格南登福 (IR) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Ingersoll Rand's Third Quarter 2020 Earnings Conference Call.

(Operator Instructions) I would now like to hand the conference over to your first speaker today, Vikram Kini, Chief Financial Officer.

Thank you.

Please go ahead, sir.

Thank you, and welcome to the Ingersoll Rand 2020 Third Quarter Earnings Call.

I'm Vik Kini, Ingersoll Rand's Chief Financial Officer; and with me today is Vicente Reynal, Chief Executive Officer.

Our earnings release, which was issued yesterday and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website, www.irco.com.

In addition, a replay of this morning's conference call will be available later today.

Before we get started, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with 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.

Turning to Slide 3. On today's call, we will provide an update on the integration efforts of the company as well as review our third quarter and total company and segment highlights.

We will conclude today's call with a Q&A session.

(Operator Instructions) At this time, I'll turn the call over to Vicente.

Thanks, Vik, and good morning to everyone.

I want to start our call by thanking all our employees around the world for their hard work and commitment to the health and safety of our teams and their families as we continue to navigate the COVID-19 pandemic as well as their dedication to serving our customers at the highest level.

Their focus and consistent contribution, coupled with the continued proliferation of IRX throughout our organization delivered strong results we can all be proud of.

Turning to Slide 4, I want to spend some time on our culture because it is a competitive advantage for us.

Particularly in the midst of a COVID-19 pandemic, our progress has been impressive.

Let me point out a few examples of the in-flight initiatives that are helping to foster our unique culture as we integrate both companies.

We have now rolled out our Purpose and Values Activation to nearly the entire company.

These are highly engaging one-on-one sessions where we work with our employees to discuss our purpose and values and what it means to lead them every day.

In addition, we have continued the Owning Our Future forums, which are virtual micro townhall meetings to create open dialogue.

To date, we have engaged and heard from over 7,000 employees, and their feedback is helping us simplify our internal processes.

In the third quarter, we also conducted our first all-employee engagement survey.

We had a 95% participation rate across the entire company, which is nearly 15 percentage points higher than the manufacturing index we benchmark and puts us in the top quartile of participation.

Our high engagement level is a positive reflection of employee satisfaction with work in our Ingersoll Rand, and employee happiness is very important to us.

And a great example of our employees living our purpose and values and making a positive impact in our community is the Dosatron team, which sits in our Precision and Science Technologies segment.

The Dosatron team helped develop a method to deliver clean drinking water to an orphanage in a remote location in Madagascar using our technology of electricity-free dosing pumps.

Examples like these are happening around the company and are a strong proof of the culture we'll build in our Ingersoll Rand, which firmly supports our purpose of lean on us to help you make life better.

Moving to Slide 5. One of our key values is thinking and acting like an owner.

In the third quarter, we took a major step forward in bringing that value to life by making all of our employees shareholders of the company.

On September 21, we were proud to virtually ring the opening bell at the New York Stock Exchange and announced the issuance of $150 million in equity awards across our entire employee base.

This is a meaningful distribution equal to 20% of an individual's base cash compensation.

And as I have said before, this is not a thank you note to the team.

Instead, this is a catalyst to have all 16,000 owners all moving in the same direction to drive change and create value for all shareholders, including themselves.

And like we did at Gardner Denver, we're tying the equity grant to a specific initiative of improving net working capital.

We are training all employees on what it means to be an owner.

When we launched this in 2017, we improved working capital as a percentage of sales at Gardner Denver by over 500 basis points in less than 2 years.

So for us, we feel the future is extremely bright at Ingersoll Rand.

And with 16,000 employee owners moving in a common direction, I am confident in our ability to create meaningful value.

Turning to Slide 6. Let me now provide an update on our integration efforts.

We have built a strong foundation and are now pivoting to growth, with a specific focus on executing our talent priorities; continuing to capture supply chain synergies and driving free cash flow, which is allowing us to accelerate investments in IoT, digital and e-commerce initiatives; and finally, advancing our work on the ESG front as we look to be a recognized leader in corporate social responsibility.

It is an exciting time at Ingersoll Rand and as we continue to [mail] complementary cultures as well as leverage our deep product portfolio to serve niche end markets and accelerate growth.

So speaking about growth, let's turn to Slide 7 to showcase a few examples.

The first example is focused on how we're leveraging a differentiated compression technology to penetrate the hydrogen refueling and dispensing niche market, which is a high-growth and rapidly changing market.

As part of the integration planning process, we did a lot of work to better understand these end markets and the potential it could bring to our combined company.

Haskel, with over 70 years of industry experience, is one of the world leaders in offering the most reliable high-pressure equipment and technology today.

We're very excited about Haskel's comprehensive portfolio of specialized compression solutions as we are well positioned to win share.

With turnkey refueling stations used for heavy-duty vehicles and buses and light-duty passenger vehicles, we have now over 100 stations across the world and a technology leadership edge that we created over the past 12 months.

One example of our investments in innovation here is the launch of a new small-scale, cost-effective, stand-alone hydrogen fueling station, which is designed for small, simple plug-and-play installations.

But with a flexible configuration, it can be relocated from one location to another very easily for forklift applications.

As we look ahead, the growth prospects in this space are extremely promising as the continued penetration of hydrogen fueling into key markets is expected to create a $2.5 billion addressable market for us by 2027.

Turning to Slide 8. This second example demonstrates how we can leverage the breadth of our technologies across multiple segments to win in targeted end markets like water and wastewater.

Take, for example, a wastewater treatment plant shown on the picture.

We have begun to leverage our technologies across the ITS and PST segment to drive further penetration in what is estimated to be a nearly $5 billion addressable market with a 5-year CAGR of at least 2x GDP.

Utilizing IRX tools, we're focused on capturing quick wins within our combined broader portfolio.

First, we're focused on increasing customer share wallet by offering a broader set of product solutions.

We have identified already by more than 50 new sales channels to penetrate.

Second, we're coordinating internally our large project funnel to ensure all relevant businesses and brands are involved in bids with the goal of maximizing the content of Ingersoll Rand products in any project.

And third, by combining demand generation database contacts across the 2 segments, we have now over 32,000 contacts, with an expectation to increase by 40% in the U.S. alone as part of our impact daily management process.

We're now beginning to educate these entire deliveries of potential customers of our technologies and solutions with dedicated digital campaigns.

And while we're still in the early days as we just launched this initiative, we have already seen an increase of over $30 million in our funnel.

This commercial synergy is just the beginning of what we believe will be a future where we connect all the technologies to optimize the entire process.

And given the work we are already doing on IoT, we feel that we're well positioned to capture this opportunity, given our deep know-how of the types of sensors and controllers required in our products to best optimize the data acquisition and analytics.

Let me now turn over the call to Vik for an overview on the financials.

Vik?

Thanks, Vicente.

Moving to Slide 9. Overall, we are extremely pleased with our performance in Q3 as industrial end markets saw a gradual sequential momentum throughout the quarter.

We saw a similar trend across the majority of our businesses as total company orders and revenue increased 13% and 6%, respectively, as compared to 2Q levels, with strong double-digit momentum in the Industrial Technologies and Services, Specialty Vehicles and High Pressure Solutions segments.

The Precision and Science segment saw slight sequential declines in orders, which was in line with expectations due to the large COVID-related orders for medical pumps we saw in the first half of the year that we did not expect to repeat.

As we continue to navigate these uncertain times, our goal is to continue to manage those areas in our control by utilizing IRX to maximize the value capture on productivity and synergy initiatives and maintain ample liquidity.

And the team did exactly that as they delivered adjusted EBITDA of $284 million and adjusted EBITDA margin of 21.3%.

This was a 220 basis point improvement from the second quarter.

On a year-over-year basis, despite double-digit revenue declines, margins were up 150 basis points.

And when adjusting for the High Pressure Solutions segment, total company margins improved 240 basis points.

The teams are continuing to execute extremely well on capturing cost synergies, and our annualized savings now stand at $150 million, or 60% of our stated target of $250 million.

Our strong commercial and operational execution led to company-wide decrementals of only 6%, which marks our lowest level seen thus far in 2020.

From a cash flow and capital structure perspective, we saw a similar strong performance as free cash flow grew to $179 million.

Liquidity now stands at $2.3 billion.

And as a reminder, historical financials, as provided in this deck, on a supplemental basis, as if the transaction had happened on January 1, 2018, to insist in clean comparatives for the quarter.

The detailed assumptions and adjustments used in these supplementals can be found in the appendix of these slides and our earnings release.

Turning to Slide 10.

From a total company perspective, FX-adjusted orders and revenue declined 8% and 11%, respectively, which is a meaningful improvement from the comparable 21% and 19% decline we saw in the second quarter.

While COVID continues to create challenges, we saw continued stabilization in core markets in the Americas and EMEA, particularly in the IT&S segment.

Both regions saw high single-digit order declines on a total quarter basis for core compressor blower and vacuum equipment, with the strongest month occurring in September.

And Asia Pacific continued to show positive trends on both revenue and orders led by China.

Specialty Vehicles saw strong order performance, up 29% ex FX, as the momentum for consumer vehicles continues at record levels.

And as expected, the High Pressure Solutions segment saw order declines of slightly over 80% due to continued overcapacity in the market and depressed activity levels.

Overall, we posted a strong book-to-bill of 1.02 for the quarter, which was slightly better than levels seen in the prior year of 1.0.

The company delivered $284 million adjusted EBITDA, a decline of only 3% versus prior year, even with the headwinds caused by the pandemic.

The IT&S, Precision and Science and Specialty Vehicle segments all saw a year-over-year improvement in adjusted EBITDA and strong triple-digit margin expansion.

Offsets were seen in the High Pressure Solutions segment as well as higher corporate costs.

We saw a large benefit in prior year costs due to reduced incentive compensation costs as well as in-year investments primarily around infrastructure and growth initiatives to stand up the new company.

Turning to Slide 11.

Free cash flow for the quarter was $179 million, driven by the strong operational performance across the business, working capital improvements and continued cost savings and CapEx prioritization initiatives in the current uncertain environment.

CapEx during the quarter totaled $8 million.

Free cash flow included $26 million of outflows related to the transaction comprised of $13 million of synergy delivery spend and $12 million of company and standup-related spend.

From a leverage perspective, we finished at 2.5x, which was an 0.1 improvement as compared to prior quarter despite $10 million of lower LTM adjusted EBITDA.

We would expect to continue to see leverage remain in the 2.5x range or slightly better as we finish the year.

And we feel comfortable with our current leverage position and see a path to being at 2.0x or better in the relatively near term.

On the right-hand of the page, you can see the breakdown of total company liquidity, which now stands at $2.3 billion based on $1.3 billion of cash and nearly $1 billion of availability on our revolving credit facility.

During the quarter, we terminated our legacy Receivables Financing Agreement, which was due to expire at the end of the year.

We were not intending to renew the RFA moving into 2021 due to our enhanced liquidity profile and given the fact that the overall impact on liquidity from the RFA exit was less than 2%.

As of September end, all of the company's legacy fixed interest rate swaps have now expired.

This is expected to yield an approximately $5 million cash interest benefit in Q4 as compared to Q3 at current interest rate levels.

And as the company's debt profile is now 100% fully floating, we will be examining the appropriate fixed versus floating structure moving forward from a risk management perspective.

In total, liquidity has now increased $730 million from the end of Q1, giving us ample dry powder to execute on our organic and inorganic growth strategies.

Moving to Slide 12.

We continue to see strong momentum on our cost synergy delivery efforts.

Within the quarter, we accelerated the phasing of this initiative, and we have now already executed $150 million of annualized synergies.

This includes $105 million of permanent structural cost reductions, with approximately $80 million to $85 million of those savings expected to be realized in 2020.

On procurement synergies, we have captured $40 million to $50 million, with approximately $15 million to $20 million of the savings expected to be delivered in 2020.

This represents an increase of $20 million of executed actions as compared to prior quarter.

And as a reminder, our funnel for direct material line of synergies are based on 2019 direct material spend.

In total, we now expect to deliver approximately 40% of our overall synergy target in 2020, which is approximately $100 million of savings.

In addition, we now expect to deliver approximately 70% of our cumulative synergy savings by the end of 2021 and approximately 85% by the end of 2022, with the balance coming in 2023.

And as we have previously communicated, we are keeping the overall cost synergy target at $250 million over a 3-year time frame to remain prudent on volume-dependent synergies like procurement and I2V, given the current environment, and we'll provide an overall update when we give 2021 guidance during our February 2021 earnings call.

We also continued to make strong progress on lowering decremental margins.

Total company decrementals were only 6%, with IT&S, Precision and Science and Specialty Vehicles all seeing strong flow-through, and High Pressure Solutions managing decrementals below 40% for the first time this year.

We also mentioned last quarter that we were expecting to see approximately $30 million to $35 million of the short-term cost actions that were taken in Q2 come back to the P&L.

The teams did a nice job of managing those costs, and we only saw approximately $10 million come back to the P&L.

Given the gradual recovery of the overall market, as well as very recent COVID-related lockdown in several countries, we are now expecting a full return of that $30 million to $35 million cost base to extend into 2021.

I will now turn it back over to Vicente to discuss the segments.

Thanks, Vik.

So moving to Slide 13 and starting with the Industrial Technologies and Services.

Overall, this segment performed better than expected, with organic orders and revenue down 8% and 9%, respectively, resulting in a book-to-bill ratio of 1. Despite the revenue decline, the team delivered strong adjusted EBITDA that was up 9%, and an adjusted EBITDA margin of 24%, up 370 basis points year-over-year.

Moving to commercial performance.

While we know that many like to compare the entire ITS segment against some of our peers, that comparison can be a bit challenging, given that we have several different businesses in this segment.

Last quarter, we brought down the segment based on our internal business structure.

In the spirit of transparency and desire to help you understand the business, we are now showing a product line breakdown.

Starting with compressors, which represents about 65% of the segment, we saw orders down mid-single digits and revenue down low single digits.

A further breakdown into oil-free and oil lubricated products will show that oil-free was up low double digits in revenue, which we believe demonstrates the success of our strategic focus in this category, as well as market resiliency for oil-free products.

From an lubricator perspective, orders and revenue were down mid- to high single digits, mainly driven by small rotary compressors while large compressors continued to outperform.

Regarding the regional split for revenue on compressors, in the Americas, the North America team performed comparatively better at down low single digits while Latin America was down in the mid-single digits.

Mainland Europe was down low single digits, while India, Middle East and Africa continued to see a decline in the mid-teens, which is a great improvement from Q2 levels of down nearly 40%.

Asia Pacific continues to be the best performer, with revenue up mid-single digits driven by positive growth in China, while Southeast Asia is still seeing declines due to COVID shutdowns in some countries.

Moving to vacuum and blowers, which represents approximately 20% of the segment.

Orders were down low single digits, driven by mid-single decline in the blower business, partially offset with positive order momentum in our longer-cycle Nash and Garo vacuum businesses.

We were encouraged also to see that the industrial vacuum business in Europe was relatively flat compared to down double digits in the second quarter, which is a sign that our OEM customers are seeing some underlying improvement in their markets.

Moving next to the power tools and lifting, which is 10% of the segment, the total business was down high teens in orders and mid-20s in revenue.

The encouraging sign here is the rapid improvement from last quarter, where we were down low 40s in orders.

The tool business has materially improved from the second quarter, while lifting and material handling business remain depressed.

And as we have said in the past, our focus here has been to materially improve the profitability of this business.

And we're very happy with how the team has executed, delivering 270 basis points of sequential adjusted EBITDA margin expansion.

In this quarter, we want to highlight one of our growth synergies, which is the expansion of our oil-free compressor launch in Europe.

You may recall, we launched a radical new technology in the oil-free space within Gardner Denver just a few years ago.

This patented technology delivers completely oilless air, with a value proposition unmatched in the market.

At that time, the Gardner Denver channel was not properly set up an experience enough to sell such a unique product focused on total cost of ownership in the oil-free space.

However, the Ingersoll Rand team has a lot of experience in selling oil-free products.

And within a matter of months, we have relaunched the product under the Ingersoll Rand brand and leveraged the Ingersoll Rand channel.

We have also trained over 400 channel partners, and our funnel has increased to $15 million in a matter of months.

It is good to note that more than 20% of that funnel increase was generated purely with demand generation efforts.

Moving to Slide 14, we'll review the Precision and Science Technology segment.

Overall, organic orders were down 9%.

As expected, total order levels were down 3% sequentially, but when normalizing for the COVID-related orders that we saw on the medical side of the business in the second quarter, the sequential improvement was actually positive.

Revenue performance was quite strong at down only 1% organically, driving a strong performance within the business where the Dosatron and medical businesses, which delivered double-digit revenue growth.

The Precision and Science technology team also delivered strong adjusted EBITDA that was up 14% on relatively flat revenue.

This led to a very resilient adjusted EBITDA margin of 30.7%, up 350 basis points year-over-year and 30 basis points sequentially, again, driven by solid execution and use of IRX tools to drive productivity enhancements.

On this call, we're excited to introduce Albin Pump to the Ingersoll Rand family.

Albin is a leader in the manufacturing of electric peristaltic pumps, which is one of the highest growth positive displacement technology.

We see strong commercial synergies as we leverage Albin alongside our ARO and Milton Roy brands and plan to leverage the Precision and Science global network and channel to accelerate growth at Albin.

This is a great example of the type of bolt-on acquisitions we're very excited about for the company.

Moving to Slide 15 and the Specialty Vehicle Technology segment.

Overall, Q3 was another strong performance for the Specialty Vehicle Technology team, with organic orders and revenue up 29% and 1%, respectively.

Adjusted EBITDA of $38 million increased 36% year-over-year, leading to an adjusted EBITDA margin of 19.7%, which represents 510 basis points improvement versus prior year.

Proliferation of the IRX toolkit is allowing the Specialty Vehicles team to capture strong end market demand in the consumer vehicle segment and grow our share.

The strength is based on continued digital demand generation activities, compelling new product launches, including lithium and a 6-passenger offering and extremely consistent production and channel performance.

We're also pleased with the traction on the launch of the second-generation lithium battery for the golf cart market, where we're seeing an improvement in cost, reliability and range, which we believe is now leading in the industry.

Aftermarket also continues to be a strong focus, including our Club Car Connect platform, which is showcased on the right side of the slide.

With over 100,000 connected vehicles.

Club Car Connect is a GPS-enabled technology platform that provides fleet managers with car control features, such as geo-fencing and location-based speed control, as well as asset management tools such as the ability to monitor the location of the golf carts and report vehicle diagnostics.

Moving to Slide 16 and the High Pressure Solutions segment.

The business performed largely in line with expectations, and it continued low demand in the oil and gas industry.

Orders and revenue were down 81% and down 68%, respectively.

Nearly 90% of the revenue base continues to come from aftermarket parts and services, with consumables continuing to be the most stable component of the revenue base.

I am extremely proud of the team for their proactive efforts and productivity improvements around cost management controls, which allows us to deliver positive adjusted EBITDA of $1 million and decrementals below 40% despite the meaningful revenue declines.

As we look ahead to the fourth quarter, although we're seeing some market recovery, we have been unknown of extended holidays later in the quarter as well as continued pandemic headwinds.

Looking forward to 2021, we remain encouraged with how the business is positioned from a product offering and cost structure perspective.

We feel there is some pent-up demand in the market, which will return at some point, beginning with the service and repair work, and we're well positioned to capture this opportunity with the premier service centers like our Permian facility that is highlighted on the right side of the slide.

Moving to Slide 17.

We want to provide a quick message of how the business has performed thus far in the fourth quarter.

Through the first 3 weeks of October, the total company is down mid-single digits in orders, with book-to-bill at greater than 1. Within the Industrial Technology and Services segment, the regions are largely trending in line with the year-over-year order trends that we saw in the third quarter.

And the power tool business continues to see sequential improvements.

The Precision and Science Technology segment is currently positive year-over-year.

And the Specialty Vehicle segment is continuing to see healthy momentum on the consumer side, coupled with growth seasonality.

The High Pressure Solutions segment is down 30% to 35%, which is encouraging, but we see limited expectations for activity in December.

We're not providing formal Q4 or total year guidance at this time.

But from a high-level perspective, we expect the gradual margin recovery to continue in the fourth quarter, with revenue trending positively on a sequential basis.

The Industrial Technology and Specialty Vehicles segment should support most of that strength, given normal seasonality in the shorter-cycle components of Ingersoll technology, as well as larger projects that will ship later in the quarter.

For the Precision and Science Technology and High Pressure Solutions segments, we expect a comparable revenue performance relative to the third quarter.

From a margin perspective, we will continue to aggressively manage decrementals and expect to be below 30%.

We're expecting some headwinds in the fourth quarter compared to what we saw in the third quarter, mainly unfavorable product mix in Precision and Science due to a lower contribution from medical as the COVID-related backlog has largely shipped and in Specialty Vehicles, as mix shifts more towards growth, which carries a lower margin than the consumer, which has been very strong.

We also expect the cost base to increase slightly as we continue to invest in organic initiatives to fuel long-term growth.

It is also worth noting that this assumes no additional material headwinds from the pandemic.

We haven't seen any notable impact on order rates just yet, but we're monitoring closely, and we will be ready to execute our playbook as we have successfully done this year to react quickly to any business interruptions.

Moving to Slide '18.

As we wrap up today's call, I want to reiterate that we're excited by our progress.

While we're still in the early stages of our transformation, we have taken meaningful steps forward in creating a differentiated culture and improving the performance of the company.

And now with 16,000 employees who are now owners of the company, I am confident that we can continue to transform Ingersoll Rand and deliver increased value to all of our shareholders.

So with that, I'll turn the call back to the operator and open for Q&A.

(Operator Instructions) Your first question comes from Julian Mitchell from Barclays.

Maybe just the first question around the operating leverage as we look ahead to a more normalized sort of recovery stage.

You had 60% sequential incremental margins, I think, in Q3.

So extremely high level.

And I understand that those incrementals will moderate as the recovery matures.

But maybe any kind of placeholder as you're thinking about the net off of temporary costs coming back, the ongoing synergy extraction and the extent to which you'll manage those incrementals via ongoing reinvestments as well?

Yes.

Julian, this is Vik.

I'll start with that and let Vicente weigh in as well.

You're absolutely right.

I think Q3 was an extremely strong quarter for all the reasons you mentioned.

I think as we think forward and we look into Q4, as we mentioned, we don't expect the sequential incrementals to look quite as strong.

Our view as we look kind of forward and, frankly, even look into 2021, is that we think that normalized incrementals, kind of across the portfolio, on a base level, should play in that kind of 30% to 35% range, with obviously some upside opportunity for the synergy extraction.

Remember, there are some cost normalization and things of that nature that will continue to kind of unfold as we move into 2021, as we mentioned.

But I think 30% to 35% is probably a good base level to use, with some upside opportunity as synergies start to materialize into 2021 and thereafter.

That's very helpful.

And then my second question, really around the free cash flow, very strong in the 9 months, what, $470 million or [125]% conversion to adjusted net.

I realize that it's the first sort of year of the combined entity, and maybe there are some one-time pieces moving around the working capital move, perhaps, a bit abnormal this year.

So I just wondered what you could indicate in terms of free cash conversion expectations as you look out.

And also within this year's number, what's the total synergy and stand-up cash outflow for the year, please?

Yes, Julian, I think we would expect to be greater than or equal to 100% of adjusted net income on a free cash flow perspective.

I think what we're excited about is that, yes, you have seen that some very good momentum on the free cash generation.

And the most important piece here is that we still feel we have plenty of levers for us to improve.

Clearly, one that we just talked about here is how we're rallying up all 16,000 employee owners in the company around their working capital, as a percentage of sales and how we believe we can unlock a good amount of cash by getting everyone focused on that perspective, as we did with the Gardner Denver in the past.

And then other levers such as tax or tax rate, we spoke a little about that, that's also offering a good, meaningful opportunity.

And so I think the exciting piece here, Julian, is that we still have more improvement opportunities.

Yes, and Julian, on the second piece in terms of some of the moving components and kind of what we've spent thus far from a free cash flow perspective, specifically on the synergy and standup cost.

In the first half of the year, we had about $80 million between the first -- first and second quarter of cash outflows.

And then you can see in Q3, we had about $26 million.

So you've had a little over $100 million of cash outflows, thus far, specifically for synergy and standup related spend for the first 3 quarters.

And we would expect right now that Q4 should look comparable to what you saw in Q3 as we've guided before.

So I can kind of give you an idea of kind of just the, I'll call it, onetime, but really the synergy and standup-related spend that has flowed through free cash flow.

Your next question comes from Michael Halloran from Baird.

So why don't we start with some thoughts as we're thinking about next year.

Just a lot of uncertainty out there.

Qualitatively, how are you guys positioning things internally in your core businesses as we sit here?

What's the early thought process?

How are you guys going about iterations for next year?

And any kind of high-level thoughts on that side?

Yes, Mike, clearly, we're now in the midst of the cycle of kind of getting with the teams through our budget cycle for 2021.

And this is part of our process, as we completed our strategic plans a couple of months ago.

While we don't have full visibility, I mean, we like what we see from the macro indicators, PMI, ISM, I mean, across the world showing some continual gradual improvement.

So we're encouraged about this.

But we know that there's some uncertainties with COVID in many of the global markets and lockdowns.

I think the most important thing for me to highlight here, and we're highlighting with the team, is that I believe that we have been able to demonstrate how we're able to adjust and adapt to whatever environment there looks like.

And you can see that from the down market and how we have controlled our decrementals very well at the same time while investing.

So I think the way that we're working with the teams is have a perspective in terms of good gradual continued sequential, nothing -- but more important, making sure that we're making the right investments while controlling the cost and continued improvements in our company.

I would say too as well.

Maybe, Mike, to add to that is, right now, we feel good about kind of the backlog in terms of our loan cycle businesses, like we have whether large compressors or some of our larger vacuum businesses.

And also with the Specialty vehicles.

I mean they have a very solid backlog too us well heading into 2021.

So at least at this point in time, I mean, we're going to be working with the teams on the budget and building as we kind of go forward 2021 with a high level of just flexibility.

That makes sense.

And then maybe help with some puts and takes on the capital optionality side.

One, how you're thinking about the current portfolio as it sits here today.

Any changes there?

And then secondarily, you're in a good balance sheet position.

Vik mentioned earlier, towards 2x in the near future here.

How are you thinking about M&A?

What does the funnel look like?

And then secondarily, are buybacks something you guys are considering in the near term?

Yes, Mike.

I think this is -- as you saw, we got our 3 phases, and we spoke a lot openly about our kind of Phase 3 portfolio optionality that just gives us plenty of opportunity for us to evaluate that.

And that is equal on both sides, as you said, optionality on potential divestitures, but at the same time on the M&A.

And the M&A, I tell you, the funnel is very, very active.

We're very excited with Albin, the acquisition that we just made.

A lot of these acquisitions as well.

I think the interesting thing is that we continue to source those ourselves in the sense that we're finding that being proactive and working with a lot of these companies in our relationships is really unlocking the opportunity to be able to be more prudent and disciplined in the terms of multiples that we pay.

So I think the M&A funnel is very, very active, and we're really excited about what we have ahead of us in that case.

In the buyback side?

Any thoughts there?

None at this point, I would say, Mike.

I mean, because we see very good opportunities for us in the M&A.

And you have seen how we're able to -- from a pre and post multiple, reduced at post multiple synergy dramatically.

So we just see greater payback right now in the M&A.

Your next question comes from Jeff Sprague from Vertical Research.

Just coming back to kind of the synergy question.

What -- as you think about kind of the funnel, right, I just wonder if the funnel really -- the complexion of the funnel is changing at all.

And some of your concerns, just about kind of the ability to travel and all these sorts of things kind of getting at the $250 million doesn't really seem to have kind of borne out, right?

It seems like you're actually getting at it maybe a little bit quicker than you thought.

So really kind of 2 questions.

The speed with which you can kind of continue to knock out the $250 million and whether there's anything really moving around on the $350 million and when that might move from kind of funnel to actual firm target.

Yes, sure, Jeff.

This is Vik.

I'll take that one.

You're absolutely right.

We've been pretty pleased with how we've been actually able to execute on the synergy funnel at this point in time.

As we mentioned, I don't think that, frankly, the COVID environment has really prevented us from executing on the funnel.

We started with, frankly, a lot of the activities, particularly on the structural side.

And I'd say the beginning phases of the procurement frankly, before the merger even was really -- was completed.

So that's really been able to accelerate what we've been able to see.

And you've seen that we've actually, sequentially, every quarter, we've even accelerated the cadence, including now where we're saying about 40% of the savings to be delivered here in 2020, 70% by next year, and then 85% by the year thereafter, which is considerably, I'd say, sped up compared to what our original expectations are.

So I'd say at this point in time, continuing to kind of move forward.

I don't think the COVID environment has dramatically stopped things.

We do and found ways to do things like I2V and workshops and teardowns in a virtual manner.

Not how we planned it originally, but still been able to execute.

And then in terms of the larger funnel in excess of $350 million, I'd say the complexion, to your point, is still largely the same.

Really, what's ahead of us here is much more direct material oriented savings as well as footprint.

And as we mentioned, the direct material side does have a big component that's obviously tied to the volume equation, which as Vicente mentioned, as we get better visibility into 2021 and thereafter, I think we'll be able to give an update accordingly.

And the footprint piece largely has not changed.

I'd say that's the piece that, clearly, in this environment is probably a little bit more difficult to execute on.

The good news is the funnel is continuing to progress quite nicely, and we'd always plan to be executing on that footprint funnel really into 2021 and 2022.

Nothing's really changed in that manner.

So I'd say we're still pleased with how things are progressing, and we've largely accelerated what's within our control.

Great.

And just back to IT&S and some of the kind of the kind of heavier CapEx oriented parts of the business.

I just -- you gave us the order color and I appreciate that.

I just wonder if you could give us a little bit more color, though, just on what your customers are saying, how the CapEx outlook in some of these vertical markets that are more industrial sensitive look as we perhaps look into at least the first part of 2021.

Yes, Jeff, well, I think the good -- I mean, we're encouraged in terms of how we're seeing the conversations with the customers.

I mean, we spoke earlier in the year, how things were kind of slow, but we are seeing some fairly good momentum on some of these kind of loan cycle businesses that require some very large capital investments.

So we're encouraged with the conversations that our teams are having it.

We saw also some of that here in the second quarter.

And we always said that the fourth quarter is a quarter where we expect a lot of these kind of orders to get closed and booked into the orders.

So at least we're encouraged with that.

And that -- there was a little bit of the commentary I made about going into 2021, that we're at least positive in terms of the backlog that we have coming into the year with these businesses and, obviously, more encouraged about how our teams are pursuing more aggressively a lot of these kind of large investments that are kind of getting trued up.

Your next question comes from Nigel Coe from Wolfe Research.

So I wanted to switch to upstream oil and gas, High Pressure, HPS.

Obviously, encouraging trends there.

It seems like we've found a floor, and we're starting to improve sequentially.

A couple of questions there.

One, would you say a disproportionate amount of the temporary cost measures have gone into that business to sort of preserve the margins?

And should we be done in some modest sequential improvement in that business, similar to what we've seen in prior recoveries from here?

Yes, Nigel.

So definitely, a good amount of temporary.

But I mean, I would say, similar in nature to what we have done.

If you remember, I mean, the HPS is a business that, even back in the second half of last year, we started the restructuring and the business looks really different from a footprint perspective and also from a CapEx investment that we have done.

So I think we're encouraged with what the team have been able to rapidly adjust, and I think that is really encouraging as we see some of that kind of comeback that we're seeing in the market.

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

We think so.

We think so, Nigel.

I mean we're being kind of thoughtful and prudent from the perspective, only just because you never know what's going to happen on some of the holidays here after Thanksgiving and into Christmas.

But based on fleet count continues to increase sequentially, our order rates continue to increase.

So now year-over-year, as we pointed out in the first week of October, we're down only 30% to 35%, which is also encouraging.

And -- but we also feel that the pent-up demand has not come through.

So I think that's also highly encouraging, I would say.

Okay, great.

And then my follow-up question on ITS is -- first of all, thanks for all the details.

I think you preempted about 10-questions with the detail.

But how did services track within that mix?

I mean I know that was hit pretty hard by the shutdowns.

I'm just wondering if we've seen some pent-up coming from the survey and whether back to growth in services.

Yes.

No, good question, Nigel.

I would say that the big service business that we have is really, mainly, I would say, mostly in the U.S. and Europe, where we mostly, in many cases, will go direct.

We saw the good sequential improvement through the quarter.

And what we have seen is that aftermarket and services, all that holistically is roughly 2x better than the whole goods, so -- than the complete.

So I wouldn't call it at a massive pent-up demand.

I'll just say kind of more gradual improvement as people are kind of dating and opening the locations to allow us to go and kind of go in.

But nothing dramatic, just good gradual improvement.

Your next question comes from Rob Wertheimer from Melius Research.

So listen, I think you've touched a couple of times on sort of long-cycle versus short-cycle dynamics.

But I wonder if you could just tell us underlying demand sort of trends.

Is there a very wide gap between the 2?

How wide is it?

Is that already narrowing down, so you know that the longer cycle stuff is, in fact, coming up, we're not just relying on the short-cycle still?

It feels that way, Rob.

I mean it feels that definitely, we can tell you that on the long-cycle business was actually positive from our perspective in the third quarter.

So again, that could be sometimes spotty based on the size of the project that you see.

But we're seeing some good momentum in CO2 capture.

We're seeing some good momentum in air separation and industrial gases.

We're seeing some kind of projects that are more related to on-shoring gains kind of release and allowing us to implement our technology on those.

So we're seeing some good, I'd say, sequential improvement on that.

I guess to me, more encouraging is the conversations that our teams are having with the customers seem to be just much more active than what it was in the past.

So -- but is there a big separation between the 2?

Not dramatically, I would say.

But encouraging signs on both.

Okay.

That's very helpful.

If I can ask just squeeze one other on -- pivot to growth on Phase 2. I wonder if you can characterize where you think you have the organization focused.

Has the intense focus been on synergies in the past few months, and you've already internally sort of converted the growth with some of the focus you're doing, and that will show up in the next few quarters?

Or where would you say you put the organization right now?

Yes, Rob, that's a great question.

And one of the things that we're able to do in our business with the increased amount of agility and nimbleness that we're driving with the use of IRX.

And as you know, we have over 200 of those kind of every week with an impact daily management.

And so yes, I mean, I can tell you that in our conversations, we talked a lot more about growth synergies now that we see some good momentum on the cost synergies.

So we still have the KPI on the cost synergies, but now we have added the KPI on the growth synergies.

So the conversation is really pivoting more towards that.

It takes time to see that solid momentum in the business.

So -- but again, we're able to pivot and pivot kind of right in the -- I would say, we did a mid- third quarter kind of pivoting to that.

And so again, more encouraging.

And as kind of we go into 2021, that we could see some of the fruit of those actions that we're taking.

Your next question comes from Stephen Volkmann from Jefferies.

If I could just go back, Vik, to some of your comments about the margin incrementals.

I think we had originally thought about 30-ish percent this quarter, and obviously, you kind of blew that away and talked about some of the temporary costs not coming back as you expected.

I'm just trying to understand, how does that work?

I mean, it sounds like you don't actually kind of drive that from a top-down perspective.

Maybe it's more driven by the businesses.

And obviously, I'm trying to think about how that all plays out in the fourth quarter.

Yes.

I'll categorize it.

I mean it's obviously driven -- I mean, our teams, as I said, even as we are preparing our budgets for 2021, our teams are really attuned in terms of what incrementals and decrementals are kind of being in the U.S. us for best-in-class, and we'll strive to get to those.

I think when we provided some of the kind of conversation or -- not guidance, but a framework as we were going into Q3, there was a lot of discretionary costs that was supposed to come that, obviously, not all of that showed up into the third quarter.

But I'll tell you that our teams just pay close attention to a lot of these leading indicators that we're tracking.

And I think in our commentary, we'll just kind of be more attuned in terms of just telling you kind of what we expect to see, but obviously, with the room for our teams to be able to drive further improvements to that.

Okay.

So just to be clear then, Vik mentioned, I think, 35-ish percent incrementals, is that the right way to think about the fourth quarter?

No.

So, Steve, I think the way we were thinking about it is that was kind of more of a longer-term into 2021.

From a fourth quarter perspective, and if you look year-over-year, I think, in our prepared commentary.

Obviously, we're still going to see a challenged view versus prior year.

We mentioned that decremental should be lower than 30%.

And frankly, we would expect to be able to control it, frankly, lower than that level, bringing it more in line with probably levels you saw in the 2Q realm or slightly better.

Clearly not as well as Q3, which is 6%.

Clearly, a lot of good tailwinds and some of the margin mix items we talked about.

But I think Q4, specifically, continues to see decrementals well below 30%.

But I think as we look further out and as ultimately the business turns to more of a growth mode, that was kind of the comment as we look ahead.

Your next question comes from Andy Kaplowitz from Citigroup.

Can you give us a little more color on what you're seeing in terms of the growth within Precision and Science.

You mentioned the expected decline in the foreign PFS business, it was down 6% in Q3.

GDI and Medical, I think, was up 10%.

But then you mentioned the overall segment is positive through the first weeks of Q4.

So is PFS continuing to turn more positive?

Or does it really strengthen the GDI and Medical business?

And could you give us more color on what's driving the improvement in PFS?

Yes.

Andy, I'll say that most of the businesses are kind of continuing to strengthen the Precision and science.

And that's -- clearly, you're seeing some of that here in early October.

And when you -- when we saw -- throughout the quarter in the third quarter, we saw continued improvement through the month of Q3.

And then Vicente, obviously, you spent some time talking about hydrogen.

Obviously, ESG becomes more important every day.

You just mentioned on-shoring and the initiatives there.

So if you look at all these sort of newer trends together, is it having an impact on your business, overall, right now?

And as you think about '21, how well positioned are you to sort of grow above market because of all these new trends that you guys are exposed to?

That is, I think, the exciting piece there, Andy, that a lot of these kind of trends continue to go in our favor from that perspective, not just by pure log, but mainly because of the, I would say, call it, self-help innovation that the team is doing.

I mean, we find some of these kind of growth, secular trends, and then we evaluate how can our technology be applicable to those trends, and then we go deeply and then create some unique differentiated innovation.

I think that is what is very different in our case is that our teams are pretty agile on that.

So yes, I mean, I think it's more going to be indicative in 2021 and further.

You can see -- I mean, expectations for hydrogen are just kind of massive in terms of growth.

And we want to be participants with our new kind of unique technology.

But it's going to be kind of more, I'll say, medium to long term.

Your next question comes from David Raso from Evercore ISI.

A question about what's in the backlog for each business.

The color you provided on ITS appears to be a positive mix when I hear the bigger compressors are strong.

And then within Precision, just thinking about Medical, maybe that driving the growth diminishes a little bit.

Should we think about that as maybe potentially a little bit of a less positive mix moving forward?

So I'm just trying to get a sense of what's in the backlog, what we have seen so far in October to better understand the mix developments of the revenue within those 2 segments.

Sure, David.

I'll start kind of in inverse order.

You hit on the head with Precision and Science.

We did definitely have, I'd say, an elevated medical backlog that we were really leveraging through the second quarter and third quarter, and largely, kind of shipping through here as we get in the beginning of the fourth quarter.

And the medical piece of definitely has a little bit of a margin upside, comparatively speaking.

So it's not to say that the balance of the Precision and Science is actually healthy margins.

It's just not quite at those Medical COVID-related orders.

So again, that will normalize here as we move through fourth quarter and into 2021.

On the IT&S side, it's actually not dramatically different.

Each project is a little bit unique.

But I would say that the margin profile is actually kind of comparable to what you see on the typically shorter-cycle compressors of blower and vacuum equipment.

And as such, I would say that Q4 margin profile should be comparable to what you saw in Q3.

It's project-by-project, it's a little bit different.

But I think, in totality, it's relatively comparable, especially given the momentum we've seen on margins across the balance of the short cycle (inaudible).

That's helpful.

And lastly, on the COVID impact, especially some of the lockdowns we began to see in Europe.

Hopefully, we don't see any here.

But when you think about a potential impact, are you trying to get ahead of that a bit, maybe securing some kind of buffer component inventory?

Or are you just sort of playing it straight and as it unfolds, it unfolds.

So I'm just curious how you're reacting to potential impact.

So David, I wouldn't call that we're accelerating any inventories as we speak now.

So what our teams have been doing is that they -- based on the lessons learned, I mean, they clearly work with the suppliers so that the suppliers can hold more buffer inventory for all the businesses holding that inventory.

And so I think we're prepared and working with the supply chain to be able to service us proactively.

And so far, no implications on any facilities from some of the French or U.K. or the lockdown lights we've seen in Germany?

No.

No?

It's terrific.

No.

No implications.

Your next question comes from Joe Ritchie from Goldman Sachs.

Vicente, can you maybe just touch on that opportunity that you're seeing, specifically on the oil-free side with selling through your European channels.

I'd love to know any kind of thoughts on cadence of that opportunity over the next couple of years.

Yes, Joe, I think this is actually -- I mean, as you remember, we were pretty excited with the combination of the 2 companies because of the complementary technology and how much we consider oil-free to be just a good kind of growth end market just based on the market that it plays.

And so this is a very good opportunity because the Ingersoll Rand team, definitely, has a lot of good experience selling oil-free compressors.

And I will say that at this point in time, we're just kind of scratching the surface still on just purely kind of aligning the technologies to where the best channel could be served for those technologies.

So what you saw here is basically our kind of launch of that oil-free technology that we developed during the Gardner Denver days and having the Ingersoll Rand team have access to that through their channel.

And the teams are very excited.

I mean, obviously, our channel partners as well, as the direct teams are very excited positioning those technologies into the, primarily, food and pharma end markets.

Got it.

That's helpful color, Vicente.

I think maybe my one follow-up.

I know we touched on this a little bit earlier on -- in ITS, so it's short cycle versus long cycle.

But can you just remind us like how much of your ITS business is tied to short cycle with the ISM improving versus long-side oil project related?

Yes, Joe, I'll take that one.

This is Vik.

I would say that probably -- I would [involve production] about 80%, roughly speaking, is probably shorter cycle kind of typical standard fare compressor blower, vacuum, power tool type equipment.

15% to 20%, somewhere in that range is probably a little bit more tied to the longer-cycle components.

So things around the larger centrifugal compressors, as well as things like the Nash, Garo kind of vacuum, liquid ring pump and compressor business.

So that's probably a pretty good indication.

Your next question comes from John Walsh from Crédit Suisse.

I was wondering if you could just first kind of touch on maybe your customer inventory levels.

I'm thinking about kind of those distributors that are stocking the smaller side of the compression range.

Yes, John, most -- we don't have that many distributors that will stock a lot of our compressors.

And our exposure to the kind of smaller reciprocating compressor, that basically kind of will be maybe the -- the do-it-yourself, where we also don't play on that.

So I would say, inventory levels are just definitely not seen by anybody kind of stuck in anything.

Just kind of a self-help.

Great.

And then I guess, just thinking about some of the adjustments and as we go into next year, I guess, there was a noncash impairment this quarter.

The acquisition-related expenses are ramping down.

I mean there's puts and takes.

But how do we think about those items as we update our models for next year?

Is there visibility into any big adjustments as you see it today?

Sure, John.

I'll take that one.

So I think in terms of -- as we said, whether it be kind of the restructuring or acquisition-related items, you can see that the large majority of the purchase accounting items have bled themselves through.

So again, you saw that dramatically decrease from Q2 to the.

And I think with regards to some of the restructuring items, you'll see, there's a normal cadence of that as we move into 2021, and we still do have restructuring of oil footprint optimization and things like that ahead of us.

In terms of the trade name item, you're correct, we did have a small trade name impairment, specific to the power tools and lifting unit within the IT&S segment, very discrete and particularly just a reflection of some of the revenue declines that we've seen in the power tools and lifting piece, specifically on the trade name side.

So again, I would say that was onetime in nature.

As we look forward, we would expect the nature adjustments to be very comparable to kind of the trajectory you're seeing with regards to restructuring some of the normal course adjustments.

But are there large adjustments of that nature?

No, we wouldn't expect those.

Those are very discrete and unique in terms of what you've seen in the first 2 to 3 quarters this year.

Your next question comes from Nathan Jones from Stifel.

I've got a bit of a follow-up to questions Joe and Andy asked before, on these new product developments and adjacent markets that you're moving into.

And maybe if you're looking at it over a little bit of a longer time, markets are going to grow what they're going to grow.

Do you guys have a number that you're targeting in order -- in growing that addressable market over time?

Like do you think you can grow the addressable market 50 basis points a year, 100 basis points a year through these new product developments and acquisitions to get yourself into new markets, to really expand that addressable market consistently over time?

That's a really great question, Nathan.

Clearly, we have always been, kind of say, speaking in, not openly, but how the addressable market (inaudible) and how we want to -- if you remember the days of the medical team, how we double that addressable market over the course of like two years.

So I think it depends on the business, but clearly, we want to continue to expand the addressable market.

We don't have a peg at a number.

But in the Precision and Science team, it is clearly kind of dramatic in terms of how we want to increase the addressable market-based on penetrating the new all technologies that the team is working.

So -- but specifically to a number, I don't have it.

We don't have it pegged.

We just have a more at, say, holistically over the strategic period, which is 3 years.

We want to double the addressable market in some of the specific businesses that we're focusing ourselves.

Fair enough.

One other number that caught my eye was the 29% order growth in SVT.

Can you talk about what's driving that number up, how that impacts the outlook for fourth quarter?

And what's an average kind of book to ship on -- in that business?

Yes.

So the impact -- I mean, the team is just executing really well on a lot of the initiatives, and particularly one around the launch of new products on the consumer side.

So basically, these are kind of golf carts that are customized to your needs.

You can go online and, which I mean you should do, and I think go online and then kind of customize to your specific kind of desire.

And basically, that's kind of a pretty unique solution for personalizing the vehicles for the individuals.

And we have seen tremendous demand of that over the past couple of quarters.

I'll say that we're typically -- I mean, based on the demand that we're seeing, it's typically maybe weeks, but not quarters in terms of kind of the backlog.

And specifically, I don't want to call it a number just because we view it as kind of being very strategic in terms of how quickly we can deliver those golf carts for the consumer side.

But it's driven by a lot of the initiatives that the teams are doing around direct-to-consumer demand generation, as well as kind of new launches of products.

We launched a new lithium battery that extends the range of these consumer cars.

And also, we spoke today on the call about the connectivity.

And the connectivity platform is also providing some good recurring revenue streams for that team.

Your last question comes from Ivana Delevska from Gordon Haskett.

So just a follow-up on specialty vehicles.

What's driving this margin, significant margin improvement?

And is there a mix -- is mix a big driver?

And how do you expect it to kind of develop going forward?

Sure, Ivana, yes.

Q3 was obviously an exceptionally strong margin performance, really driven by kind of 2 main factors.

One being the consumer piece, second being the aftermarket piece.

So I think the mix, frankly, was the single biggest driver.

Consumer, as we've spoken about before, is the highest margin profile component of the entire portfolio and, frankly, aftermarket is right there with it.

So when that consumes -- when that comprises a healthier component of the mix, you can see kind of the margin profile that goes with it.

And then we've obviously done a lot with regards to I2V, self-help IRX initiatives, which you're seeing kind of play themselves out.

I think as we think about Q4, and as we mentioned, again, consumers are still expected to be strong, but this becomes a very typical, very strong golf shipment quarter.

And golf just does, frankly, have a slightly lower margin profile, comparatively speaking to consumer and the aftermarket component.

So again, we would see -- expect to see the kind of margin profile normalize a little bit, but that's really mix driven.

But even then, you're going to see meaningful margin expansion year-over-year.

So again, we're quite pleased with kind of how the team is executing both on the self-help productivity side as well as just, frankly, the top line side of the equation.

Got it.

And then one question on IT&S.

How do margins compare between your core businesses, compressors and blowers versus power tools and other?

And what do you see as medium- to long-term targets for each?

Sure.

So we don't break down necessarily the subcomponents of the portfolio.

But let's just say that I think that the -- as we've historically said, the compressor, blower and vacuum components actually all have, I'd say, fairly comparable margin profile.

While there tends to be a little bit of mix between original equipment and aftermarket, what you can expect here is the compressors tend to have a higher aftermarket component, which tends to be a little bit healthier margin.

And as such, I'd say, the compressor, blower, vacuum piece tends to be a little bit healthier.

Clearly, components of the portfolio like power tools tend to be a lower margin profile.

We've said that before.

But I think we're quite encouraged by the steps the team has taken.

Vicente mentioned in the prepared remarks, 270 basis points of sequential improvement as we move from Q2 to Q3.

I think in terms of medium to longer-term targets, like we've said, we feel very good about where the profile of the total segment is, kind of reaching that mid- 20s range.

I think that's -- frankly, we want to see kind of those levels.

And we have, frankly, a lot of opportunity with regards to synergy execution and things like that, that are going to kind of start delivering in 2021 onwards.

So again, we haven't got a formal, I'd say, target, nor have we put a cap on it.

But I think we're encouraged by what we're seeing.

And yes, we would frankly still expect that the core component of the portfolio of compressors, blowers and vacuums to have a higher margin profile than the balance.

We have no further questions.

I would like to turn the call over to Vicente Reynal for closing remarks.

Thank you, and thank you, everyone, for the interest in Ingersoll Rand.

And I am very appreciative of the tremendous amount of work that our employees are doing here even in this kind of difficult environment and delivering tremendous results.

So thank you, and thanks to our employees.

Thank you.

Have a good day.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.