Ingersoll Rand Inc. (IR) Q4 2020 Earnings Report, Transcript and Summary

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 speakers’ presentation there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Vik Kini, 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 Vik Kini, Chief Financial Officer; and joining me is the 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 filings, which you should read in conjunction with the 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. On today’s call, we will 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 that each caller keep to one question and one follow-up to allow for enough time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Vik, 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 Gardner Denver 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 include having the confidence to take on the most difficult problems with humility and integrity. And little did we know, we will be tested so quickly. Looking back on 2020, the global pandemic was challenging for everyone. We will have to adapt and learn new skill to ensure our essential worker safety as they were to provide mission critical products and services to serve the front line 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’m 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 is part of our culture, and that is not something you can replicate. It is a competitive advantage and it proved it worked for us this year. The backbone and economic engine is our Ingersoll Rand execution excellence, but it is our employees who trust and lead IRX every single day. And thanks to them, we delivered strong results and stand ready to grow in 2021 and beyond. Starting on Slide 3. Today, we are going to concentrate our remarks around three things: first, how we accelerated 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 4. We have seen this before. It is 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 is a reminder to what we have been executing against to deliver on our commitment. Turning to Slide 5. That framework shows we achieved substantial traction across all five strategic imperatives and pivoted quickly to offence around growth and portfolio optimization, from completing the Ingersoll Rand industrial transaction and integrating complementary cultures to awarding one of the largest equity brands 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 a broad-based employee ownership as a game-changer. It takes performance to a new level. We are thinking and acting like no other. As one of our core values, it changes the mindset from this is a company I work for to this is my company. It is 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 added operate sustainably as a strategic pillar. And more on that in a minute. We enhanced our portfolio through bolt-on acquisitions and also the sale of a majority interest high-pressure solutions segment. Looking ahead to 2021 and beyond, we will focus on several areas. We are ahead of plan on our integration as we enter year two. We are increasing our integration cost synergy target by $50 million to $300 million. On growth, we are bringing together complementary products across businesses for strategic niche markets such as work. And we are accelerating new product launches into sustainable industrial markets such as packaging, all of these while we continue to focus on our strong balance sheet to support our inorganic growth strategy through accretive M&A transactions. Let’s turn to Slide 6. As we successfully fuel the growth and our portfolio penetration, we are unlocking our maximum potential as a company. Capital allocation is a huge part of my personal focus. And I will come back to you with more thoughts on this already, so we are actively discussing this with the Board. To start, last week we signed an agreement to sell a majority interest in our High Pressure Solutions segment. 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 are 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 result 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 the purchase of Tuthill 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 MD Pneumatics and Kinney Vacuum Pumps. As we pivoted to growth, we accelerate investment in IoT, e-commerce and digitalization. Last week, you may have seen our announcement with Google Cloud for a five-year collaboration to advance connectivity across our portfolio. With real client data and machine learning both 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 for compressor products, our work with Google represents one way we are positioning ourselves for accelerated growth in 2021 and beyond. Unlocking our key 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 principle as we see now on Slide 7. Yesterday, we joined a growing number of companies who are embracing their leadership responsibility to help confront the global threat of climate change. The differentiator is that we are placing some ambitious milestones for our ESG efforts. We were committing to be net zero greenhouse gas emission by 2050, but getting 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 corporate state 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. We 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 turnover the call to Vik to provide an update on financials. Vik.

Thanks, Vicente. Moving to Slide 8. Q4 saw a strong balance of commercial and operational execution fueled by the use of IRX with ongoing signs of improvement across industrial end 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 continued to drive outperformance on productivity and synergy initiatives using IRX as the catalyst. The company delivered fourth quarter adjusted EBITDA of $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 Solutions segment, total company margins improved 350 basis points. Given the strong close in Q4, 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 have 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 9. For the total company, orders increased 2% and revenue declined 7%, both on an FX-adjusted basis. This is a meaningful improvement from the comparable 8% and 11% declines we saw in the third quarter. IT&S, Precision and Science Technologies and Specialty Vehicle Technology segment all saw positive organic orders growth in the quarter. Starting first with IT&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 and Science saw a 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 end market exposure in areas like lab, life sciences and water. Specialty Vehicles saw continued strong orders performance, up 21% ex FX. Specialty Vehicle 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 Gulf 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-bill below one, we are encouraged by the Q4 2020 book-to-bill 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 expansion. The HPS 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 to 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 impacts of COVID-19 in both the IT&S 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 is up 60 basis points versus the prior year or 180 basis points excluding HPS. This speaks to the team’s ability to execute during different business cycles as full-year detrimental were limited to only 15%. And the three core segments of IT&S, Precision and Science and Specialty Vehicles all delivered triple-digit adjusted EBITDA margin expansion. This is only possible to 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 as we are 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, and free cash flow included $17 million of outflows go into the transaction. From a leverage perspective, we finished at two times, which was a 0.5 time improvement as compared to prior quarter due to both the stronger cash generation in the quarter as well as the improvement in LTM EBITDA due to the strong Q4 finish. We have now reduced leverage 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 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 facility. 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 annualized 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 ITV funnel. ITV 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 of the page, we reported each quarter in terms of our progress on managing detrimental margins across the business, and Q4 was no different. I will now turn it back over to Vicente to discuss the segments.

Thanks, Rick. Moving to Slide 13 and starting with Industrial Technologies and Services. Overall, organic orders were up 1% and revenue down 8%, leading to a book-to-bill of 0.98 times. Despite the revenue decline, the team delivered strong adjusted EBITDA up 12% and an adjusted EBITDA margin of 26.1%, 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-lubricated products shows that orders for both were up mid-single digit. Oil-free order rates slightly outperformed those of oil-lubricated and stick to the airports of leveraging the company’s expanded oil-free portfolio and taking advantage of new channels. Regarding the regional split for orders in compressors. In the Americas, North America performed comparatively better at up low single-digit while Latin America was down high single-digit. Mainland Europe was up high single-digits, while India, Middle East and Africa saw a nice inflection of high-teens as compared to being down double-digits in the past two quarters. Asia Pacific continued to perform well with orders up mid-single-digits, driven by mid-single-digit growth in China and relatively flattish growth across the rest of Asia Pacific. In terms of vacuums and blowers, orders were up mid-teens with strong double-digit growth in the industrial banking and blower portfolio as well as mid-single-digit growth in the longer-cycle Nash Garo va business. Moving next to power tools and lifting. The total business was down low-teens in orders. The tools part of the business was down high single-digits in orders compared to down high-teens in Q3. We expect to pivot to positive orders growth in the first half of the year driven mainly by our enhanced e-commerce capabilities. On the right side, you will see three market drivers coming to our go-forward segment: sustainability, digitization and shifting demographics. For each segment, I will comment on how they are stepping forward to address these drivers. For IPS, 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 customers’ 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 segment. 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 products like Milton Roy. The momentum on our Hygiene Solutions continues to build, and we saw some good orders and funnel activity in this rapidly changing end 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 PSCT delivered strong adjusted EBITDA up 7%. Adjusted EBITDA margin was 30.8%, up 290 basis points year-over-year. As a reminder, this segment has already generated a very respectable 27.7% adjusted EBITDA margin back in Q1 of 2020. But we are very pleased with how the team continues to transform this businesses 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 position on science team is meeting the demand for more sustainable energy sources and launching in new markets like hydrogen. From a digital perspective, many of our new pump technology can be multi-controlled, leading and dosing to ensure the safe and reliable dispensing of chemicals for markets around food sanitation and animal health. And the segment’s medical business is answering the demand for precise liquid handling technology to help advance personalized medicine research. Moving to Slide 15 and the Specialty Vehicle Technology segment. Overall, Q4 was another strong quarter for the Specialty Vehicle team. Orders were up 21% organically and continue to get stronger throughout the quarter as the consumer offering continues 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 are taking share in the market. Organic revenue was up 8% with improvements across not only vehicles, but also aftermarket products and services. We feel we are 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 this represents a 420 basis point improvement versus prior 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 life-cycle management. In terms of - 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 vehicle. The data can range from maintenance information, location-based data or infotainment services. And from a demographic shift perspective, we are seeing a higher demand for families to own recreation, zero-emission consumer vehicles used for short distance driving at low speeds. Moving to Slide 16 and the High Pressure Solutions segment. The business performed largely in-line with expectations in the midst of continued lower demand in the oil and gas market. Order 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 positive adjusted EBITDA of $2.5 million and incremental of 40% despite the meaningful revenue decline. Beginning with the first quarter of 2021, and due to the recently announced sale, the HPS business will be classified as discontinued operations in all 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 line 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 segment will not be included in our revenue or adjusted EBITDA guidance for the year. Starting with revenue growth, we expect total Ingersoll Rand revenue to be up high single-digits to low double-digits on an actual quarter basis. This is comprised of mid-single-digit organic growth across each of the three segments. FX is expected to be a low single-digit volume for the business, on a total year basis given the weakening of the U.S. dollar against many foreign currency like euro and British pound. FX assumption are based on December 2020 exit rates. And finally, we expect the M&A impact to be approximately $60 million, driven primarily by the Tuthill acquisition in the IPS segment. From a patient perspective, we anticipate the first half of the year to be up low 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 normalize a bit comparatively, but still be up high single-digits. As is typical, we expect Q1 to be comparatively lighter than the remaining 2021 quarters. Based on these revenue assumptions, we are introducing 2021 adjusted EBITDA guidance of $1.23 billion to $1.26 billion. The range includes an expectation for approximately $100 million of incremental transaction-related cost synergies with slight offsets due to two factors: First, approximately $35 million to $40 million of temporary costs taken out in 2020 returning to the P&L; and second, some expected material and logistics inflation given current dynamic across the global supply chain. We continue to monitor overall inflation and will take appropriate incremental pricing actions if and when warranted. In terms of cash generation, we expect free 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 in 2020 as a year that change ourselves. We took every measure to prioritize our employee safety while enabling our essential workers to maintain their livelihood and that is because our employees mean to us. We concentrated on delivering our mission-critical products and services to the front line of the COVID-19 pandemic side because our customers needed us. And we even proactively reached out to area healthcare providers to donate the use of sub-degree triggers to store COVID-19 vaccines because communities also needed us. So we take a role as a sustainably minded employee-owned industry leader services as can be seen by our clear commitment to reducing our impact on the environment. And I’m proud of every side of team member in our company for how we came together and deliver to protect the interest of all of our stakeholders this year. What a difference this year makes. In the threshold of our one-year anniversary, it is been a momentous ride, created a differentiated culture and improving the performance of our company. I’m confident we will continue to transform Ingersoll Rand and deliver increased value to all of our shareholders. And with that, I will turn the call back to the operator and open for Q&A.

Great. Thank you. [Operator Instructions] And your first question here comes from the line of Nicole Deblase from Deutsche Bank. Please go ahead, your line is now open.

Yes, thanks guys. Good morning. Maybe we could start by just talking about 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?

Yes. Nicole, I will say that, I mean, we are clearly not immune to what is happening out there in the supply chain, whether delivering or kind of the logistics side. I think the good news here is, I would say two things. One, we have always said that we are in the region for the region. So we are really co-located 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 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 companies, we have a larger supply chain. And as we have gone through the procurement and the rationalization of suppliers, we are selecting some pretty strong partners that are here to support us from a global perspective and that is kind of leading to having that disruption that perhaps orders are seeing. So in terms of ramping the capacity, 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 shares.

Got it. That is 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 is 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?

Yes. I think, Nicole, as we mentioned, I mean, capital allocation is definitely one of my top priorities. And we are having constant conversation with the Board. We will provide an update here in due course. But yes, I mean, we are very excited where we are. You have seen that we are still playing a pretty large addressable market, highly fragmented. Our M&A funnel is really robust, very strong. And it is just a matter of making sure that we are disciplined with current valuations. But it is something that we are going to remain really active.

Okay, thanks. I will pass it on.

Thank you Nicole.

Your next question comes from the line of Mike Halloran from Baird. Please go ahead, your line is now open.

Hey good morning everyone. So let’s start on the cost outside. So uptick the target from 250 million to 300 million funnel, still 350 million, but obviously, you are talking about some upside to that. So two things. One, can you talk through the components of what you have seen that give 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 the synergy target funnel above that 350 million level?

Yes. Sure, Mike. This is Vik. I will take that one. I think, like we said, we had a larger funnel you know Vicente mentioned in course of $350 million. And I think the teams have been executing really well. I think a large part of the, what I call, structural actions that are really behind us. Really, most of those have taken much more closer to the merger. And really, what you have seen the momentum building on here is really execution across really the more direct material-focused components of that funnel. So really, what I will call, procurement as well as now really getting deep to the ITBs on the equation. So I think a lot of what you are seeing is just good execution. Like we always said, we have a larger funnel. I would say that, no, not every idea in the funnel is going to necessarily translate straight to the bottom line. But the team is executing 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 the synergy 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 ahead of us here is items like procurement, ITV and footprint. And we have always been very disciplined in saying that the footprint piece of this 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 are moving into kind of our second year as a combined company, now the teams are really starting to kind of build out that footprint funnel and start to see kind of some of that momentum. So I think that is really, time will tell in terms of being able to kind of increase the number from there, but we are optimistic about where we have gone this far.

Thank you. 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 the slide deck. But are you seeing normal sequential, are you assuming a pretty conservative ramp through the year? Maybe just give some context on what type of environment is embedded in the assumptions as you look at the three units.

Yes. Mike, I think in general, I think what you can expect is a quarterly phasing in terms of revenue be quite comparable to what we have seen in 2020 in terms of percent of sales per quarter. And what you typically see there is Q1 is typically the lightest quarter as customers kind of reload budgets and things of that nature as well as the Chinese New Year holidays in the first quarter. Second and third quarter, in between, and Q4 typically becomes the heaviest quarter. Again, for the same dynamics that we have seen historically as well as some of our, I would 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 2020 is probably a pretty good proxy to use in terms of the quarterly phasing and applying that to 2021.

So if I hear you right then, you are basically assuming normal sequential from the current run rate. No real acceleration in the environment from an underlying perspective for the year.

Yes, I think that is 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 just through Q4. 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.

Sure. Thank Vik, thanks Vicente.

Thank you, Mike.

Your next question comes from the line of Julian Mitchell from Barclays. Please go ahead, your line is now open.

Good morning. Maybe just starting off with the adjusted EBITDA guide for the year. Just wanted to confirm that, that implies around 30% incremental margin or so. And then I understand there is $100 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.

Yes. Sure, Julian. I will take that one. So I think in terms of the incremental that we are expecting on a total year basis, on an all-in basis, I would say, growth as well as the some of the synergies as well as some of the other cost headwinds, it is probably closer to about a 35% incremental or slightly higher depending on some of the quarters. But it is a little bit closer to 35% is kind of the implied incremental on an all-in basis, which we actually see is pretty healthy given kind of the puts and takes. And it does, of course, include reinvestment back in the business as we are kind of focused on sustainable organic growth as we move forward. I think in terms of kind of the moving pieces, I think you hit it on the head here. In addition to just kind of the organic growth in the M&A and some of the FX tailwinds that we called out in guidance, a couple of pieces I would probably include: one, the $100 million that you spoke to in terms of the incremental synergy savings. That is the year two of our transaction-related integration savings. The second item then on the headwinds would really be the $35 million 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 baked in a nominal amount of inflation. We are not necessarily quantifying the exact dollar amount. But as you would expect, and as Vicente mentioned, we are seeing some of the kind of normal, I would say, supply chain and logistics-oriented inflation that you would expect. So those are probably the major pieces in terms of the, I would say, the components that we are seeing. And I think that hopefully kind of characterizes the components.

Thanks. And then maybe my second question, just around the free cash flow was very, very strong in 2020. Just wanted to confirm sort of what is left in terms of cash costs to achieve synergies? And maybe what the phasing of that is embedded in your free cash flow in sort of 2021 and 2022.

Yes. Sure. Julian, I think we can keep it relatively high level. I mean we do definitely have, I would say, a fair amount of, what I will call, a continued integration of the company as well as synergy delivery, particularly on the footprint side. So again, I think we have been saying, roughly speaking, on average, about $20 million to $30 million per quarter has typically kind of been what you have seen in terms of cash costs going out the door for execution. I don’t think that is a bad placeholder to use for 2021 as you look forward. So again, I think the equation still largely holds in terms of the expectations for the savings and the ultimate amount of cash costs going out the door. The only difference is we have 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 are expecting to spend to be able to deliver it. So again, I think we are pretty encouraged by how we have been managed to execute to a higher number in terms of synergies, but continue to keep the kind of cash outflow is pretty disciplined. But remember, we do have the footprint piece of the equation ahead of us, which, again, does tend to be a little bit more on the cost side.

Great. Thank you.

Your next question comes from the line of Jeff Sprague from Vertical Research. Please go ahead, your line is now open.

Thank you. good morning everyone. I just wondering 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 are 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.

Jeff, let me kind of give you a little bit of color on the price. We generated price in the fourth quarter. I mean we have said it very well that our products 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 Vik, do you want to comment about the headwind here?

Yes. So Jeff, I think the way I would think about the headwinds are, we view those things as kind of separate from the pricing equation that I just mentioned. Net-net, we do expect to be price cost positive. That is kind of the trend you have seen historically in the business. And I think the other thing to mention here is to the degree inflationary pressure potentially become higher, if that is really how things play out, we are not seeing that just yet, but we want to continue to look at price as a lever to be able to pass that through. So I think right now we see everything that is kind of price cost on sort of inflation at this point in time.

And could 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 2021. I didn’t catch it when you said it, but that implied an earnings number. Just thinking about what kind of placeholder should be coming through on equity income.

Yes. Jeff, we are 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 on based on expected 2021, but we are not guiding to any specific number for 2021.

I’m sorry, can I just ask one more quick one. Backwards were characterized as healthy. But can you just give some context where they stand, maybe backlogs as a percent of kind of forward projected sales, are they normal in that regard, do they give you kind of comfort and visibility in the top line forecast? And I will stop there.

Yes. Jeff, when you look at the 3 segments, you can characterize, I will start with maybe the Specialty Vehicles. You have seen the bookings momentum. I mean definitely, they are coming in really strong into 2021 with very, very robust kind of backlog. ITS saw some very good large long-cycle orders as well in the fourth quarter. So that really - 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 more kind of more on 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 final 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.

Your next question comes from the line of Josh Pokrzywinski from Morgan Stanley. Please go ahead, your line is now open.

Hi good morning guys. Yes, I guess we have come a long way from talking about fluid end pricing. So just really congrats on the overall portfolio transition the last few years.

Thank you, Josh.

So in kind of the compressor, vacuum, blower or more traditional side of IT&S, 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 are not big in semiconductor, maybe relative to your other big competitor out there. But can you maybe contextualize what is 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 near-shoring, or like any way you would characterize what seems to be kind of earlier strength?

Yes. So we are 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 is really due to the nature of the 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 are driving with demand generation in this kind of highly fragmented end market, it is really what is causing that kind of good solid momentum to perhaps show the ability to take some market share.

Got it. That is 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 have been able pretty consistently defined 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 Hills, Albins, Runtechs 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 is more of a question of do you have a place to consistently play it?

I will say yes, Josh, it is. It is something that we spent a lot of time, even in 2020, improving our process, 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 are adding to the funnel and how the funnel velocity is working, particularly in M&A, I think that is working really well. And so to answer your question, yes, I mean I think we see some continued pretty good momentum on the funnel activity and what could translate into acquisition for us. And yes, we are also very prudent on the price. We continue to be highly disciplined on that.

Perfect. Thanks for the color.

Thank you.

Your next question comes from the line of Rob Wertheimer from Melius Research. Please go ahead, your line is now open.

Thank. Good morning everyone. 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.

Sure. Yes, Rob, to your question, absolutely. I mean this should help us become more creative on new revenue streams over the next five-years. 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 the segment of Industrial Technologies and Precision Science, we have over one million assets in the field 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 supercomputing power from Google Cloud to be able to create better predictive analytics and better revenue streams, I think that is the powerful of what we see here over the next few years. And we are very excited that it is a fairly rigorous process. We were able to select 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.

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 to start or do you have a lot to invest?

So some of the groundwork has been done on the compressors. I think the excitement here too as well as now as, let’s say, that you go to specific end markets. And we alluded to some of these on our last earnings call on how when you look at the water, wastewater. We have multiple of 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 we are the early stages on that one.

Thank you.

Your next question comes from the line of Joe Ritchie from Goldman Sachs. Please go ahead, your line is now open.

Thanks. Good morning everybody. Hey so obviously, great job navigating a really, really tough environment this year. I guess as I’m thinking about the medium term for you guys from a margin perspective, you exited the year really strong in both ITS and PST. I’m just wondering, like how do we think about the medium-term targets for both of those segments just given the upside synergies? Like can ITS be like sustainably in the high 20s? I’m just kind of think about this like really kind of beyond 2021 into 2022, 2023.

Yes. Joe, to answer the 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 at 26% margin. And if you remember batch in the Garner Denver days, we said that industrial segment, we wanted to be in the mid-20s. But we also said that mid-20s is not the cap, and that is just kind of a milestone. And we see more room for improvement from there on. When you kind of open the door inside ITS, I mean, as you know, we are 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 - an impact on how to get to that kind of high 20s. In the Precision and Science, I have made some commentary, very proud with the team. When we started with that business in Q1 of this year, the business was doing a respectable high 20s, and we finished at above 30 on an exit rate. So do we see a potential on that continuing? I will make the same analogy back the medical business when we had that with Gardner 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 will comment 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 and beyond.

Got it. No, that is helpful. Great to hear. I guess my one follow-up question, I had to ask you about the portfolio just given the announcement in HPS. So I guess maybe two questions. One, just on HPS and keeping the 45% ownership here, like I guess, what is 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. But this maybe don’t necessarily fit longer term, but I would be curious to hear any thoughts around that as well?

Yes. Joe, I think we are very excited with the HPS for multiple reasons. I mean one, we found a great partner with AIT. And we are 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. I think we view a really good because we were able to lock in some cash, but at the same time, as you said, participate in any of the potential upside that could come. I mean as you know, there is multiple cycles that can happen here. And as we continue to see, we get that 45% participation in terms of what could come next. And in terms of your other questions, I mean, clearly, as we said in the past, I mean we look at all possible scenarios. And to the degree that we can create shareholder 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 we just want to be thoughtful and strategic and disciplined on how we do that.

Makes sense and thank you guys.

Thank you Joe.

Your next question comes from the line of Stephen Volkmann from Jefferies. Please go ahead, your line is now open.

Hi good morning guys. Maybe just back to Joe’s margin question quickly. Any difference amongst the segments and how we should think about incrementals for 2021?

Yes. I will 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 have mentioned before, are much more isolated or centralized, I should say, in the IT&S segment. In terms of the Precision and Science and Specialty Vehicles businesses, the incrementals there will be a little bit more muted just on a year-over-year basis. Frankly, a little bit of balancing in terms of the mix, in terms of the top line. If you remember on the Precision Science, we did see a pretty strong in-swell 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 it a little bit more what I will call general industrial and then obviously, some of the investments back in. And then the SVG business kind of comparable as the commercial and Gulf businesses tend to kind of normalize, you are 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 IT&S is where you will see a little bit more pronounced.

Okay. Great. That is 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 you 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 is been a target for you guys, just maybe an update there.

Yes. Steve, I think we definitely are able to get out there and do a lot of these service work, and we have a fantastic team that being created 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 info base and the technologies that we are launching with IoT and then now here further expanding with the connectivity with Google Cloud, being able to be more pronounced on how we can create some unique service agreements.

Okay. I will leave it here. Thank you.

Thank you Stephen.

Your next question comes from the line of Nigel Coe from Wolfe Research. Please go ahead, your line is now open.

Thanks. Good morning. Not a whole lot to really run through here. But I did want to go back to the synergies. And obviously, procurement has been a big source of cost savings. With the sort of the supply chain issues you have seen 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 set in there. And then the second part SG&A is relatively small part of the synergy mix. I’m just wondering now you have had IRN for a year now whether you see a bit more potential for G&A?

Yes. Sure, Nigel. I will 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 will just make that even broader, the direct material equation, whether it be classical procurement from leveraging a larger spend base as well as now the ITV savings funnel. I think the answer is no. You have seen the continued momentum. Obviously, the conviction in raising the synergy target of $300 million. I think that we have a pretty good line of sight and pretty good conviction in being able to deliver those procurement and direct material-oriented numbers. And then on the G&A side, again, I would say there is always room for opportunities. But I think, like we said, the majority of the more structural-related savings and cost take-out really saw that much more executed in 2020. So again, I would say that part is kind of largely behind us. But we will always look for rooms for optimization.

Okay, great. And then just going back to Joe’s question on the portfolio. Just curious just given the performance of SVT, much better than we would have expected, probably to better than what you expected as well. How is your view on SVT evolve over the past 12-months and how confident are you that this kind of performance can be sustained beyond reopening?

Yes. I mean I think I put it in a couple of ways there, Nigel. I mean I think what you see on the LDT is clearly great performance-based on product launches that the team has done on the consumer side. When you look at also 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 they are not done yet. I mean what is COVID an accelerator or accentuate the decision-making for some consumers to really buy now versus maybe buy later? Yes, it could be. But I think what is 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 are supporting with great investments and more to come.

Great. I will leave it there. Thanks.

Thank you.

Your next question comes from the line of Nathan Jones from Stifel. Please go ahead, your line is now open.

Good morning everyone A couple of questions on investments in growth here. Can you talk about kind of what kind of level of reinvestment you are making in growth at the moment. And what the kind of potential to take that to your view. And then the 1.5% to 2% CapEx seems a little low to me. Can you talk about opportunity to invest more here in order to drive better growth?

Yes. Listen, in terms of investment on growth, multiple ways. One, on the corporate side, I mean, we are continuing to make some pretty good investments on some of our - kind of demand investments on some of our generation activities as well as what you have seen here with the Google Cloud. And then within the businesses, absolutely, we are making some very solid investments. Maybe some that I can highlight on the Precision and Science, the team 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, heavy investment on product launches. Now that we have the combined two companies, particularly on the compressor side, there is 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, sure, I mean, absolutely. We think 1.5% to 2%. I mean we are typically very light, 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 will do it.

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 at year-end, can you talk about what you have opportunities seen, what successes you have seen and what you expect in the future?

Sure, Nathan. I will touch at kind of high level. Obviously, we haven’t necessarily quantified growth synergies externally. But clearly, it is strategic, And you have seen a lot of the momentum that we are actually driving, whether it be in the organic growth numbers that we have actually guided to, things around the water end market, some of deleveraging of the oil-free compressor technologies and the kind of expanded channel the market that the combined company has brought. I think that probably each of the segments, particularly in IT&S and Precision Science, have a good funnel of what all growth synergies that they have been executing to that you are really going to kind of see embedded, what I would tell you, within kind of the organic growth numbers. And I think we are really encouraged. You have seen some of the healthy order numbers. We talked about kind of the healthy backlog that we have exiting the year. I think you are starting to see some of those revenue synergies starting to click in. So again, we are not going to necessarily guide them explicitly, but I think you have seen a lot of momentum. And what we are 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 color as we continue to kind of leverage that kind of revenue synergy base in the combined company.

Great. Thanks for taking my questions.

Thank you Nathan.

Your next question comes from the line of John Walsh from Crédit Suisse. Please go ahead, your line is now open.

Hi, good morning everyone. Just one here for me. Going back to the free cash flow guidance for this year, the greater than or equal to the 100%, is there another way you guys could kind of articulate what you are expecting in terms of free cash flow, either through a free cash flow margin or maybe free cash flow as a percent of EBITDA and then how you kind of think about that going forward as well?

Yes. John, I think we are going guidance we gave was greater than or equal to 100% of adjusted net income, which we think is probably the right way to look at it, clearly taking a lot of the purchase accounting implications and things of that out of the equation. I think if you look, for example, at 2020, how we are able to deliver, we were quite pleased. Obviously, we saw some pretty good headwinds - I’m sorry, some good tailwinds in the context, you know probably a little bit lower than normal CapEx and some pretty good working capital management. But the good news here, as we look into 2021, we see some strong equal opportunities, whether it be 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 net working capital opportunity. So again, I think the guidance itself, I think, is pretty prudent. We would expect to see 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 have mentioned before in terms of really the tax rate and working capital.

Great. I will leave it there. Thank you.

Thank you.

Your next question comes from the line of Markus Mittermaier from UBS. Please go ahead, your line is now open.

Yes, hi good morning everyone. Just a quick one. On procurement execution, obviously, good to see the incremental $50 million here. Could you remind us what is the total spend base here for direct and indirect. And how far through that spend base are you now roughly in sort of consolidating spend, picking in new suppliers? Just trying to get a sense of visibility here for how far that incremental $50 million goes in that total spend base?

Yes. No, sure, I mean, so we do roughly a little bit above $2 billion. It is kind of the mark that we said that we were going to do in terms of RFQs and negotiation and stuff like that. And we are maybe three-quarter of the way through there. So we still have another portion that we still need to go through the process. As you can imagine, it is just a lot of detail that the team is going through. So we still have some way to go to cover all that $2 billion plus.

Great. That is very helpful. And then second one, if I may. Just on compressor, then a follow-up to the earlier discussion on order intake in box sticks out to me, particularly that high single-digit Europe order intake. Is the positive mix for you guys in Europe or is there some share gains versus some of the, obviously, our strong European peers? How should we think about that in the quarter?

Yes. 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 compared as one of the leading brands in Europe and now Ingersoll Rand and also Champion. So we have a multi-brand approach, and we are just leveraging the channel across all the regions. And we feel that, yes, the team is really executing well and potentially taking some share base on the numbers.

Okay. thanks so much. Good luck.

Thank you.

Your next question comes from the line of Andy Kaplowitz from Citi. Please go ahead, your line is now open.

Hey good morning guys. Could you give us some more color into how you are thinking about growth in the APAC region in 2021, as we know it is 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?

Yes. I mean so obviously, two soft segments there. I mean, China, the team is really doing fantastically well. I mean we have great leadership. We just went through a lot of the accelerated commercialization based on the combination of the two brands and the technologies just here before the Chinese New Year. And it is exciting to see the momentum they are continuing to build. And we always said Southeast Asia is definitely an area of opportunity for us. It is not an area of opportunity for not only Gardner 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 are being very selective. The team is really appropriately investing in that region. So it is just a lot of good potential opportunity that we see in the Southeast Asia.

Got it. And then guidance for mid-single-digit revenue growth for the segments, makes sense for 2021. But just looking at Specialty Vehicle, you mentioned orders strengthened through the quarter, up over 20%. So 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 2021 in that segment.

Yes, it is definitely a very good momentum. I mean I think we are being a bit more prudent in terms of maybe some rationalizatoin coming here in the second half. And as we continue to see momentum from product launches and kind of market activities, we will update. But I think the team is very focused on delivering to the commitments that they have now. And we are 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.

And there are no further questions. I will turn the call back over to Vicente for any closing comments.

We want to say thank you to everyone for their interest. I know that in these calls, many of our employees across the world join to listen to the excitement of what they have to been able to accomplish. And to all of them, I just want to pass another big thank you. 2020 was a phenomenal year. We are about to celebrate our one-year anniversary altogether here. And what a phenomenal journey it has been. And this is just the beginning. We are getting started, and there is just definitely much more to come. So thank you. Thanks, everyone.

And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.