Ingersoll Rand 2026 Q2 Earnings Call

You may begin. Thank you for joining Ingersoll Rand's second quarter 2026 earnings call.

I'm Max Borsheimer, Director of Investor Relations, and joining me this morning are Vicente Reynal, our Chairman and CEO, and Vic Kinney, 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 two 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 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'll review our second 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'll turn the call over to Vicente.

Morning, everyone. Thank you for joining. Before we get started, I wanted to take the opportunity to formally introduce Max Borsheimer, who has added investor relations responsibilities to his current role on our M&A team. You will be seeing and hearing from him going forward, and I know he looks forward to engaging with many of you. Beginning on slide three, the second quarter and first half overall reflected continued strong execution and improved demand momentum in our business. In the second quarter, we saw organic order growth of 2%, organic revenue growth of 4%, and adjusted EPS growth of 7%, demonstrating the strength and resiliency of our business. Our growth this quarter was broad-based across our diversified end market base. Every main region this quarter delivered positive organic revenue growth, and we continue to focus investments towards durable, structurally growing end markets.

Importantly, our first half performance and the healthy demand trends we continue to see across much of the business reinforce our confidence in our outlook for the remainder of the year. As we will walk you through this morning, we are raising our full-year revenue guidance and expect adjusted EPS to land towards the higher end of our previously communicated range. We also remain disciplined in our approach to capital allocation. Our acquisition pipeline continues to be robust, including two new announcements today, and remains focused on targeted bolt-on opportunities that strengthen our core technologies, expand our aftermarket presence, and enhance our long-term growth profile. Our teams around the world remain focused on controlling what we can control. Through the use of IRX and our economic growth engine, we continue to drive operational execution, support our customers, and outperform in the markets we serve.

Turning to slide four, before moving to our operational and financial results, I would like to briefly acknowledge the continued recognition we have received for our sustainability leadership and employee ownership culture. During the last year, we were recognized across multiple leading ESG, workplace, and corporate citizenship rankings, including joining the 2026 Fortune 500, a milestone that reflects the scale, discipline, and momentum we have built as the Ingersoll Rand we are today. These recognitions, further outlined in our recently published sustainability report, reflect the strength of our ownership mindset culture and our commitment to making life better for our employees, our customers, our shareholders, and our planet. Turning to slide five. I am excited today to announce the closing of one acquisition and the signing of another.

Just this morning, we closed on the acquisition of Lone Star Blower, the company referenced as a U.S.-based blower manufacturer in the presentation. Lone Star Blower expands our expertise in key blower technologies and solutions and expands our aftermarket presence through an established service business and rental fleet. This acquisition will add approximately $50 million in annual revenue. We are also excited to announce the signing of the acquisition of Fai Filtri, a manufacturer of industrial filters based in Italy. This acquisition will expand our filtration capabilities and also strengthen our aftermarket offerings. We expect this acquisition to close in Q4 and add approximately $30 million in annual revenue. Both of these transactions are highly consistent with our strategy of acquiring market-leading technologies that strengthen our core while maintaining disciplined valuation standards.

Notably, both acquisitions strengthen our aftermarket capabilities, a key focus area as we continue to increase the resiliency and recurring revenue characteristics of our portfolio. We have 11 additional transactions under LOI, and our funnel remains strong, focused on proprietary and internally sourced deals. Our disciplined M&A strategy remains a key differentiator and continues to be an important driver for 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 second quarter represented another solid quarter of execution. Orders finished just over $2 billion, up 5% year-over-year, with organic orders up 2%. Book-to-bill finished at 1.0 turns, slightly lower than we typically see in the second quarter, primarily reflecting the delayed timing of several large project orders. Important to note that we continue to see solid momentum in our short to medium cycle business, where orders were up mid-single digits. In addition, we expect these longer cycle projects to recover in the back half of the year, and Vicente will provide some color on what we have seen thus far through July. Revenue grew 9% year-over-year to approximately $2 billion, with organic revenue growth of 4%. Aftermarket revenue represented 36% of total revenue during the quarter and continues to be an important contributor of the resiliency of our portfolio.

Adjusted EBITDA was $520 million, an increase of 2% year-over-year, with an adjusted EBITDA margin of 25.4%. Adjusted EBITDA margin was down 160 basis points year-over-year, with the decline driven primarily by three factors. First, inflationary pressures, particularly in China, where it is more challenging to offset inflation with price. Second, continued investments to support growth around new technology and commercial applications, and third, higher corporate costs. The higher corporate costs were largely driven by year-to-date true-up of management incentive costs reflecting incentive compensation adjustments aligned with performance, which we do not expect to recur at this level in the back half of the year. Unallocated corporate costs were $49 million in the quarter versus $34.6 million a year ago, driven largely by the incentive true-up, and we continue to expect approximately $170 million in corporate costs for the full year.

Despite this quarter's year-over-year margin rate pressures, we remain confident in our ability to deliver within our previously communicated adjusted EBITDA range through continued operational execution and productivity actions. In terms of the sequential margin expansion we expect to see in the second half of the year, the margin ramp in the back half of the year is normal course for us, as first half pricing actions and benefits from first half productivity projects are realized. We also had the incentive comp true-up here in second quarter that we do not expect to repeat to the same magnitude in the back half of the year. Adjusted EPS was $0.86 for the quarter, up 7% year-over-year. Turning to slide seven, free cash flow for the quarter was $269 million, up roughly 28% year-over-year.

We ended the quarter with approximately $3.8 billion of total available liquidity, including approximately $1.2 billion of cash and $2.6 billion of available revolving credit facility capacity. Leverage remained at 1.7 times, providing significant balance sheet flexibility. During the quarter, we deployed $110 million towards acquisitions and returned approximately $248 million to shareholders through share repurchases and dividends. We were also pleased to receive a one-notch upgrade from Moody's to Baa1 during the quarter, further reinforcing the strength of our balance sheet and capital allocation strategy. Overall, our balance sheet remains a strategic asset and positions us well to continue investing in attractive growth opportunities.

One other update I wanted to provide here, as you will see disclosed in our 10-Q for the second quarter, we reached an agreement on an initial $187.5 million recovery with certain insurers on the RWI claim that we filed last year related to the ILC Dover transaction. We collected the first $25 million in the second quarter, and this is reflected in the free cash flow for the quarter, with the remaining $162.5 million to be received during 2026. This is a significant and favorable initial recovery, and we continue to actively pursue additional meaningful recoveries related to the ILC Dover transaction beyond the $187.5 million. Consistent with our focus on earnings quality, these recoveries are excluded from adjusted earnings, and the incremental cash that we expect to collect in the second half of 2026 is not reflected in our free cash flow guidance.