalize here at the end of the fourth quarter and into 2021. On the IT&S side, it's actually not dramatically different, you know, each project is a little bit unique. But I would say that the margin profile is actually kind of comparable to what you see on the typically shorter cycle Compressors or Blower and Vacuum equipment. And you know, as such, I would say that Q4 margin profile should be comfortable to what you saw on Q3, it's project by project, 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 began to see in Europe. And hopefully we don't see any here. But when you think about the potential impact, are you trying to get ahead of that a bit, maybe securing some kind of buffer component inventory? Or you just sort of playing it straight and as it unfold and unfold? So just curious how you're reacting to potential impact.

So, David, I wouldn't call it that we're accelerating any inventories as we speak, no. So, you know, what our teams have been doing is that they based on their lessons learned, I mean, they clearly work with the suppliers so as the suppliers can hold more buffer inventory put on versus all holding that inventory. And so I think we're prepared and working with the supply chains to be able to service us proactively.

And so far, no implications on any facilities from some of the French or UK or that walk down lights we've seen in Germany, no. Okay, terrific.

No, implication, no, no.

Terrific, thank you. Appreciate it.

Thank you. Sure, David.

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

Thanks. Good morning, everybody.

Good morning.

Vicente, can you maybe just touch on that opportunity that you're seeing specifically on the oil-free side with selling through your European channel, I'd love to know any kind of thoughts on, you know, cadence of that opportunity over the next couple of years?

Yeah, Joe, I think this is actually, I mean, as you remember, we were pretty excited 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 end market, just based on the market that it plays. And so this is a very good opportunity because the Ingersoll Rand 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 Gardner Denver days and having the Ingersoll Rand team have access to that through their channel. And the teams are very excited. I mean, all our channel partners as well as the direct teams are very excited positioning those technologies into the primarily fuel and pharma end markets.

That's helpful color, Vicente. Thanks. I think maybe my one follow-up. I know we touched on this a little bit earlier on ITS for short cycle versus long cycle. But can you just remind us like 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 Vik. I would say that, you know, probably I was all talking about 80%, roughly speaking, is probably shorter cycle, kind of typical standard air compressor, blower, vacuum, power tools and 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/Garo kind of vacuum, liquid ring, pump and compressor business. So that's probably a pretty good indication.

Great, thanks, guys.

Thank you, Joe.

Thank you.

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

Hi. good morning.

Good morning.

Good morning, John.

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 stop a lot of our compressors. And our exposure to the kind of smaller reciprocating compressors that basically kind of will be, maybe the Do-It-Yourself or we also don't play on that. So I will say inventory levels are definitely not seen by anybody who kind of stocking anything.

Okay -

Just kind of by yourself.

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 your 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 said, you know, the, whether it'd be Canada, the restructuring or acquisition related items, you can see that, you know, the large majority of the purchase accounting items have led themselves through. So again, you saw that dramatically decreased from Q2 to Q3. And I think with regard to some of the restructuring items, you'll see, you know, those are normal thing so that as we move into 2021, and we still do have, you know, restructuring the footprint optimization and things like that ahead of us. In terms of the trade name item, you're correct, we did have a small trade name impairment specific to the Power Tools and Lifting unit within the IT&S segment. Very discrete and so just a reflection of some of the revenue declines that we've seen in the Power Tools and Lifting that's 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 be very comparable to kind of directory you've seen with regards to restructuring and some of the normal course adjustments, but no other large adjustments of exact nature, no, we wouldn't expect those, those are very discrete and unique in terms of what you see to the first two or three quarters this year.

Great, very helpful. Thank you.

Thanks, John.

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

Good morning, everyone.

Good morning, Nathan.

Good morning, Nathan.

I got a bit of a follow-up to questions Joe and Andy asked before. On the new product development and adjacent markets that you're moving into, and maybe if you're looking at over a little bit of a longer time, 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, a 100 basis points a year through these new product development and acquisitions to get yourself into new markets to really expand that addressable market consistently over time?

Now that's a really great question, Nathan. I - you know, clearly, you know, we have always been kind of change speaking and not openly but how the addressable market grows 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 technology that the team is working. So but specifically to a number, I don't have it, we don't have it pegged, we just have more asset holistically over the strategic period, which is three years, we want to double the addressable market in some other specific differences that we're focusing ourselves.

Fair enough. One other number that caught my eye was the 29% audit growth in SVT. Can you talk about, you know, 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, Nathan. So the impact, I mean the team is just executing really well on a lot of initiatives, and particularly one around, you know, the new the launch of new products on the consumer side. So basically, these are kind of golf cars that are customized to your needs, you can go online, and which I mean, you should do, Nathan you go online and then kind of customize through your specific kind of desire. And basically, that's kind of pretty unique solution for personalizing the vehicles for the individuals. And we have seen tremendous demand of that over the past couple of quarters. You know, I'll say that, you know, we're typically, I mean, based on the demand that we're seeing is 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 quickly we can deliver those golf cars for the consumer side. But it's driven by a lot of initiatives that the teams are doing around, you know, direct-to-consumer demand generation, as well as, you know, kind of new launches of product, we launch a new lithium battery that extends the range of these consumer cars. 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 productive.

Great, thanks very much.

Thanks, Nathan.

Your last question comes from Ivana Delevska from Gordon Haskett. Please go ahead. Your line is open.

Good morning, guys.

Good morning, Ivana.

Good morning, Ivana.

So just a follow-up on Specialty Vehicles. What's driving this margin, significant margin improvement? And is there mix - is mix a big driver? And how do you expect it to kind of develop going forward?

Sure, Ivana. Yeah, our Q3 was obviously 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 more and frankly, aftermarket is right there with it. So when that consumed - you know, 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 you're 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 the consumer end and the aftermarket components. So again, we would see, expect to see that kind of margin profile normalize a little bit, but that's really mix-driven, but even then, you're going to see, you know, 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 at the top lines of the equation.

Got it. And then one question on IT&S. 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?

Sure. So you know, we don't break down necessarily the sub components of the portfolio, but let's just say that, I think that the, you know, as we'd 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 the 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 to the Compressor, Blower, Vacuum piece tends to be a little bit healthier. Clearly, components of 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 between that taken Vicente mentioned at 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 said, we feel very good about where the profile of the total segment is, kind of reaching that mid-20s range. You know, I think that's, you know, frankly want to see kind of those levels, and we have frankly a lot of opportunity with regards to the synergy execution and things like that, that are going to kind of start delivered in 2021 onwards. So, again, we haven't put a formal as a target, nor have we put a cap on it. But I think we're encouraged by what we're seeing. And yes, we would frankly also expect that the core component of the portfolio of Compressors, Blowers and Vacuums to have a higher margin profile in the balance.

Thank you.

Thank you.

We have no further questions. I would like to turn the call over to Vicente Reynal 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 these 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.