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Text: I'm Chris Miorin, vice president of investor relations.
Both are available on the Investor Relations section of our website, www.
In addition, a replay of this conference call will be available later today.
In addition, in today's remarks, we will refer to certain non-GAAP financial measures.
Starting on Slide 3.
2021 was a pivotal year for Ingersoll Rand with many accomplishments and new records.
We solidified our compounding growth story as we reshaped our portfolio to focus on mission-critical, flow creation technologies and high-growth, sustainable end markets while establishing a new capital allocation strategy designed to enable us to consistently compound earnings over time.
We continued a strong operational execution where the commercial effectiveness of our team, driven by our IRX process, yielded a backlog at the end of the fourth quarter that was our largest ever and positions us very well for continued strong results in 2022 as demand for our products and services continue to grow.
Moving to Slide 4.
I want to take a moment to recognize some of the accomplishments across each of our five strategic imperatives in 2021.
In deploy talent, our employees think and act like owners because they are.
Shares granted to employees to date have appreciated from $250 million to over $500 million in value, motivating our engaged employee base to make decisions each day that can benefit our value creation and ultimately, their personal wealth.
Furthermore, we implemented a plan to also grant shares to employees who join us as new employees or via acquisitions, yet another factor enabling Ingersoll Rand to be considered an employer and acquirer of choice.
Our employee engagement score, up 17% over the last three years, also shows the power of ownership.
Our current engagement score now ranks in the top quartile of manufacturing organizations.
In expand margins, we have improved the company's adjusted EBITDA margin 370 basis points in 2019, including an improvement of 160 basis points in 2021 alone.
We have realized $215 million in synergies out of the $300 million commitment from the IR merger, with an additional $15 million expected in 2022.
In operate sustainably, we continue to make progress and have received recognition from ESG rating agencies, including S&P Global and MSCI, once again demonstrating how we leverage the power of IRX to drive performance across a multitude of initiatives.
In accelerate growth, our unique growth enablers outlined during our 2021 investor day, strongly contributed to growth in the past year.
Our demand generation engine now generates three times more marketing-qualified leads compared to 2019.
IIoT-enabled assets were up 250% year over year, and new product innovation increased 95% in 2021.
In allocate capital effectively, we secured approximately $2 billion in gross proceeds from the divestitures of Club Car and High Pressure Solutions and redeployed over $1 billion through acquisitions in 2021, which represents over 6% of sales when annualized.
We also repurchased $731 million in shares as part of the KKR's final equity sale, established a new $750 million share repurchase program, and initiated a quarterly dividend of $0.02 per share during the fourth quarter.
We're incredibly proud of our 2021 accomplishments and could not have done it without the dedication of our team.
Turning to Slide 5.
We're committed to executing the strategy we outlined at our 2021 investor day and are confident it will produce the expected results.
This slide outlines how we are already delivering on that strategy and associated commitments.
Our portfolio is now positioned to capitalize on global megatrends, such as digitization, sustainability, and quality of life.
We expect to leverage our organic growth enablers to deliver mid-single-digit organic growth through 2025.
And as you can see, we outperformed on this commitment in 2021, delivering 12% year-over-year organic growth.
When coupled with mid-single-digit annual growth from M&A and technology investments, we expect to deliver total growth of low double digits through 2025.
And in 2021, we delivered 4% in-year growth from M&A and 6% annualized.
Our strong pricing, aftermarket, and I2V initiatives enable us to generate operating leverage and incremental productivity, with an expected 100 basis points of margin improvement per year over the period.
And in 2021, we over delivered on this target, capturing 160 basis points of margin expansion despite several challenges like supply chain constraints and inflationary pressures.
With IRX as our competitive differentiator and over 275 IMPACT Daily Management or IDM meetings across our company each week, our high-performance culture encourages strong execution.
This continues to support our goal of being a premier, high-quality company that consistently compounds earnings by double digits each year, with free cash flow margins in the high teens.
And we feel that we're well on our way, as in 2021, we grew earnings per share by 63% and achieved adjusted free cash flow margin of 16%.
Turning to Slide 6.
We have achieved strong margin improvement across our portfolio since 2019.
Looking at the company, margins improved 370 basis points from 2019 despite COVID impacts and persistent supply chain and inflationary pressures.
In the ITS segment, we improved an impressive 470 basis points since 2019 as we continue to accelerate synergy capture and execute on value creation opportunities from the IR merger.
Incremental operating leverage and productivity should enable ITS to achieve margins in the high 20s over time.
In the PST segment, margins have expanded 170 basis points since 2019 and 290 basis points, excluding M&A.
Continued strong flow-through in the base PST business, coupled with diligent synergy execution as we onboard acquisitions, should yield adjusted EBITDA margins in the mid-30s over time.
It is important to note that as we highlight on the last bullet point, due to the nature of our products, we're mission-critical with premium brands and high quality and reliability, and we have the ability to remain price/cost positive.
We have accomplished this in each quarter since the merger even during these inflationary times and expect to do the same in 2022.
Moving to Slide 7.
We're thrilled to announce the recent validation of Ingersoll Rand's progress as an industry leader in ESG.
Based on demonstrated progress, we received another upgrade from MSCI, which is our second upgrade in the past 18 months, and now have an A rating.
And I'm really excited to announce that S&P Global, in its annual sustainability assessment that was just released a few weeks ago, scored Ingersoll Rand in the top 15% and included us in its Sustainability Yearbook for 2022.
In addition, S&P Global recognized us with the Industry Mover Award, which is given to the most improved company in each sector of the year.
These recognitions exemplify our unwavering commitment to ESG.
In March of 2021, we committed to becoming a top-quartile ESG industrial company in three years.
And we believe we have achieved or are at the cusp of achieving that goal in one year.
And S&P Global agrees as it elected us to its Sustainability Yearbook, which recognizes the top 15% ESG performing companies in each industry sector.
Despite this progress, we're just getting started on our ESG journey, and we're very focused on accelerating progress toward our ESG growth.
I'm incredibly proud of our team for being recognized by the rating agencies already this early in our journey.
Moving to Slide 8.
We continue to be encouraged by the performance of the company in Q4, which saw a strong balance of commercial and operational execution fueled by IRX to overcome persistent inflationary pressures in a challenging supply chain environment.
Through Q4 2021, we have realized $215 million in cost synergies and are on track to deliver on our $300 million commitment.
Total company orders and revenue increased 24% and 16% year over year, respectively, driven by strong double-digit organic orders growth across each segment despite comparisons to a strong Q4 2020.
Our orders and revenue in the quarter were a record for the company, eclipsing Q3 and setting us up well for 2022.
The company delivered fourth quarter adjusted EBITDA of $342 million, a 15% year over year improvement, and adjusted EBITDA margins of 24.1%, a 40-basis-point sequential improvement.
Adjusted free cash flow for the quarter was $225 million after taking into account the unique items as pointed out on the slide.
Total liquidity of $3.2 billion at quarter end was up approximately $400 million from prior year.
This takes our net leverage to 1.1 times, an 0.9 times improvement from prior year.
Turning to Slide 9.
For the total company, Q4 orders grew 25% and revenue increased 18%, both on an FX-adjusted basis.
Overall, we posted a strong book-to-bill of 1.06 for the quarter.
We remain encouraged by the strength of our backlog, which is up over 7% from the end of Q3 and over 50% from the end of 2020.
Total company adjusted EBITDA increased 15% from the prior year.
ITS segment margin declined 40 basis points, while PST segment margin declined 400 basis points, driven largely by the impact of M&A.
When adjusted to exclude the impact of M&A completed in 2021, PST margin declined by 120 basis points.
Finally, corporate costs came in at $26 million for the quarter, down year over year, primarily due to lower incentive compensation costs and general savings and prudency.
We expect corporate cost to normalize back to the low 30s millions per quarter in 2022.
Adjusted earnings per share for the quarter was up 51% to $0.68 per share.
Of note, the adjusted tax rate came in at 5% for the quarter and 12% for full year 2021.
Q4 benefited from our ongoing tax restructuring efforts, specifically some nonrecurring impacts driven most notably by our efforts to manage and minimize the cash taxes associated with the divestitures of SVT and HPS completed earlier in the year.
As we look ahead to 2022, we expect the rate to be back in the low 20s due to the nonrepeat of some of these discrete items.
Turning to Slide 10.
On a full year basis, orders grew 28% and revenue increased 16%, both on an FX-adjusted basis.
The full year book-to-bill was 1.12, and total company adjusted EBITDA was up 28% from 2020.
Margin expanded by 160 basis points, with ITS margin up by 220 basis points and PST declining 50 basis points.
When adjusted to exclude the impact of these acquisitions completed in 2021, PST margins increased by 70 basis points.
ITS posted incremental margins of 38%, with PST at 27% or 36%, excluding the impact of M&A.
Moving on to the next slide.
Free cash flow for the quarter was $224 million on a continuing ops basis, driven by strong operational performance across the business while continuing to invest organically.
Capex during the quarter totaled $23 million, and free cash flow included $4 million of synergy and stand-up costs related to the IR merger.
In addition, free cash flow included a net inflow of $3 million in cash taxes related to the divestitures of the HPS and SVT segments.
Excluding these items, adjusted free cash flow was $225 million in the quarter.
Leverage for the quarter was 1.1 times, which was an 0.9 times improvement versus the prior year.
And total company liquidity now stands at $3.2 billion based on approximately $2.1 billion of cash and over $1 billion of availability on our revolving credit facility.
Liquidity increased by $100 million in the quarter, which included outflows of $165 million toward strategic M&A and $8 million to fund our first quarterly dividend.
Our M&A funnel remains robust and active, up in excess of five times from the close of the IR merger, and we're remaining disciplined in our approach.
Moving to Slide 12.
We'd like to provide an update on synergy delivery and some detail on the impact of price versus cost.
On the left side of the page, we are updating the cost to achieve the $300 million synergy commitment related to the IR merger, as well as the associated stand-up of the new company from a combined $450 million to now $280 million, an aggregate reduction of roughly 40% or $170 million from our original estimates.
This speaks to how we are always heavily focused on high returns on cash investments regardless of the situation.
I am very proud of how our employee ownership culture continues to overdrive our performance.
With everyone thinking like an owner, they think about how every dollar spent generates profit and improvement.
In addition to the $215 million in realized synergies to date, we expect an incremental $50 million in 2022 and $35 million in 2023.
The synergy funnel remains in excess of $350 million.
And while we don't expect our synergy commitment to materially change as we look ahead, we will provide periodic updates on status and execution, particularly as we approach the end of the IR merger-related synergy delivery.
The right side of the slide highlights the ongoing price/cost dynamic.
In 2021, we remain price/cost positive each quarter, and we expect to deliver the same result in 2022.
Note that we are calculating costs, including direct material and logistics, but not direct labor or labor inflation, as labor is mostly offset with internal productivity actions.
In Q4, we delivered an incremental margin of 23% for the total company despite strong inflationary pressures and supply chain challenges.
What I'm most proud of is that even in this environment, our team was able to achieve a sequential margin improvement of 40 basis points.
This highlights the resilience of IRX in very difficult environments.
Looking forward to 2022, we expect to remain price/cost positive each quarter as we continue to leverage IRX to drive commercial execution and productivity initiatives.
Given continued inflationary pressures and a very tough comparison from Q1 of 2021, we expect Q1 to be the most challenged period on a year-over-year basis, but nonetheless, expect incremental margins for the total year to be approximately 35% and the quarterly EBITDA profile to be well in line with prior-year quarterly phasing.
We know this is not easy, but it just speaks to the commitment of our team to be differentiated and be in the top quartile of performance.
And turning to Slide 13.
In our Industrial Technologies and Services segment, organic revenue was up 11%.
The team delivered strong adjusted EBITDA, which rose 10% year over year and an adjusted EBITDA margin of 25.7%, up 20 basis points sequentially with an incremental margin of 23%.
As a reminder, we're overcoming a very strong comp from Q4 2020 of 400-basis-point margin expansion.
However, important to highlight as well that on a two-year clip, the team has delivered 360-basis-point margin improvement.
Organic orders were up 19%.
Starting with compressors, we saw orders up in the low 20s percent.
And a further breakdown shows orders for oil-free products growing at over 15% and oil-lubricated products growing at over 25%.
The Americas team delivered strong performance with orders in North America up mid-20s, while Latin America was up high 20s.
In Mainland Europe, orders were up high teens, while India and the Middle East were down low single digits.
Asia Pacific continues to perform very well, with orders up approximately 20%, driven by low 20% growth in China and high-teens growth across the rest of Asia Pacific.
In the vacuum and blower product line, orders were up approximately 20% on a global basis.
Moving next to the power tools and lifting, Orders for the total business were up approximately 20% and saw continued positive momentum, driven mainly by our enhanced e-commerce capabilities and improved execution on new product launches.
On our sustainable innovation in action, today, we want to highlight our recently acquired company.
Jorc is a manufacturer of condensate drains, oil and water separators, and air-saving products, which are part of the compressor ecosystem.
These products focus on improving overall system performance and creating energy efficiency through efficient use and recycling of fluids and air, which helps our customers achieve their environmental goals.
We're very excited about this complementary acquisition as we continue to expand our offerings with the compressor ecosystem, as well as the impact that Jorc will have as we scale up and expand geographically.
Moving to Slide 14.
Revenue in the Precision and Science Technologies segment grew 15% organically, which remains encouraging given the tough comps due to COVID-related orders and revenue in Q4 of 2020 for the Medical business.
Additionally, the PST team delivered strong adjusted EBITDA of $78 million, which was up 22% year over year.
Adjusted EBITDA margin was 26.8%, down 400 basis points year over year, primarily driven by the impact of M&A.
Again, the segment was down 120 basis points, excluding the impact of acquisitions in Q4 2021 with an adjusted EBITDA margin of 29.6% ex M&A.
Overall, organic orders were up 40%, driven by the Medical and Dosatron businesses, which were up strong double digits in the quarter and as they serve lab, life sciences, water, and animal health end markets.
Incremental margins were 17% as reported and 21% when excluding the impact of M&A.
Looking at the sustainable innovation in action portion of the slide, we're highlighting our recent Tuthill Pumps acquisition.
Tuthill Pumps manufactures gear and piston pumps for sustainable end markets, such as medical and lab, food and beverage, water, and wastewater.
Tuthill's D Series magnetically coupled pumps are used in lab applications, such as hematology analysis, as well as other chemistry analyzers.
The business is complementary to our existing portfolio, and we are well underway with integration of this business.
Moving to Slide 15.
We're pleased to introduce our 2022 guidance.
In aggregate, we expect total company revenue to be up 11% to 13%, with the first half up 12% to 14% and the second half up 9% to 11%.
We expect organic revenue growth of 7% to 9% for the total company, with 7% to 9% growth expected in ITS and 8% to 10% growth in PST. FX is expected to contribute a headwind of approximately 1%, with 1% to 2% coming in the first half of 2022 and 0% to 1% in the second half.
M&A announced and closed to date is expected to contribute an incremental $225 million in revenue.
This outlook reflects normal seasonality in the business, which is typically lightest in Q1, similarly stronger in both Q2 and Q3 on an absolute basis, and strongest in the fourth quarter.
We do not see quarterly phasing to be materially different from 2021.
We expect total adjusted EBITDA for the company to be $1.375 billion to $1.415 billion, including corporate cost of approximately $135 million spread evenly over each quarter.
This yields an incremental margin of approximately 35% for the total company, with positive margin expansion expected sequentially from Q1 through Q4 of 2022.
Free cash flow conversion to adjusted net income is expected to be greater than 100%.
We anticipate our adjusted tax rate to normalize in the low 20s for the reasons Vik mentioned earlier, with capex representing approximately 2% of revenue.
Looking at Q1 specifically.
We expect double-digit revenue growth year over year with ITS growing high single digits organically and PST growing low double digits.
We also expect flat to slightly positive margin expansion due to the tough year-over-year comparison, ongoing supply chain constraints, and inflationary pressures.
Turning to Slide 16.
As we wrap up today's call, I want to reiterate that Ingersoll Rand is in an outstanding position.
2022 is poised to be a strong year despite the challenging environment.
We accomplished an incredible amount together, and we move into 2022 as an even stronger action-oriented team.
We continue to invest for growth, both organically and inorganically with a focus on increasing the quality of our total portfolio, while serving as an industry-leading sustainable company.
IRX is truly our backbone and drives every process in our company, enabling outperformance and ensuring our global team is speaking one language, focused on capturing growth opportunities, driving innovation and efficiencies, and acting boldly to win in the marketplace.
Our balance sheet is very strong.
And with our disciplined and comprehensive capital allocation strategy, we have significant ability to redeploy capital to compound earnings and continue our track record of market outperformance.

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q4 adjusted earnings per share $0.68 from continuing operations.
sees full-year 2022 revenue growth to be 11% to 13%.

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