Thank you all for standing by. I would like to welcome you all to the Ingersoll Rand Q4 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, we will conduct a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference call over to our host Matthew Fort of Ingersoll. Matthew, please go ahead.

Thank you, and welcome to the Ingersoll Rand 2022 fourth quarter earnings call. I am Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation this morning and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everybody that certain statements on this call are forward looking in nature and subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide 2023 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow for time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. I would like to start by acknowledging and thanking our employees for their hard work in helping us deliver a record year in 2022. We finished the year on a high note, with strong fourth quarter and full year results despite ongoing inflation, rising interest rates, supply chain constraints and geopolitical uncertainty. Our employees consistently exemplify our purpose, while thinking and acting like owners to deliver on our commitment. And our performance this year clearly reinforces the impact we have as owners of Ingersoll Rand. Starting with Slide 3, in 2022, we demonstrated again how we continue to over deliver on our Investor Day commitments. We also made tremendous progress against our sustainability goals, but I'm very proud that Ingersoll Rand was named to the 2022 Dow Jones Sustainability Index. As we look to 2023, demand remains solid. And while macroeconomic, geopolitical and global supply chain uncertainties continue to be at the top of everyone's mind, we will remain agile and focused on what we can control. IRX is our differentiator to fuel our performance and continue to execute on our commitments. Turning to Slide 4. During our last Investor Day, we highlighted how we delivered compounding results through our economic growth engine. We remain committed to our strategy and its success is evident, given the results outlined at the bottom of this page. Our portfolio is positioned to capitalize on global megatrends, [digitization] (ph), 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 this commitment again in 2022, delivering 16% year-over-year organic revenue growth. In 2022, we delivered 4% of in-year growth from M&A or 5% on an annual basis. The combined organic…

Thanks, Vicente. On Slide 8, we finished the year with strong performance in Q4 through a strong balance of commercial and operational execution, fueled by IRX despite the ongoing macroeconomic uncertainty. Total company organic orders and revenue increased 2% and 19% year-over-year, respectively. We remain encouraged by the strength of our backlog, which is up 30% year-over-year, equate over $2 billion of backlog. This provides a healthy backlog to execute on as we enter 2023 and gives us conviction in delivering our 2023 revenue guidance. The company delivered fourth quarter adjusted EBITDA $420 million, a 23% year-over-year improvement, and adjusted EBITDA margins of 25.9%, a 180 basis point year-over-year improvement and a 110 basis point improvement sequentially from Q3. For the quarter, adjusted EPS was up 6% versus prior year. This is despite some meaningful headwinds that I will explain shortly. Free cash flow for the quarter was $321 million, despite ongoing headwinds from inventory due to global supply chain challenges as well as the need to support backlog. Total liquidity of $2.7 billion at quarter-end was up approximately $100 million sequentially. Our net leverage continues to improve year-over-year and sequentially. At 0.8 turns, we're 0.3 turns better than the prior year and 0.2 turns better than prior quarter. Turning to Slide 9. For the total company, Q4 orders grew 5% and revenue increased 21%, both on an FX-adjusted basis. Total company adjusted EBITDA increased 23% from the prior year, with the ITS segment margin increasing 170 basis points, while the PST segment margin improving 330 basis points. It's important to note that both segments are price/cost, dollar and margin positive, which speaks to the nimble actions of our team despite ongoing inflationary headwinds. Corporate costs came in at $33 million for the quarter. And finally, adjusted EPS for the…

Thanks, Vik. On Slide 12, our Industrial Technologies and Services segment delivered strong year-over-year organic revenue growth of 22%, with volume growth outpacing growth from pricing. Adjusted EBITDA increased 24% year-over-year with an adjusted EBITDA margin of 27.4%, up 170 basis points from prior year with an incremental margin of 38%. We also delivered sequential margin expansion of 120 basis points from Q3 to Q4. We continue to see solid demand for our products with organic orders up 4%. Note that on a two-year stack the ITS segment organic orders grew more than 20%. Moving to the individual product categories. Each of the figures exclude the negative impact of OpEx, which year-over-year was [67] (ph) percentage point headwind across the total segment on both orders and revenue. Starting with compressors, we saw orders up in the low-single digits and we continue to see oil free products orders outpacing oil lubricated products. Orders were down mid-single digits in the Americas, driven by a large order push from Q4 to the first quarter of 2023. EMEIA demand continues to be above market, with orders up mid-single digits. The Asia-Pacific team continues to deliver great performance with orders growth in the mid-teens, which is impressive when you think about that our team in China delivered double digit growth even throughout the COVID-related closures and disruptions. In vacuum and blowers, orders were up low-20%s level. And the power tool and lifting global orders grew mid-single digits. Moving to the innovation in action portion of the slide, we're highlighting our footprint expansion in India, which is another organic investment initiatives we're drive. We have seen significant growth in India and we continue to drive opportunities for in region for region manufacturing, which is driving the need for increase in our footprint. Turning to Slide 13.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Mike Halloran of Baird. Your line is now open.

Hey, good morning, everyone.

Good morning, Mike.

Good morning.

Can we go through the first half-second half cadencing you're talking about? Obviously, FX gets a little more favorable in the back half of the year, but the growth rate is slowing. How much of that's organic versus just phasing of acquisitions? And then, is it just price? Is it an assumption on the macro environment being a little bit worse? Just kind of any puts and takes on how you think about the seasonal factors 1H versus 2H?

Yes. Hey, Mike. I'll say that facing comparable to what we have seen historically. Clearly, the item to watch is that, as expected, comps become more meaningful as we go into the back half of the year. And we don't have anything to assume in our guidance or the phasing related to supply chain returning to normalization and/or significant commodity deflation either. And so, in terms of the organic, I mean, second half, based on that and the tough comps, we say kind of roughly flattish. And as we said on the remarks, good continued momentum that we see on price. And what we expect is that we expect as we go through the year to see continued strength on kind of what we call the long cycle orders, which are driven by a lot of these megatrends that we've spoken about before in the past around sustainability, onshoring and things like that. So, net-net, that leads us to believe that we just don't see significant changes in our backlog as we go through 2023.

So, you're essentially assuming a pretty normal sequential cadencing and not much change in the macro backdrop, if I interpret that correctly, Vicente?

That's correct. Yes, that's correct. And basically, as you can see, a bit of a prudency here in the second half.

Yes. No, that helps. And then, on the M&A side, obviously, the backdrop has changed a little bit, not for you all. You guys seem to still see very high levels of success here. Maybe you could just talk about what the buyer's mentality is? Obviously, you've got a lot of deals you're working on, the LOIs are high. Have you seen a greater willingness by buyers to move forward and consummate some of these transactions? Has there been any change in that landscape at all?

Yes, Mike, I will say that the simple answer is, yes, in the sense that -- keep in mind, yes, we're seeing much stronger momentum as we talk to a lot of the sellers out there. And -- but it has to do primarily because keep in mind that 90%-plus of our deals and transactions are sole sourced. So, we have really long-standing cultivating relationships with the company that we're looking for to be attracted to Ingersoll Rand. And the relationship goes along the lines of understanding that, hey, you know, there continues to be all these changes that happen every year, and [how many] (ph) ownership is realizing that we are a great place for them to continue to kind of keep the legacy and treat employees in a very unique way the way we do. And that is driving the continued momentum of being able to open the door and have a much better conversation with a lot of these companies that we want to bring to Ingersoll Rand. So, again, I think that's what gives us the confidence that our M&A funnel continues to be very strong. And the fact that you see that we still have 11 transactions under LOI and the momentum continues to get accelerated. So, yes, we're very pleased with what we're seeing here.

Thanks, Vicente. Appreciate it.

Thanks, Mike.

Thank you. We now have Julian Mitchell from Barclays. Your line is open.

Hi, good morning. Maybe just...

Good morning.

...the first question I wanted to start with -- good morning, just to start with the top-line outlook. And just to understand it, so it sounds like you think that, that backlog stays at about $2 billion through the year, a book to bill around 1 for the year as a whole. And then, within the second half, organic sales guide, you're assuming sort of volumes are down slightly, but that's solely a function of comps, it's not related to destocking or any particular region softening or anything like that?

Yes, that is absolutely correct, Julian. Yes, that's accurate. And again, we're saying that we're viewing these as -- perfect. No, I was going to add to that, Julian, as I said on the answer before too as well, we view these as a prudency right now at this stage, and, as you know, we'll continue to update as the year goes, kind of not to the similar to what we did here in 2022.

That's helpful. And then, just on the thinking about the sort of the earnings seasonality, because I know in 2022, we spent the whole year, people fretting about the sort of Q3, Q4 ramp in EBITDA margins and the implied incrementals in the back half and all the rest of it. So, just to understand, for 2023, are you assuming kind of first half, second half EPS split? Is the consensus split roughly okay at sort of 45/55 and then anything you're kind of calling out year-on-year moving around much in the back half?

Yes. Julian, this is Vik. I'll take that. I think the answer is that, that's correct. I think the phasing of whether you want to talk about top-line or on the earnings side of the equation is very consistent with what you've seen historically. I think the margin implication on from an adjusted EBITDA perspective is, roughly speaking, close to 100 basis points on a total year basis for total company, which remains relatively consistent and right in line with what we messaged at our last Investor Day. So, again, nothing dramatically different there, but yes, the phasing is very much consistent with what you've seen in years past.

That's great. Thank you.

Thank you. We now have Jeff Sprague of Vertical Research Partners. Please go ahead when you are ready.

Thank you. Good morning. Hey, just on the price/cost...

Good morning.

Hey, good morning. Thanks for the question. Just want to be clear, I think you said 70% of the organic growth guide was price, just confirming that. But the question is would that just be carryover price or are there other actions in flight for 2023? And maybe you could also just give us some perspective on just the total price/cost equation for 2023 embedded in the guide?

Yes, Jeff. So yes, correct. 70% price as we will -- we communicated. And the way to think about it is that on the price, a good portion of that is carryover. We're still doing another regular price increase, but it's that, that one is more normalized as we -- what we have done in the past, which call it maybe 1% to 2% incremental new price that gets realized throughout the year. So that gives you the perspective in terms of what we're seeing on price. And from a price/cost perspective, yes, we expect that we're going to be price/cost positive and report it throughout the year. And with that, we have a [so and so] (ph) -- that the cost side basically stays at this level. So, we're not assuming a major deflationary market.

And then, just maybe totally shifting gears, just thinking about some of the initiatives in the -- in particular the IIoT enabled initiative. To what extent are customers paying additional for that capacity? And to what extent, given the product actually has that capability, is it driving higher or kind of more profitable service or other revenue streams?

Yes, great question there, Jeff. So, the paying additional comes in from as you now referenced to [OEM] (ph), which is with the added services that we're offering. So, we are having a remotely connected device. We're able to have better service agreements with our customers and, therefore, that generates a higher recurrent revenue that -- streams that we see. So that's the whole purpose of why we want to have our IIoT ready and enable machines, because we want to generate new revenue streams that are more recurrent in nature on top of, obviously, selling the device. So, I think that's what we're seeing. And in terms of customers willing to pay for it, I'll say, yes, I mean, because today there's a lot of lack of skilled labor out there and customers are kind of more dependent on companies and OEMs like cost to be able to demonstrate the added benefits that we can have. So yes, I think it's just one of those that we see it as increased way to add services, increased way of adding energy efficiency. And net-net, it's a very quick return for the customers on what they pay.

Great. Thank you.

Thank you, Jeff. Your next question comes from the line of Rob Wertheimer of Melius Research. Please go ahead when you are ready.

Thank you. Good morning, everybody.

Good morning, Rob.

So, I just wanted to go back to revenue outlook for -- yes, hey, the revenue outlook for a minute, where you have backlog up, I think, 30%, and organic growth [7%] (ph), covered by price up 3% to 5%. And so, I think you mentioned earlier, Vicente, that you're not assuming a whole lot of supply chain improvement in cost. Is the revenue still constrained by supply chain? If that loosens up, is there upside there? How do we sort of foot the backlog in the orders and the revenue outlook?

Yes. Rob, I mean, some constraint by supply chain, but also keep in mind too as well labor. So, I think as we kind of continue throughout the year and we continue to see better productivity, but it's really much more so on the prudency and why we say that backlog will stay at the current level as we continue to shift more towards our more normal phasing that we typically have. So, yes, some supply chain constraints, but the majority, I'll say, more of labor constraints to be able to bring more people to factories and be able to ship more.

Okay, perfect. And then, I apologize if I missed in the prepared remarks, but ITS North America orders were kind of the only weak spot. Any additional color there? I don't know if you're seeing broad-based strength in small projects and large, or order [picking up] (ph) or if things are fading away? Thank you.

Yes, thanks. That's a great question, Rob. We're seeing actually a very good momentum acceleration of what we call the long cycle orders, which are basically driving strong CapEx cycles that we see. And as we get into more projects related to the growth of like secular trends, so for example, onshoring, energy efficiency, cargo capture, we see more of that. And what that creates is maybe sometimes a little bit of lumpiness quarter-to-quarter. But when ITS, when you look at the ITS America, and it's something better to look at it first half to the second half, and you -- we actually saw acceleration organically going into the second half from -- compared to the first half. And that is because it's important to note that also ITS Americas in the third quarter, we had one of the biggest quarters that we can recollect for where book to bill was close to 1.2 back in Q3. So, again, I think we view it more from first half going into a second half. And what we saw was really order acceleration in the ITS Americas, which kind of gives us good confidence on continued kind of fundamental solid strength demand. And as we said also in the remarks, as we go into -- here into the 2023, we're seeing continued positive organic order momentum pretty much across all the regions, including the ITS Americans.

Great. Thank you.

Thank you. We now have Nigel Coe from Wolfe Research. Your line is open, Nigel.

Thanks. Good morning, everyone.

Good morning.

So, it seems like -- yes, good morning. You're talking about this hydrogen order in the prior year and order in North America slipping into 2023. So, it seems like we've got larger lumpier orders coming through, which given these mega project decarb-reassuring type projects, we should expect, I mean, do you agree with that -- particularly with that, that we will have lumpier orders sequentially from here? And my real question is, as we get larger orders, do we have comparable margins to -- on these larger orders versus sort of run rate?

So, to answer the first question, that's really yes. I mean, we think that we see a lot of these kind of mega projects that are getting a lot of the CapEx release. And yes, I mean -- and I can tell that historically, we have always said that these projects come in with pretty good margin to us well. And obviously, being large, so it will create a good flow-through as they kind of go in -- through the P&L. So, it's -- for us, it's good news that we're seeing the release of these CapEx projects. They're more long cycle, gives a better visibility. And at the same time, they're pretty well aligned with a lot of our secular growth trends that we're seeing around sustainability, energy efficiency, onshoring and the like.

Okay. Yes, nothing wrong with lumpy as long as they can [contribute] (ph) to revenue. And then, I want to go on the service revenue growth. I think, you said 17% ex FX. Just so that implies, I don't know, mid-teens -- low mid-teens organic service growth, which is pretty good. So just wondering -- to come back to Jeff's question to what extent is the service growth being driven by, I don't know, some kind of deferred catch-up? Or are we seeing this IIoT enabled devices starting to contribute meaningfully to revenue growth? And any thoughts there would be helpful.

Yes. It is, I would say, it's more of the latter in some regards. As you remember, during our Investor Day, we spoke about our care packages and service agreements that we developed as they get related to our IIoT-related services. And we're definitely seeing very good acceleration of that driven by trends such as not been able -- customers not able to find the skilled labor that is needed in the factory to be able to service, repair and maintain compressors or other devices where we can provide that. And in addition to that, we can provide an energy efficiency as a guarantee, but energy efficiency reduction that the customer can have and visibly see in addition to other benefits. So, it is actually good news for us to see that good solid momentum and [indiscernible] teams are doing very well on that.

Great. I'll leave it there. Thanks for the questions.

Thank you.

Your next question comes from David Raso of Evercore ISI.

Hi. Thank you. I just wanted to pick up on the orders so far in '23 commentary. Even excluding the hydrogen comp, PST orders were up 0.2%, basically flattish year-over-year, while the ITS obviously was up 3.6%. Are you saying the order growth has accelerated so far in '23, just to be clear?

Well, David, again, we're saying that the order momentum is actually positive across the two segments. So, yes, I mean, if you think about it from a percentage perspective, that is correct.

And the type of projects that you're getting, I just want to understand what's the pricing in these new orders versus what's in the backlog already? Just to get some sense of, assuming costs don't reaccelerate, what is the pricing dynamic in the new order book?

Yes, David, I would say to Vicente's remarks that orders in first quarter, quarter-to-date across both segments are trending positive on an organic basis. And within that, I would say the pricing dynamic, given the carryover pricing dynamic that Vicente mentioned, which, as you would expect, is more obviously evident in the first half of the year, comparatively speaking, I'd say it's comparable to what you have seen exiting 2022. So, nothing has dramatically changed in that respect. And I think to the question that was asked before, the margin profile is healthy on those projects, and the pricing levels on those projects are commensurate or comparable to what you see in some of the more standard book/ship type business. So, we've been seeing comparable margin performance and comparable pricing across both the shorter cycle and longer cycle components of our business.

All right. Appreciate it. Thank you.

Thank you. We now have Steve Volkmann of Jefferies. Please go ahead when you are ready.

Great. Thanks. Good morning, guys. I want to go back to the supply chain. I was interested in your comments that you didn't project anything really improving through the year. But can you just give us the sort of current conditions? Because it seems like we're hearing sort of broadly the things are improving. So, I just wanted to kind of square those up.

Yes. I mean, so it is definitely improving as compared to last year. What we're saying is that -- but there's still some bottlenecks and issues that pop up here and there. So, it's not -- again, what we're saying is that it is not perfect. It is not back to normal conditions. And that what we foresee here as we go into 2023, whether it is with the reopening of China or a lot of the CapEx cycle releases that we're seeing in terms of long cycle, we think there's going to be continued constraints in the supply chain. So, these were just being more proactive in terms of kind of realizing that there's a lot of work that our teams need to continue to do and realizing that, hey, things are not going to be back to normal from a supply chain perspective as we go into the second half, based on a lot of these other kind of trends or indicators that we're seeing that are happening in there.

Okay. Great. And then, just Vik, anything -- I think you mentioned 100 basis points of EBITDA margin through the year. Anything to think about relative to the two segments or one versus the other?

Yes. It's a good question. So, yes, approximately 100 basis points enterprise-wide. You're going to see both segments trend right around there. I do think the PST probably is a little bit more outsized than ITS, probably not overly surprising, because you had a little bit of an inverse happening in 2022. So, I think a lot of this is now, quite frankly, as we've now got Seepex, which was probably the largest headwind on EBITDA margins through the better part of 2022, now that's coming closer to fleet average with, frankly, still room to run, I think you're going to see a little bit more outpace on the PST side comparatively speaking, but total business should be trending closer to 100 basis points.

Great. Thank you, guys.

Thank you. We now have Josh Pokrzywinski from Morgan Stanley. Your line is now open, Josh.

Hi, good morning, guys.

Good morning, Josh.

Hey, Josh.

Just wanted to dig into -- hey, good morning. Just wanted to dig into the complexion of what you're seeing on the compressor side or even maybe more broadly across [IT&S] (ph). You talked about some of the big drivers, Vincente, around things like nearshoring, kind of a broader CapEx cycle. I mean, we just haven't seen one of those in so long. I'm just wondering like are you seeing larger pieces of equipment, a lot more of what looks like capacity versus replacement. I know some of that detail, it can go missing in the numbers. But as you talk to customers, like are they adding roofline? Are they adding capacity? Or is this sort of an extended replacement cycle that has kind of been caused by all this post-COVID interruption?

Yes, Josh, I'll say that we're seeing a little bit of a good blend of both in terms of new rooftops as well as expanding even capacity. And just to put in perspective, I mean, it's not dissimilar to what we or Ingersoll Rand were doing ourselves. So, as you remember, last year, we reopened our Buffalo facility. So that was -- you could consider that as an expansion of capacity. We also invested in expanding our factory in Brazil. So that was actually you could think about an incremental rooftop. We just here announced our expansion of the footprint and creation of a new building facility in India, which is on top of our already four manufacturing facilities in India. So, I think it's -- and our customers are doing the same, and we're very close to the customers because we believe to be in region for region is the most strategic factor and uniqueness that we have as a company, and this goes back all the way from our Gardner Denver days that we were doing that. So again, we're seeing a lot of good momentum of that in region for region continuation because of onshoring not only in the US, but we're seeing it in India, we see it in China, we see it in Europe. And I think our ability to flex our products and our localization to that, it's driving that pretty good momentum, I would say. And from a technology perspective, to your question, we're seeing solid momentum and we said that on the prepared remarks on oil free, which again, is good news because we're moving more towards these kind of high-growth sustainable end markets food, beverage, pharma that -- where we can provide more unique solutions to those customers, and, therefore, see that accelerated growth.

Got it. That's helpful. And then, just a follow-up on hydrogen, specifically. And I think there's a lot of stuff out there that's in discussion, maybe projects that are not quite ready to go FID, because there's [a norm] (ph) making clarity in the IRA that hasn't been established yet. But just wondering how you guys are thinking about the timing of when you could see another order wave there? And anything you're watching specifically that could help us track alongside that?

Sure, Josh. Maybe I'll see it -- kind of put it in two buckets. One is the -- on the PST side, where we make dispensing units, we're seeing better momentum on acceleration that we see here in Europe where more countries are leveraging hydrogen and so we expect to maybe see better momentum as we go here in 2023 in Europe. The early cycles of that PST hydrogen really happened more so in Asia Pacific. And we always said that, that was kind of the core start and then it was going to move to Europe and eventually gets to the US. And we're seeing that. Started in Asia Pacific, it's moving to Europe, and we're seeing conversations about dispensing hydrogen networks and things like that in the US, as you very well said, on the IRA budgetary commentary that we are read about. On the ITS, it's not too dissimilar. But I will say that the large capital investments that have been talked about in terms of hydrogen, we're not seeing that kind of come through fruition yet within the compressor side or the ITS side. So, we still think that there may be more room to come on that. And as you very well said, whether IRA or some of the other funds that are in Europe, hopefully, that kind of gets some of the projects getting released. But -- so good tailwinds we expect for a couple of years to come.

Great. Thanks for the color. I'll leave it there.

Thank you. We now have Joe O'Dea of Wells Fargo. You may proceed.

Hi. Thanks for taking my questions. I wanted to start on the backlog, and I think you said a little over $2 billion of backlog. But it sounds like the view would be that, that's more a normalized level, would be trending, I guess, a little bit over 30% of 2023 revenue. I'm guessing, historically, backlog hasn't been quite as strong relative to revenue. So, could you just talk about sort of what you're seeing sort of structurally within that, the confidence that we should be thinking about that as more of a normalized backlog level?

Yes, Joe, I would say that normalized maybe right now here in 2023. As we go into 2024 and longer than that, we'll see. I mean, we expect that things will get back to the way they were before. Our view in terms of why we should continue to see backlog at this higher level is again because of a lot of these kind of long-cycle CapEx releases that we're seeing that, that should continue to add on to that backlog while we continue to see maybe solid fundamental growth on the short cycle as we have just also stated. So, I think it's not that the new norm is going to be that 30% or $2 billion. It's just that right now, at this point in 2023, that is basically what we're saying is that we're saying that we'll continue to -- our expectation is that we're not going to deplete the backlog based on what we see coming through for the rest of the year.

Okay. And then, just a clarification on the $200 million to $300 million of annualized inorganic revenue to be acquired. Of that, how much is included in the 2023 M&A revenue contribution? And does that amount include sort of all 11 of the LOIs that you currently have?

Yes, Joe, so let me take it in two pieces. So, the guidance -- if you go to the guidance slide, $270 million of M&A is included in the guide. That $270 million is for completed and/or closed acquisitions to date. So effectively, everything you've seen through 2022 that has any degree of carryover impact as well as probably the two bigger contributions being the SPX Flow Air Treatment business, which closed right at the beginning of the year, and then the Paragon Tank Truck acquisition, comparatively smaller but closed at the beginning of this month. That is all included. That's what comprises the $270 million. In terms of forward expectations, we do not include any non-closed transactions in guidance. So, the 11 additional transactions that you see at the LOI stage, that would be all incremental to current guidance if and when those transactions close. And like we've done, historically, as those transactions close, we'll obviously start including them in subsequent guidance. So, again, yes, non-completed or non-closed M&A would be additive to the current guidance for 2023.

Okay. And then -- but are those 11 included in the $200 million to $300 million that you're talking about acquiring over the course of 2023?

That is correct. Yes. So, I think, our [re-] (ph) kind of affirmation of the capital allocation strategy includes that we expect to close another $200 million to $300 million on an annualized basis. And obviously, that's just contingent on the timing in terms of what will actually impact 2023, but that is correct.

Got it. That's helpful. Thanks a lot.

We now have Nathan Jones of Stifel. Your line is now open.

Good morning. This is Adam Farley on for Nathan.

Good morning.

So, you performed very well in China in 2022, despite COVID headwinds. Could you provide some color on how you outperformed? And maybe what you expect in 2023 in China, specifically with reopening?

Yes, Adam, so I'll just say to that, a big thank you to our team in China and team in Asia Pacific, whom I was actually just having a celebratory call last night with them and kind of kicking off into high gear a lot of our initiatives in 2023. So, generally, I think our team continues to be pretty agile and nimble as to finding the growth vectors that are being seen in China, and they've taken our products and repositioned them and leveraging our demand generation to accelerate the penetration of those technologies into those very unique end markets. So, I think it's all about ensuring that our teams are very nimble and very agile and that's exactly what they're doing. I mean, they're finding these very good growth vectors and those could be around battery production, photovoltaic production as well for solar panels or even electric vehicle production. So -- and then they leverage the technology and the demand generation to be able to acquire just incremental market share.

Okay. And then, on the recent close of the SPX Flow Air Treatment business, could you provide any color on revenue or cost synergy opportunity, given that it's still early days of integration work?

Yes, sure, Adam. So, to repeat, we did close the SPX Flow transaction at January 3, at the beginning of this year. Using rough numbers, we can kind of expect something right around $180 million of revenue contribution, so slightly less than $200 million, and very much in line with a lot of the M&A you've seen us do historically. It's coming in right in that kind of mid-20%s type EBITDA margin range. And as we did say when we announced the transaction, we do see -- over a multiyear basis, we do see cost opportunities and synergy opportunities to drive that to be accretive to ITS segment margins in due course. So, again, we're about 45 days in, I would say, the integration process, as you would expect, using IRX and the whole IDM process to kind of guide the integration, it's going as well as we had expected, and things are very much tracking in line with [Technical Difficulty] started. And as you would expect, that's the single biggest contributor of the $270 million of M&A that's included within our guidance.

Okay. Thank you for taking my questions.

Thank you.

Thank you. We now have Chris Snyder of UBS. Please go ahead when you are ready, Chris.

Thank you. I want to follow up on some of the order trends. So, the book to bill is going from 0.91 in Q4 to an expected 1.0 in 2023. Should we expect an immediate jump back up to that 1.0 level in Q1, or will it take a couple of quarters to play out? And then what type of visibility do you have into orders as we go beyond Q1, maybe into the back half of '23? Thank you.

Yes. Sure, Chris. So, I guess, I'll start by saying, I think the way you described it is relatively accurate. Yes, we did see a little over 0.9 in Q4. Worth noting here, it's quite normal in the business to see book to bill less than 1 in the second half of the year, and particularly in Q4. And that's largely attributable to shipping the longer -- the larger, longer cycle orders during the second half. And you see that primarily in the ITS business. And that's exactly what we saw on Q4 as well as obviously the strong revenue performance. So that did drive the book to bill to be less than 1. But to Vicente's point and some of the commentary, we are seeing the order momentum continuing here in the first quarter, quarter-to-date through the first week in February. Orders -- organic orders performance is up. And it's worth noting, that's driven despite the headwind of the Chinese New Year timing, which is in January this year versus February in last year. So, again, continued to be encouraged by the trending. As Vicente said, backlog continues to remain healthy with a good contribution from the longer cycle projects, which will continue to extend over a 12- to 18-month timeframe. So again, yes, book to bill less than 1, but quite normal in Q4 and continue to be encouraged about what we see here moving into 2023.

No, yes, I appreciate that and I appreciate the color on the seasonality. And then, on the implied margin guidance, so my math kind of pegged EBITDA margins up 70 bps, maybe up to 80 bps year-on-year at the midpoint. So obviously, a bit below the run rate that we've seen and below the kind of the multiyear target that the company has laid out at 100 basis points. But it sounds like price/cost will continue to be kind of in your favor. So, can you just maybe talk about some of the moving parts there on the margin side as we build up to the guide? Thank you.

Sure. I'll take that one, Chris. So, yes, 80 basis points to 90 basis points, slightly right below 100 basis points, that's probably right in line. I think it's a few things to note. When we gave our Investor Day targets, we said to expect about 100 basis points on average over a multiyear timeframe. Obviously, worth noting that we have outpaced that in the prior two years. So, we're still very much tracking in line with that. And I think in terms of the guidance, your point is spot on. We do expect to continue to be price/cost positive. We are still driving productivity as well as the synergies, the last phase of the merger to merger-led synergies to offset any degree of merit and/or labor inflation, which obviously we are seeing and speaks to Vicente's point earlier. But I think the other thing here is that we are continuing to reinvest for growth and to drive ongoing organic growth, which is very much part of our Investor Day target. So, you are seeing requisite investments in -- to the appropriate commercial resources and growth resources in the business as well as some of the investments we called out specifically even at the corporate level around demand generation and IIoT. So, again, we'll continue to be very prudent. We continue to expect margin expansion year-over-year as we go through the year. And sequentially, the margins could continue to sequentially increase quarter-to-quarter as we move from Q1 to Q4, much like you saw in 2022.

Appreciate all of that. Thanks for taking the questions.

You bet.

Thank you. I would now like to turn it back to the CEO, Vicente, for some final remarks.

Thank you so much. As I kind of wrap up the call today, I just want to say that our teams have done an outstanding job executing our plan throughout 2022, despite the ongoing macro challenges, and that's because they think and act like owners, because they are owners to the company at Ingersoll Rand. And we have clearly demonstrated that there's a lot of resiliency here in our business as we continue to invest organically and inorganically and continue to focus ourselves in sustainability, innovative product and solutions. And that, we believe, is truly positioning Ingersoll Rand as a global leader. So, thank you for the time and attention today. Thank you.

Thank you all for joining. That does conclude today's call. Please have a lovely day, and you may now disconnect your lines.