Good morning. My name is Christa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ingersoll Rand Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Matthew Fort, Vice President of Investor Relations. Please go ahead.

Thank you and welcome to the Ingersoll Rand 2023 third quarter earnings call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday, and we will reference these during the call, both are available on the Investor Relations section of our website. 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, both of which are available on the Investor Relations section of our website. On today's call, we will review company and segment financial highlights and provide an update to our 2023 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente.

Thanks Matthew and good morning to all. I would like to start, as we always do, by thanking and acknowledging all of our employees for their hard work in helping us to deliver another record quarter in Q3. Despite the constantly changing macroeconomic environment, our employees continue to deliver on our commitments and consistently exemplify our purpose while thinking and acting like owners. I would also like to welcome our new employees from our recent acquisitions, Oxywise, Fraserwoods, Roots and [indiscernible]. Beginning on Slide 3, fueled by our competitive differentiator, IRX, in the third quarter, we again delivered double-digit growth in revenue, adjusted EBITDA, adjusted EPS and free cash flow. We remain nimble and focused on controlling what we can control and continue to direct our demand generation activities towards high-growth sustainable end markets to accelerate market share gains. Finally, based on our continued robust performance year-to-date, we are once again raising our 2023 full year guidance. As we move to Slide 4, our economic growth engine is the key to delivering compounding annual results. During our last Investor Day in November 2021, we presented this model and highlighted our organic, inorganic and quality of earnings growth enablers. We remain committed to our strategy and our long-term Investor Day targets as outlined on this page. In fact, we have so far exceeded our growth and margin commitments, including an organic orders and revenue CAGR of 12% and margin expansion of 170 basis points per year over the last three years. On the next slide, I will provide you with deeper insights into how we are accelerating organic growth in previously acquired businesses. So turning to the page to Slide 5. Here, we have some examples of how we have driven outsized organic growth and margin expansion from recently acquired M&A.…

Thanks Vicente. On Slide 8, fueled by IRX, we again delivered record results in Q3 through a balance of commercial and operational execution. Total company organic revenue increased 6% year-over-year with incremental margins of 38%. Book-to-bill was 0.94x, which was in line with expectations. As a reminder, we typically see book-to-bill above 1 in the first half of the year due to the longer cycle, large project orders received and a book-to-bill below 1 in the second half as those large longer-cycle projects convert into revenue. We remain encouraged by the strength of our backlog, which is up approximately 6% year-over-year. The strength in our backlog provides good visibility and momentum as we move into the fourth quarter of 2023 and begin to look towards 2024. The company delivered third quarter adjusted EBITDA of $462 million, a 23% year-over-year improvement and adjusted EBITDA margins of 26.5%, a 170 basis point year-over-year improvement. It is important to note that these results are closely approaching our long-term targets set forth during our 2021 Investor Day. For the quarter, adjusted diluted earnings per share was $0.77, up 24% versus the prior year. Free cash flow generation for the quarter was $369 million, up 46% versus the prior year. Free cash flow margins for the quarter finished at 21%. Total liquidity at quarter end was $3.2 billion, which was flat compared to the prior quarter. And our net leverage continues to remain near all-time lows. At 0.9 turns, we are 0.1 turns better than both the prior year and prior quarter. Turning to Slide 9. For the total company, Q3 orders declined 2% and revenue increased 13%, both on an FX adjusted basis. Total company adjusted EBITDA increased 23% from the prior year. The ITS segment margin increased 260 basis points, while the PST…

Thanks Vik. On Slide 12, our Industrial Technologies and Services segment delivered strong year-over-year organic revenue growth of 9.5%. Adjusted EBITDA increased 31% year-over-year with adjusted EBITDA margin of 28.8%, up 260 basis points from the prior year, with an incremental margin of 42%. I would like to take a minute to note that these high 20s adjusted EBITDA margins are in line with our 2025 long-term targets set during our Investor Day in 2021. So we're almost two years ahead of schedule in terms of achieving these results. Book-to-bill remains on track and finished in line with expectations at 0.94 times. Consistent with previous guidance, we anticipate a book-to-bill of approximately one times for the year. As a reminder, we typically see a book-to-bill of above 1 in the first half as larger longer-cycle orders are placed and below 1 in the second half as those larger longer cycle orders are shipped. Organic orders came in line with our expectations, down 8.7% as we are comping high teens organic orders growth from Q3 last year. Therefore, it is good to highlight that on a two-year stack for the third quarter, ITS organic orders have grown 8%. Moving to the product line highlights. Product lines continued to show strong momentum on a two-year stack, excluding FX and also excluding the recent acquisitions of SPX Air Treatment and Roots' blowers. On a two-year stack, compressor orders were up low double digits and revenue was up mid-30s. Industrial Vacuum and Blower orders were up mid-teens and revenue was up low 30s. And the Power Tools and Lifting was up low double digits on both orders and revenue. For additional detail information on product lines and regional splits, we have moved the chart which was previously included on this page to Slide 17…

[Operator Instructions] Your first question comes from the line of Mike Halloran from Baird. Please go ahead.

Hey good morning everyone.

Good morning Mike.

So, a couple of questions here. First, could you just put the order trajectory and trends in context for us? I certainly understand some of the life science stuff. But when you look at more of the industrial assets you have, why the confidence in the order recoveries as you look to the fourth quarter? Are you seeing any signs of software that points to the portfolio? And how do you think about the underlying momentum of the business as we look in 2024?

Yes, Mike, so maybe a couple of things here first. As we mentioned earlier on the call, I mean, Q3 -- what we saw in Q3 is really -- on a year-over-year is really been in large due to the tough comps from prior year as you saw kind of Q2 -- Q3 of 2022, ITS was up 16% and PST up 3%. So also Q3 orders finished in line with the expectations that we had even to your other question about what we were seeing underlying demand. We made a reference that even on the PST side, when you look at the short cycle business, which is really more driven by industrial side, I mean, we saw sequentially that business to be -- short cycle industrial being up Q2 to Q3 and also up year-over-year from an order perspective organically. I will also highlight that even our ITS segment, when you look at Mainland Europe, Q3 order momentum was actually higher than Q2. So, we still feel that the underlying businesses are performing to our expectations. We also, as you know, really look at this from an MQL perspective, the marketing qualified leads, we see stability, we see solid kind of continued momentum on that. And as we kind of head into the fourth quarter, the level of confidence on what we said about orders sequentially being up and also on a year-over-year is driven by a lot of these kind of data points as well as long cycle visibility that we have coming into the fourth quarter.

Thanks for that. And then on the M&A side of things, I certainly appreciate all the color you gave on the slide on LOIs and funnel and everything like that. My question more is, have you seen any change in tone with the people you're interacting with from an interest rate perspective, lack of visibility on maybe where the demand picture is? Does that help to hurt the thought process and the conversations? And maybe just some thoughts on the sentiment around the people you're talking to and how you should think about close rates?

Yes, no different, Mike. I will say that the sentiment has been on the positive side for us as buyers and acquirers. And as you well know, a lot of our M&A is sole source driven by a lot of the outreach that we do to, in many cases, family owned companies. And I think the -- what you continue to see in the market for the macro environment, I think that is really enticing and encouraging others to really think about how to transition those multi-generation family companies to a great company like ours, where, as you know, we do a lot of work around employee ownership, employee engagement, and that's a big attractive factor for a lot of these companies to transition to us. So I think we're seeing continued very strong activity on the M&A.

Great. Really appreciate it. Thank you.

Thank you, Mike.

Your next question comes from the line of Julian Mitchell from Barclays. Please go ahead.

Thanks. Good morning. Maybe -- so looking at the fourth quarter guide, it looks like it's sort of mid-single-digit organic sales growth and mid-30s incremental margin. I just wondered, as the Q4 probably represents a somewhat more normal price/cost and somewhat more normal sort of demand environment in the last year or two. So, as we look ahead, should we assume that, that sort of mid-30s operating leverage is a good placeholder for the period beyond Q4? And on the organic top line, maybe there's a little bit less price next year than in Q4, but that sort of low to mid-single-digit rate is a good starting point for sales growth?

Yes, Julian, this is Vik. I'll take that one. I think you're spot on both accords. In terms of the operating leverage, we've indicated whether it be Q4 or full year, and we've kind of been holding pretty steady to this, that mid-30s, call it, roughly 35% incrementals range is where we expect to operate in. And that's very consistent with I think where you've seen us historically, ITS maybe slightly on the higher side, but we think a mid-30s range is right kind of where we would expect to play, not just now, but on the go forward as well. And then in terms of the pricing side of the equation, yes, obviously, you've seen much more elevated price realization over the last few years. But quite frankly, you've seen a lot of that now starting to get comped and now you're falling into a much, I'd say, more normalized lower single-digit realm. And we would expect that kind of 1% to 2% net price to be a good proxy as we move into 2024. So yes, I think you're spot on, on both.

Thanks very much. And then just my quick follow-up. PST specifically, it can be tricky from the outside to understand the moving parts on the revenue there, and you called out Vicente that the short-cycle industrial bid is pretty good. The biopharma bid is still bad, which everyone else has iterated as well. What's your sort of best view of that biopharma piece from here? And kind of how large is that medical piece now of PST as we exit this year? I think when we look at next year, some people have talked about a V-shape in biopharma. It's not obvious to me why that would happen at all, but just wanted your perspectives.

Sure Julian. So maybe a couple of things I'll say too as well. So when you think about the PST, think about it as -- even when you exclude the life science business, PST on 10 out of the 11 past quarters has been positive on organic orders and actually all organic revenue. So that tells you kind of the good strength of the rest of the PST segment. I mean clearly, the life science, which is roughly about a quarter of the PST has been on this kind of situation with biopharma, but also oxygen concentration. And the life science business has been pretty negative organic order growth momentum for probably the past six quarters. So it's been now a little while, while the non-life sciences has been positive. So, yes, I mean, we're experiencing these challenges that others have indicated on our life sciences. I mean, I think the way we think about it is that for us, biopharma, yes, we have some exposure. But it's not the biggest piece of our life science end market exposure within the PST. The biggest exposure for us is really oxygen concentration. And the oxygen concentration, when you think about it, really a great acceleration during the COVID days, and is the one that we saw building into negative, more pronounced earlier than even the biopharma. So it was almost like a leading indicator for us. So, as we kind of go here into the fourth quarter and maybe in the first half of next year, we see that more so next year maybe an uptick, not in a V-shape, but continue doing better from an oxygen concentration side of the business. So, we continue to think that PST, as even you saw on that segment slide, I mean, PST CAGR growth organically, revenue and orders momentum continues to be a segment that we'll see that mid-single-digit plus over the cycle and over time. I mean, it's with great characteristics on continuing to improve in that. So Again, I don't think it's going to be a V-shape, but even if it's a V-shape, it's not one that -- again, we don't have that big exposure into biopharma.

That’s great. Thank you.

Your next question comes from the line of Jeff Sprague from Vertical Research Partners. Please go ahead.

Thank you. Good morning everyone.

Morning.

Hey Vicente, maybe elaborate a little bit on kind of this visibility on long-cycle orders that you mentioned in Q4. And kind of the spirit of my question is, we've heard from a few companies this earnings season, electrical companies, HVAC companies that kind of the mega project pipeline is building and becoming more visible. But there haven't been a lot of orders booked yet, and they're just starting to kind of come into kind of the booking cycle. Are you seeing any of that sort of dynamic? Or maybe, if not, maybe share a little bit more color on kind of the nature of the long-cycle orders you are starting to see come into view?

Yes, I think Jeff, that's exactly what I was trying to refer to there is that we're seeing definitely before if you remember a few quarters or even last year, we spoke a lot about a lot of these kind of large projects that were being in conversations. And now we're seeing definitely the release of some of those funds. And so yes, so that's what's giving us a bit of a higher level of confidence in terms of how the long cycle funnel continues to build in a company that gives us a good level of visibility, I'll say, not only Q4 but also as we go into 2024.

And then I think it was Vik, maybe it was you talking about deals saying there's a couple of billion dollar things in the pipeline. It sounds like you expect bolt-ons most likely, which would be, I guess, natural. But maybe kind of a little bit of color on what's going on in the bigger deals and the likelihood of getting something done in that size range?

Yes. So, that's right. I mean we said on the call that we -- and the funnel continues to be really strong and mostly bolt-on in nature, but there's a couple that are above $1 billion purchase price. And I'll say that those are very well in line with our M&A strategy. We should not think about it as being a third leg of the company. For competitive reasons, we don't want to kind of get into a lot of details, but we feel very comfortable with kind of even where we are from a balance sheet perspective and being less than one time on our net debt to adjusted EBITDA ratio. It actually puts us in a very strong position to move forward with this transaction. But yes, we're very excited with how the M&A funnel continues to build and what we see in terms of getting things executed here over the next couple of quarters.

Great. Thanks for the color.

Thank you.

Your next question comes from the line of Andy Kaplowitz from Citigroup. Please go ahead.

Hey, good morning everyone.

Morning.

Vicente, can you give us more color on what you're seeing by geography? I think you've been very active in really generating market share gains in your own demand in regions such as China and Europe. Are you confident for instance, that Chinese compressor growth will remain positive? And obviously, I think EMEIA compressor orders turned down, but I don't think you have big exposure to Germany, but how are you thinking about EMEIA as well?

Sure, Andy. So first of all, on the Chinese compressor, I mean, clearly, not surprisingly, the overall China market has continued to be, I'll say, choppy and soft; however, you saw how we deliver. The team in Asia-Pacific, and particularly in China, again, demonstrated one more time, another quarter of kind of growth organically in the compressor side from an orders and revenue perspective, which speaks to the continued self-help that the team is driving and leading relative to the overall performance in the market, and we'll clearly share more examples of that as we head into the Investor Day. I'll say in Europe, no significant changes in demand. I mean MQL activities remain solid. We continue to focus on our own demand generation for high-growth sustainable end markets, our economic engine is working. And as I made in the remarks, I mean, we saw even orders sequentially in Mainland Europe come for the compressor side actually grew sequentially Q2 to Q3. So that gives us continued encouragement that, again, these self-help initiatives are working. And this kind of year-over-year tough comps is one that we're just not worried about, as we see the underlying demand continue based on the self-help.

And Vicente, maybe just following up on that. As the environment has been normalizing and interest rates are up here a little bit at least in the US, your focus on energy efficiency and sustainability through your products, how do customers -- when you have conversations with customers, how do they balance sort of maybe higher cost of financing versus your ability to provide them energy efficiency and sustainability, that's still trumping the higher cost?

Yes, I'll say Andy, it's all about that ROI and the payback. And as customers prioritize CapEx as they go into 2024 and beyond, it's all going to be all about ROI. No different to how we do it ourselves internally. And these energy savings, energy efficiency is definitely driving the conversation at the top even at the C-suite level now where customers are looking for what could do -- what can they do to drive this great payback. So again, this is how our sales guys sell. They sell based on total cost of ownership and ROI.

Appreciate it.

Your next question comes from the line of Rob Wertheimer from Melius Research. Please go ahead.

Thank you. Just to kind of follow up on a couple of those comments because I think what you've done in China has been impressive and maybe increasingly so. Is the market in China weakening? Do you have any sense of the outperformance gap that you've been able to deliver, as it's not widening the continued growth in the market that's kind of blown up a few results this quarter is great? And have you seen a competitive response? And if I may, Vicente, your comments on New York are relatively constructive. Are they meant to reflect IRX and how you're generating better orders in a softening market? Or are you really just not seen softening?

Yes. Great. I think the two that are pretty well tied. I mean I think IRX is definitely what is helping us drive this outperformance that we're seeing against as the backdrop in the market. And even when you think about it, that ISM and PMIs have been below 50, and we still have been able to deliver over the past few quarters, really great strength in orders and revenue momentum. I think that is what gives us that uniqueness in terms of leveraging IRX as a differentiator. And clearly, we're not immune to the market, but it's all about controlling what we can control, and this is what our teams have done exceptionally well, guided and driven by how we leverage IRX as the execution engine to overdrive. And to the China slowdown question there, Rob, I'll say that China continues to be very soft and choppy. I was in China -- I've been in China now twice over the past five months, and -- just to see it myself firsthand. And I think what the teams continue to do there is just incredible. But as we always said, we're in China for China, and that is really also helping from a strategy perspective because we're being viewed in the China market as a local -- almost like a local player, obviously, with a great reputation of a multinational and the great quality and innovation that we're launching. But again, it's a lot of self-help that we're getting executed through the use of IRX.

Okay. Thank you.

Your next question comes from the line of Nigel Coe from Wolfe Research. Please go ahead.

Thanks guys. Good morning. A couple as well. You covered a lot of ground. On PST, maybe could you just remind us after this, obviously, this correction where is biopharma as a proportion of that segment now? And then on the fourth quarter in PST, I think we're assuming a minus 5% to, I think, low to mid-single-digit growth there. I think the step up from Q3 to Q4 is a bit heavier than normal. So just wondering what you're seeing near term driving that improvement?

Yes. Nigel, first on the PST, overall life science is about a quarter of the PST segment. And biopharma, it is, maybe -- I'll say maybe I don't know, maybe a third of that quarter and the big life science here for us, more so is on the oxygen concentration side of the equation. I think it's important to note that when you look at PST segment ex life science, we have been able to kind of put organic orders and revenue positive momentum on 10 out of the last 11 quarters. So, that kind of shows the good strength and diversity of that segment, that gives us confidence on that overall over the long cycle or cycle the mid-single-digit plus.

Yes. And I think your second part of your question was the sequential movement from Q3 to Q4?

That's right. Yes. Yes.

Yes. Yes, I think we do expect to see, what I'll say, a slight nominal uptick from Q3 to Q4. I would remind you that this business doesn't, I would say, have a tremendous amount of seasonality comparatively speaking to other businesses. It's a relatively consistent quarter to quarter. But that being said, I'd say a combination of a couple of things. One, still continue to have a relatively healthy backlog, and that is reflected in terms of what we expect to ship in Q4 as well as Vicente indicated, relatively healthy and good, strong momentum on the, what I'll call, the industrial side of the business, where you continue to see good order intake in Q3, and we would expect to see that continue into Q4. So again, for those reasons, we would expect to see a slight nominal uptick from Q3 to Q4. I'd say relatively consistent to what you've seen historically.

Okay, that's great. Thanks Vik. And then on the -- I mean, Jeff asked the question as well, but I just want to follow up on a couple of the $1 billion type transactions. Are these typical properly sourced negotiated deals? Or are these more sort of investment banking driven auction-type processes?

No, they're property sourced. I mean they are ones that we have been cultivating for quite some time.

Okay. Great. Good luck with that. thanks.

Yes, thank you.

Your next question comes from the line of Joe Ritchie from Goldman Sachs. Please go ahead.

Hey guys, good morning.

Good morning. Hey Joe.

Hey. So just a lot of color today. Thank you. Just as you're kind of thinking through the book-to-bill and the order rates as you head into 2024, so is the expectation then that in the first half of 2024, we would expect a book-to-bill in IPS to be above one again, orders to continue to expand just based on what you're seeing today in your MQL?

Joe, yes, I think obviously, we're not going to get into guidance for 2024 yet, but I think the construct remains consistent with what you indicated. I think in generally any degree of a typical year, book-to-bill above 1 through the first half of the year, particularly as that longer cycle kind of orders funnel continues to progress through. And then book-to-bill below 1, what I'd say, a combination of normal seasonality combined with the longer cycle, larger project shipping through the back half, that will typically led to that normal dynamic of book-to-bill above 1 in the first half and below 1 in the second half. Right now, no reason to think anything differently for 2024.

Okay, great. And then maybe just a follow-up to that. Are you guys like hearing any concerns around projects pushing out a little bit to the right, just given what the rate environment looks like today and there's been a -- there's been, I think, a lot of concern in the market with certain end markets, at least like seeing projects push to the right, like the renewable sector. I'm just curious what you're seeing specifically in the conversations that you're having with your customers?

Joe, I'll say nothing of significant or material change. And if anything, when we -- if we see projects pushed to the right, it is really mainly due to sites not been ready which has been more driven by finding the labor to just get the sites on track and be done having heard much about the context of interest rates being the driver for getting these projects pushed to the right.

Okay, great. Thanks guys.

Thank you.

Your next question comes from the line of Joe O'Dea from Wells Fargo. Please go ahead.

Hi, good morning. Thanks for taking my questions.

Good morning.

I wanted to start on just resource allocation planning for 2024. And I think you've got a model that allows you to be pretty nimble as you sort of exploit growth where growth is. And so what are you doing now? What's kind of underway in terms of how you want to position those resources. And thinking from a geographic perspective, from an end market perspective, where you see growth is most attractive and how you're positioning for that?

Hey Joe, it's an interesting question. I -- again, and also maybe a few weeks ago, we were actually -- we were together with our team -- our demand generation team in Poland where we had a long week session, particularly thinking and looking at what are we seeing today and what do we expect to see in 2024? And how do we position the next level of demand generation activities to really position us in good strength as we go into 2024? So, all of that work is undergoing. I can tell you that -- the one level of detail, I'll tell you, as you kind of double click on that is that it varies region-by-region and even country -- in countries within the region. Like for example, in Mainland Europe, what we might be doing in France is very different from what we might be doing in the UK. And a lot of that is driven by what we're seeing at the micro level. So that's the level of detail that we undergo and we, as a team, kind of put together to really understand those best growth vectors that we're seeing at the micro level versus not keeping it at the macro, which if you do it at the macro is, you're going to get a few products wrong. So, that's the exciting piece. As a team, we kind of get together, and we feel that we're in pretty good momentum here to start 2024 in a good shape.

Appreciate it. And then I just wanted to ask on the ROI side and the examples you gave on the oil-free compressor and 14% more efficient than the previous model. And just any more perspective on when that previous model would have been launched to get a sense of would customers be it sort of a natural kind of replacement stage? Or what about that ROI is compelling such that the payback would encourage them to replace ahead of the natural aging of the prior model system?

Yes. Joe, I would say that right now, ROIs -- and again, it could vary by region, but we're seeing ROIs between 12 to 15 months. So it's a really great payback, again, driven by a combination of energy efficiency, but also driven by higher energy costs. So, I think it's just one of those that we're driving really hard. And customers, when they see a payback of 12 to 15 months or call it, less than two years and combine that with the sustainability and what many of them had to do with Scope 1 and Scope 2 is the other kind of great factor that gives us a great tailwind.

Got it. Thank you.

Your next question comes from the line of Chris Snyder from UBS. Please go ahead.

Thank you. I wanted to ask on the fourth quarter. The guide -- a pretty wide range of outcomes in the organic growth guide, anywhere from down 1% to up 6% by my math. Can you just maybe talk about some of the puts and takes or the variables that would drive the range of outcomes from the high end to the low end? Thank you.

Yes. Sure, Chris. What I would probably tell you here is we kind of view it as probably, frankly, a bit of a tighter spread than that. But if I take it by the two components, and maybe I'll talk kind of year-over-year based on the guide here. Like we said, we do expect to see positive organic growth that includes across both segments, starting on the ITS side. If you're thinking, the guide would imply something in the range of roughly approximately 3% organic growth year-over-year. Again, given the pricing momentum we've seen as well as an expectation of organic volume growth, you can probably think of it as roughly speaking, two-thirds price, one-third volume. And I think I would fall back on kind of exactly what we said all year is that if there's kind of an upside opportunity in the context of the guide and as we think about Q4, it would really be that organic volume side of the equation, particularly on the -- I'm sorry, on the ITS side, where again, backlog continues to remain at effectively record levels. On the PST side, I'll go back to kind of some of the commentary we made earlier here. Again, continue to expect to see organic -- positive organic growth, probably a little bit more of a pricing tailwind comparatively speaking to what you've seen in ITS. And I would just really frankly attribute that more so to what we've said over the course of the last one to two years. ITS probably got out a little bit quicker than PST on the pricing front. And as such, now PST probably has a little bit of a longer-lasting tail on the pricing side of the equation. But again, those would be kind of the dynamics we would expect. But again, we would expect to see positive on both sides of the equation effectively falling at the midpoint of the guide as you saw us make in the prepared comments.

Thank you for that. Really, really helpful. Maybe for my follow-up, just on prior commentary around the expecting sequential order improvement into Q4, it doesn't really seem like that's seasonal. It seems like typically, Q4s are similar to Q3, if not lower. So, should we take that? Is that just around timing of some of these bigger projects coming through? Or is that a signal of demand is at least stabilizing, if not improving? Thank you.

Yes, I would actually say it's probably a function of both. So for example, if you go back to last year, we acknowledged and you heard Vicente say in the prepared comments, Q3 was kind of a peak from an orders perspective in the context of some of these longer-cycle orders, some biogas orders, some things we saw last year that created that tough comp, right? And we did see -- we even indicated last year that think about it more on a second half basis, where you saw Q4 orders kind of normalize comparatively speaking to Q3. Now you're kind of facing the other side of that equation. So obviously, very tough comps in Q3, which we acknowledged. You saw that kind of play itself out. And now as you think Q3 to Q4, I think a combination of consistent, stable kind of MQLs, stable demand patterns, some of the longer cycle dynamics that Vicente spoke to. I think that sets up for what we're expecting to see in terms of the positive trajectory, both from Q3 to Q4 as well as on a year-over-year basis. Is there some degree of seasonality that is particularly a little bit more on the ITS side? Yes. I guess, obviously, with some of the other noise, you haven't necessarily seen that as prevalent, particularly in the last few years. But I wouldn't speak to any dramatic seasonality of no point itself out this year, whether it be ITS or PST.

Thank you.

Your next question comes from the line of Nathan Jones from Stifel. Please go ahead.

Thank you. This is Adam Farley on for Nathan. My first question is on channel inventory. What, if any, impact of channel inventory correction having on your business?

Yes. Adam, I would say, again, given the highly customized nature of our products, there's really no material risk on the destocking that serves -- that kind of serves really well for the ITS segment. And for the PST segment on those businesses that kind of sell through distribution, we monitor really closely the sell-in and the sell-through or the sell-out activities to ensure that we prevent our customers from getting into an overstock situation. And we -- we have been doing this that way for probably -- I mean, we have data points over the past five years to really have a good view as to what's going on in the distribution channel.

Okay, that makes sense. And then on my follow-up, the Power Tools and Lifting business continues to show really solid growth. That business has really improved under your ownership. So, what's driving the strength there? And I believe that business has been considered noncore in the past. So, maybe could you provide an update on, are you thinking about the portfolio and the potential for portfolio rationalization?

Sure. So you're absolutely right that the PTL business has really done incredibly well. And to point out, when we acquired Ingersoll Rand, PTL came in with mid-teens EBITDA margin and now it's pretty close to that ITS kind of blended average kind of get getting to that point. So great improvement while still growing the business. The real nature of a lot of this performance has really been new product introduction. So, the team has done a really great job of reinvigorating new product. And I think the exciting piece here is that as we look into 2024, they're going to be launching a next-generation set of tools as well as lifting mechanisms that we think could continue to see some good performance.

Thank you for taking my questions.

And we have no further questions in the queue at this time. I will turn the call back over to Vicente for closing remarks.

Great. Thanks, everyone, for your level of interest. And as we said on the call, I want to thank, again, all of our 20,000 employees across Ingersoll Rand who are owners of Ingersoll Rand, and have a great performance here as we kind of close the year and as we go into 2024. So, thanks again for the interest and look forward to catching up with many of you. Thank you, thank you, everybody.

This concludes today's conference call. Thank you for your participation and you may now disconnect.