Ingersoll Rand Inc. Common Stock 2026 Q3 Earnings Call

Max, please go ahead. Thank you for joining Ingersoll Rand's Third Quarter 2026 Earnings Call.

I am Max Vorcheimer, Director of Investor Relations, and joining me this morning are Vicente Reynal, our Chairman and CEO, and Vik Kini, our Chief Financial Officer. Our earnings release and presentation were issued yesterday afternoon and are available on the Investor Relations section of our website, where a replay of this call will also be posted. Before we begin, please note that today's discussion will include forward-looking statements subject to the risks and uncertainties described in our SEC filings and on slide 2 of this presentation, which you should read in conjunction with the information provided on this call. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP financial measures are included in our earnings release and this presentation, both of which are available on the Investor Relations section of our website.

Today, we will review our third quarter results, discuss segment performance, and provide an update to our full year 2026 guidance. During Q&A, please limit yourself to one question and one follow-up to allow time for other participants. With that, I will turn the call over to Vicente.

Thanks, Max, and good morning to everyone, and thank you for joining today. Beginning on slide 3, we delivered robust financial performance in the third quarter, highlighted by 18% organic orders growth, 4% organic revenue growth, and a 17% year-over-year increase in adjusted EPS, excluding the benefit of IEEPA tariff refunds received during the quarter. Organic orders growth accelerated across both short-to-medium cycle and long-cycle businesses, including a particularly large engineered-to-order solution win that we will discuss in more detail shortly. Important to know that excluding these ETO order, organic orders still grew high single digits. As we will discuss this morning, we are raising our full-year revenue and adjusted EPS guidance. The board has also authorized a $2 billion increase to our share repurchase program, providing greater flexibility to compound shareholder value.

M&A continues to be our top priority for capital deployment, supported by a robust pipeline of attractive strategic bolt-on opportunities. We're excited about the momentum we're building, including another acquisition that we successfully closed this morning, which I will look forward to sharing more about in a moment. Turning to slide 4, underpinning our performance is IRX, or Ingersoll Rand Execution Excellence. IRX remains our key enabler of execution, and it is how our teams around the world stay focused on controlling what we can control, supporting our customers, driving productivity, and allocating capital effectively. A key strategic imperative of the IRX process, as you can see on this slide, is to deploy talent. Earlier this morning, we announced new leadership appointments. Scott Watson, who was previously leading our life science business, has been named Senior Vice President and Group President of ITS North America and ITS EMEIA.

Shaun Carlson, who was previously leading our precision technology business, has been named Senior Vice President and Group President of the PST segment. These appointments reflect the growth of our businesses and the depth of our leadership bench. Their leadership in these roles will position us to move faster, execute with greater focus, and better serve our customers. I also want to recognize Mike Weatherred, who will transition to an advisory role through May 2028 before retiring. A longtime member of our leadership team, Mike helped drive IRX adoption across the company, where it is now very firmly embedded in our culture. We thank him for his many contributions and wish him well in his next chapter. Turning to slide 5, I am pleased to share that this morning, we closed on the acquisition of IVEK Corporation, a leading provider of small-volume precision liquid metering and dispensing systems.

The business adds approximately $40 million in annual revenue and will sit within our PST segment, specifically in the life science business. It expands our expertise in key precision pump technologies and strengthens our solution for life science customers, and was acquired at a low double-digit multiple consistent with our disciplined valuation standards. Year-to-date, we have closed or signed eight transactions, and we have an additional seven transactions at the LOI stage. Our funnel remains healthy, with more than 200 companies, and approximately 90% of our deals continue to be internally sourced. For 2026, we now expect to be approximately 200 to 300 basis points of annualized inorganic revenue. Our 400 to 500 basis point target is an average over the cycle and not a single-year goal, and it remains unchanged. This year simply reflects transaction timing, not any change in our strategy or the strength of our funnel.

Our disciplined M&A strategy remains a key differentiator and an important driver of long-term value creation. Now, I will hand it over to Vic, who will review our financial performance.

Thanks, Vicente. Starting on slide six, the third quarter was a strong quarter of execution. Orders finished at $2.35 billion, up 21% year-over-year, with organic orders up 18%. Book-to-bill finished at 1.14, well above what we typically see in the third quarter, with the pickup in short-to-medium cycle business coupled with long-cycle project bookings improving meaningfully. Revenue grew 6% year-over-year to $2.1 billion, with organic revenue growth of 4%. Aftermarket revenue represented 36% of total revenue during the quarter and continues to be an important contributor to the resiliency of our portfolio. Important to note, aftermarket grew mid-single digits in Q3. Adjusted EBITDA was $584 million. This includes $32 million of IEEPA tariff refunds received in the quarter, $25 million in ITS, and $7 million of PST.

Excluding those refunds, adjusted EBITDA was $552 million, up 1% year-over-year, with a margin of 26.7%. The year-over-year margin decline was driven primarily by the known inflationary pressures and pricing dynamic in China. Importantly, margins improved meaningfully on a sequential basis, up 130 basis points from Q2, excluding tariff refunds, consistent with what we outlined last quarter. Unallocated corporate costs were $44 million in the quarter, and we continue to expect approximately $170 million for the full year. Notably, our adjusted tax rate for the quarter was approximately 17%. We have been simplifying our global legal entity structure since the 2020 merger, aligning it with how we operate the business. Through strong planning and execution, we are able to now use foreign tax credits we previously could not, which drove a discrete benefit in Q3.

We expect these changes to provide a durable benefit to our tax rate and cash repatriation efforts going forward. As you will see in our updated guidance, we now expect a full-year adjusted tax rate of approximately 20%. Adjusted EPS was $1.07 for the quarter, and excluding IEEPA tariff refunds in Q3, adjusted EPS was $1.01, up 17% year-over-year. Turning to slide seven, free cash flow for the quarter was $623 million, which includes $162.5 million of ILC Dover transaction-related recoveries collected in the quarter. Excluding those recoveries, free cash flow was approximately $461 million, up roughly 40% year-over-year. We ended the quarter with approximately $3.9 billion of total available liquidity, including approximately $1.3 billion of cash and $2.6 billion of available revolving credit facility capacity.

Leverage improved to 1.6x, down from 1.7x last quarter and 1.8x a year ago. During the quarter, we deployed $90 million towards acquisitions and returned $358 million to shareholders through $350 million of share repurchases and our quarterly dividend. As Vicente noted, the board authorized a $2 billion increase to our share repurchase program, incremental to the $313 million remaining under the existing authorization. This gives us flexibility for additional opportunistic repurchases over the short and medium term, while M&A remains our first priority. Our balance sheet remains a strategic asset, and this authorization does not change our ability to execute on the acquisition funnel. As an update on the ILC Dover transaction, last quarter, we announced an initial recovery of $187.5 million.

Since then, we have reached a series of additional settlement agreements that brings total gross recoveries to approximately $425.1 million. We collected $25 million in Q2 and $162.5 million in Q3, and we expect to collect the remainder of the recoveries in the fourth quarter. Consistent with our focus on earnings quality, these recoveries are excluded from adjusted earnings. We are very pleased with the final outcome of the recovery process with respect to the ILC Dover transaction and intend to use the proceeds in line with our capital allocation strategy. I'll now turn the call back to Vicente to discuss our segment performance.