Ingersoll-Rand PLC (IR) Q3 2020 Earnings Call Transcript

Ingersoll-Rand PLC (NYSE: IR) Q3 2020 earnings call dated Nov. 03, 2020 

Corporate Participants:

Vikram Kini — Senior Vice President, Chief Financial Officer

Vicente Reynal — Chief Executive Officer

Analysts:

Julian Mitchell — Barclays — Analyst

Michael Halloran — Baird — Analyst

Jeff Sprague — Vertical Research — Analyst

Nigel Coe — Wolfe Research — Analyst

Rob Wertheimer — Melius Research — Analyst

Stephen Volkmann — Jefferies — Analyst

Andy Kaplowitz — Citigroup — Analyst

David Raso — Evercore ISI — Analyst

Joe Ritchie — Goldman Sachs — Analyst

John Walsh — Credit Suisse — Analyst

Nathan Jones — Stifel — Analyst

Ivana Delevska — Gordon Haskett — Analyst

Presentation:

Operator

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.

Vikram Kini — Senior Vice President, Chief Financial Officer

Thank you and welcome to the Ingersoll Rand 2020 third quarter earnings call. I am 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.

But 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 this 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. We ask that each caller keep to one question and one follow-up to allow for enough time for other participants.

At this time, I’ll turn the call over to Vicente.

Vicente Reynal — Chief Executive Officer

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 inflight 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 engaged in one-on-one sessions where we work with our employees to discuss our purpose and values and what it means to live them every day. In addition, we have continued the Owning Our Future Forums, which are virtual micro town hall meetings to create open dialog. To date, we have engaged and heard from over 7,000 employees, and the 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 benchmarked and puts us in the top quartile of participation. Our high engagement level is a positive reflection of employee satisfaction with working at 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 strong proof of the culture we’re building at Ingersoll Rand, which currently 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. And when we launched these in 2017, we improved working capital as a percentage of sales of Gardner Denver by over 500 basis points in less than two 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 [Technical Issues] continue 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 melt complementary cultures, as well as leverage our deep product portfolio to serve niche end markets and accelerate growth.

Speaking of our 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-market 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, standalone hydrogen fueling station which is designed for small, simple, plug-and-play installations. Now with the compressible 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 a 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. The second example demonstrates how we can leverage the breadth of our technologies across multiple segments to win in a targeted end markets like water and wastewater. Take for example, a wastewater treatment plan 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 five-year CAGR of at least 2 times GDP. Utilizing IRX tools, we’re focused on capturing quick wins within our combined product portfolio.

First, we’re focused on increasing customer share wallet by offering a broader set of total 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 contact across the two 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 this entire universe of potential customers about our technologies and solutions with dedicated digital campaigns.

While we’re still in the early days as we just launched these 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 entire products 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?

Vikram Kini — Senior Vice President, Chief Financial Officer

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 Technology 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 do not expect to repeat.

As we continue to navigate these uncertain times, our goal is to continue to manage those areas within 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 adjusted for the High Pressure Solution 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 similar strong performance as free cash flow grew to $179 million. Liquidity now stand at $2.3 billion, and as a reminder, historical financials, as provided in this deck is on a supplemental basis, as if the transaction had happened on January 1, 2018 to assist in clean comparatives for the quarter. The detailed assumptions and adjustments used in these supplementals can be found in the appendix to the 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% declines we saw in the second quarter. While COVID continues to create challenges, we saw continued stabilization in core markets in the Americas and EMEIA, 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 continue to show positive trends on both revenue and orders led by China.

Specialty Vehicles saw strong orders 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, it was just strong book-to-bill of 1.02 for the quarter, which is slightly better than the levels seen in the prior year of 1.0.

The company delivered $284 million of 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 improvements in adjusted EBITDA and strong triple-digit margin expansion. Offsets were seen in the High Pressure Solution segment, as well as higher corporate costs, which saw a large benefit in prior year cost 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 stand-up related spend.

From a leverage perspective, we finished at 2.5 times, 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 2.5 times range or slightly better as we finish the year. And we feel comfortable with our current leverage position and see it has to be in at 2.0 times or better in the relatively near-term.

On the right side 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 are 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’ll 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 our procurement synergies, we have captured a $40 million to $50 million with approximately $15 million to $20 million of those 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 aligned to synergies are based on 2019 direct materials 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 of $250 million over a three-year timeframe 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 continue 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 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 lockdowns in several countries, we are now expecting the 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.

Vicente Reynal — Chief Executive Officer

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-digit and revenue down low single-digit. 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 oil-lubricated 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 continue to see a decline in the mid-teens, 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 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 that the rapid improvement from last quarter where we were down low-40s in orders. The total 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 oil-less air with a value proposition unmatched in the market. At that time, the Gardner Denver channel was not properly set up and experienced 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 re-launched 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 $50 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 Technologies 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 this strong performance within the business were the Dosatron and medical businesses, which delivered double-digit revenue growth. The Precision and Science Technologies 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 40 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 of 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 Technologies segment. Overall, Q3 was another strong performance for the Specialty Vehicle Technologies 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. Reiteration 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 six 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 car 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 geofencing and location-based speed control, as well as asset management tools such as the ability to monitor the location of the golf cars and report vehicle diagnostics.

Moving to Slide 16 and the High Pressure Solution segment. The business performed largely in line with expectations and a 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 in — on 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 the unknown of extended holidays later in the quarter, as well as continued pandemic headwinds. Looking forward to 2021, we’ve been mainly 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 wanted to provide a quick snapshot of how the business has performed thus far in the fourth quarter. Through the first three weeks of October, the total company is now mid single-digits in orders with book-to-bill at greater than 1. Within the Industrial Technologies 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 Technologies 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 Solution 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 market recovery to continue in the fourth quarter with revenue trending positively on a sequential basis. The Industrial Technology and Specialty Vehicle segment should support most of that strength, given normal seasonality in the shorter cycle components of Industrial Technology, as well as larger projects that will ship later in the quarter. For the Precision and Science Technology and High Pressure Solution 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 noticeable 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.

Questions and Answers:

Operator

Thank you.[Operator Instructions] Your first question comes from Julian Mitchell from Barclays. Please go ahead, your line is open.

Julian Mitchell — Barclays — Analyst

Hi, good morning.

Vicente Reynal — Chief Executive Officer

Good morning.

Julian Mitchell — Barclays — Analyst

Good morning. Maybe just a 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 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.

Vikram Kini — Senior Vice President, Chief Financial Officer

Yeah, hey, 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, as 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 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.

Julian Mitchell — Barclays — Analyst

That’s very helpful. Thank you. And then my second question, really around the free cash flow, very strong in the nine months, for $170 million odd, 125% [Phonetic] conversion to adjusted net. Realize, though, it’s the first sort of year of the combined entity and maybe there is some one-time pieces moving around the working capital, moved perhaps a bit abnormal this year. So 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.

Vicente Reynal — Chief Executive Officer

Yeah, 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 what — clearly one that we just talked about here is how we’re rallying up all 16,000 employee owners in the company around the working capital as a percentage of sales and how we believe we can unlock good amount of cash by getting everyone focused on that perspective as we did with the Gardner Denver in the past, and then other leverage such as tax or tax rate that we spoke a lot about. 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.

Vikram Kini — Senior Vice President, Chief Financial Officer

Yeah. 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 synergies and stand up costs, in the first half of the year, we had about $80 million between the 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 stand-up-related spend through the first three quarters and we would expect right now that Q4 should look comparable to what you saw in Q3 as we’ve got it before. So I can kind of give you an idea of kind of just the, I’ll call it, one-time, but really the synergy and stand-up-related spend that has flowed through free cash flow.

Julian Mitchell — Barclays — Analyst

Fantastic, thank you.

Vicente Reynal — Chief Executive Officer

Thank you.

Operator

Your next question comes from Michael Halloran from Baird. Please go ahead, your line is open.

Michael Halloran — Baird — Analyst

Hey, good morning gentlemen.

Vicente Reynal — Chief Executive Officer

Good morning, Mike.

Vikram Kini — Senior Vice President, Chief Financial Officer

Good morning, Mike.

Michael Halloran — Baird — Analyst

So, why don’t we start with some thoughts as you’re — 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 your early thought process? How are you guys going about iterations for next year? Any kind of high level thoughts on that side?

Vicente Reynal — Chief Executive Officer

Yeah, Mike, clearly, we’re now in the midst of that cycle of kind of getting with the teams through our budget cycles for 2021 and this is part of our process that we — as we completed our strategic plans a couple of months ago. Well 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 is 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 looks like, and you can see that from the down market and how we have controlled our decrementals very well, as at the same time while investing. So I think the way that we’re working with the teams is how to perspective in terms of good gradual continued sequential noting, 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 long 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 as well, heading into 2021. So at this point in time, I mean, we’re going to be working with the teams on the budgets and building as we kind of work for 2021 with a high level of just flexibility.

Michael Halloran — Baird — Analyst

Now, that makes sense. And then maybe help us with some puts and takes on the capital optionality side. One, how are you thinking about the current portfolio as it sits here today? Any changes there? And then secondarily, you’re on a good balance sheet position, Vik mentioned earlier, towards 2 times in the near future here. How are you thinking about M&A? What’s the funnel look like? And then secondarily, are buybacks something you guys are considering in the near term?

Vicente Reynal — Chief Executive Officer

Yeah, Mike, I think, this is a — as you saw, we got our three phases and we spoke a lot openly about our kind of Phase III of 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’ll tell you, the funnel is very, very active. We’re very excited with Albin, that acquisition that we just made. A lot of these acquisitions as well, I think the interesting thing is that we continue to source those sales 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 paid. 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.

Michael Halloran — Baird — Analyst

And the buyback side? Any thoughts there?

Vicente Reynal — Chief Executive Officer

Not at this point, I will 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, reduce the post-multiple synergies dramatically. So we just see it’s a greater payback right now in the M&A.

Michael Halloran — Baird — Analyst

That makes a lot of sense. Thanks, Vicente, appreciate it.

Vicente Reynal — Chief Executive Officer

Thank you, Mike.

Operator

Your next question comes from Jeff Sprague from Vertical Research. Please go ahead, your line is open.

Jeff Sprague — Vertical Research — Analyst

Thank you. Good morning, everyone.

Vicente Reynal — Chief Executive Officer

Good morning.

Jeff Sprague — Vertical Research — Analyst

Hey, just coming back to kind of a 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 concern 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 two 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.

Vikram Kini — Senior Vice President, Chief Financial Officer

Yeah, 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 has considerably, I’d say, sped up compared to what original expectations are.

So I’d say at this point in time, continuing to kind of moving forward, I don’t think the COVID environment has dramatically stopped things. We’ve even found ways to do things like i2V and workshops and teardowns in a virtual manner, not how we planned it originally, but still being able to execute. And then in terms of the larger funnel of — 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, it’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 had always planned 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.

Jeff Sprague — Vertical Research — Analyst

Great, thanks for that. And just back to IT&S on 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 industrially-sensitive look as we perhaps look into, at least, the first part of 2021.

Vicente Reynal — Chief Executive Officer

Yeah, Jeff, so — I think the good — I mean we’re encouraged in terms of how we’re seeing the [Technical Issues] the customers. I mean, obviously 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 long 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, it’s 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 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 this business, 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 freed up.

Jeff Sprague — Vertical Research — Analyst

Great, thank you.

Vicente Reynal — Chief Executive Officer

Thank you, Jeff.

Operator

Your next question comes from Nigel Coe from Wolfe Research. Please go ahead, your line is open.

Nigel Coe — Wolfe Research — Analyst

Thanks, good morning.

Vicente Reynal — Chief Executive Officer

Good morning.

Nigel Coe — Wolfe Research — Analyst

So I wanted to switch to your upstream oil and gas that High Pressure, HPS, obviously encouraging trends there. It seems like we’ve — we found a floor and we’re starting to improve sequentially. 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 down in some modest sequential improvement in that business, similar to what we’ve seen in prior recoveries from here?

Vicente Reynal — Chief Executive Officer

Yeah, 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 looked really different from a footprint perspective and also from the capex investments 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 come back, that we’re seeing in the market.

Nigel Coe — Wolfe Research — Analyst

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

Vicente Reynal — Chief Executive Officer

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 based on — flip count continues to increase sequentially or our order rates continue to increase, you saw now year-over-year, as we pointed out, in the first week of October, we were down only 30% to 35%, which is also encouraging. And — but we still also feel that the pent-up demand has not come through. So I think that’s also highly encouraging as we would say.

Nigel Coe — Wolfe Research — Analyst

Okay, great. And then my follow-up question on ITS is — first of all, thanks for all the detail. I think you’ve pre-empted 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 you’re seeing some pent-up demand coming through there and whether we’re back to growth in services?

Vicente Reynal — Chief Executive Officer

Yeah, I know. 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 we’ll 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 2 times better than the whole goods, so than the complete. So I wouldn’t call it as a massive pent-up demand. I’ll just say, kind of more gradual improvement as people are kind of getting an opening to the location that allows us to kind of go in, but nothing dramatic, just good gradual improvement.

Nigel Coe — Wolfe Research — Analyst

Okay. Thanks, Vicente.

Vicente Reynal — Chief Executive Officer

Yeah. Sure.

Nigel Coe — Wolfe Research — Analyst

Great, thank you.

Operator

Your next question comes from Rob Wertheimer from Melius Research. Please go ahead, your line is open.

Rob Wertheimer — Melius Research — Analyst

Hey, good morning, everyone.

Vicente Reynal — Chief Executive Officer

Good morning, Rob.

Rob Wertheimer — Melius Research — Analyst

So, Vicente, and 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 two? How wide is it? Is it already narrowing down, so you know the longer cycle stuff is in fact coming up, we’re not just relying on the short cycle stuff?

Vicente Reynal — Chief Executive Officer

It feels that way, Rob. I mean, it feels that, definitely, we can tell you that on the long cycle business, it 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 onshoring getting kind of released and allowing us to implement our technology on those. So we’re seeing some good, I would say, sequential improvement on that. I guess, for me, more encouraging is the conversations that our teams are having with the customers, seems to be just much more active than what it was in the past. So — but is there a big separation between the two? Not dramatically, I will say, but encouraging signs on both.

Rob Wertheimer — Melius Research — Analyst

Okay, that’s very helpful. Thank you. If I could ask just one other on pivot to growth on Phase II. I wonder if you can characterize where you think you have the organization focused. Has the intense focus been on synergies the past few months and you’ve already internally sort of pivoted the growth with some of the focus you’re doing, and that will show up in next few quarters or where would you say you’ve put the organization right now? Thanks.

Vicente Reynal — Chief Executive Officer

Yeah, 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, yeah, I mean, I can tell you that in our conversations, we talk 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 were able to pivot and pivot kind of right in the — I’ll 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.

Rob Wertheimer — Melius Research — Analyst

Thanks very much.

Operator

Your next question comes from Stephen Volkmann from Jefferies. Please go ahead, your line is open.

Stephen Volkmann — Jefferies — Analyst

Hi, good morning, guys. If I could just go back, Vik, to some of your comments about the margin incrementals. I think we had a 30-ish [Phonetic] 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 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. Thanks.

Vicente Reynal — Chief Executive Officer

Yeah, Steve, 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 on in terms of what incrementals and decrementals are kind of being viewed as for best-in-class and we strive to get to those. I think when we provided some of the kind of conversation on — not guidance, but a framework, as we were going into Q3, there was a lot of discretionary cost that was supposed to come that obviously not all of that showed up into the third quarter. But I would 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 do that.

Stephen Volkmann — Jefferies — Analyst

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?

Vikram Kini — Senior Vice President, Chief Financial Officer

No. So, Steve, I think the way that we were thinking about it is that was kind of more of a longer-term into 2021. From a third — 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 the decrementals should be lower than 30%. And frankly, we would expect to be able to control it, frankly lower than that level pretty much more in line with probably levels you saw in the 2Q realm or slightly better, clearly not as well as Q3, which was 6%, clearly a lot of good tailwinds in 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 hope for the business turns to more of a growth mode, that was kind of the comment as we look ahead.

Stephen Volkmann — Jefferies — Analyst

Great, thank you. That’s exactly what I was looking for. I should’ve said decrementals, sorry. So, that’s all I got. Thank you.

Vicente Reynal — Chief Executive Officer

Sure. Thank you.

Operator

Your next question comes from Andy Kaplowitz from Citigroup. Please go ahead, your line is open.

Andy Kaplowitz — Citigroup — Analyst

Hey, good morning, guys.

Vicente Reynal — Chief Executive Officer

Good morning, Andy.

Vikram Kini — Senior Vice President, Chief Financial Officer

Good morning, Andy.

Andy Kaplowitz — Citigroup — Analyst

Vicente, can you give us a little more color on what you’re seeing in terms of the growth within Precision and Science? You mentioned that you expect a decline in the former PFS business, it was down 6% in Q3, GDI 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 has it really strengthened that GDI medical business? And can you give us more color on what’s driving the improvement in PFS?

Vicente Reynal — Chief Executive Officer

Yeah, Andy, I’ll say that most of the businesses are kind of continuing to strengthen within the — with 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 months of Q3.

Andy Kaplowitz — Citigroup — Analyst

And then, Vicente, obviously, you’ve spend some time talking about hydrogen, obviously ESG becomes more important every day. You just mentioned onshoring and the initiatives there. So if you look at all of 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?

Vicente Reynal — Chief Executive Officer

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 and not just by pure look, but mainly because of the, I’ll say, call it, self-help innovation that the team is doing. I mean, we signed 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, yeah, I mean, I think it’s more going to be indicative in 2021 and further. You can see — I mean, expectations for the 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.

Andy Kaplowitz — Citigroup — Analyst

Thanks, Vicente.

Vicente Reynal — Chief Executive Officer

Thank you.

Operator

Your next question comes from David Raso from Evercore ISI. Please go ahead, your line is open.

David Raso — Evercore ISI — Analyst

Hi, thank you for the time. 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 that 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 two sets.

Vikram Kini — Senior Vice President, Chief Financial Officer

Sure, Dave, and I’ll start kind of in inverse order. You hit it on the head with Precision and Science. We did definitely have a, I’d say, elevated medical backlog that we were really leveraging through the second quarter and third quarter largely kind of shipping through here as we got into the beginning of the fourth quarter. And the medical piece definitely had a little bit of a margin upside, comparatively speaking. So it’s not to say that the balance of the Precision Science is actually healthy margins, it’s just not quite at those medical COVID-profit related orders. So again, that will normalize here as we move through the 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 and 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, if you look at it, 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 point.

David Raso — Evercore ISI — Analyst

And that’s helpful. And lastly on the COVID impact, especially some of the lockdowns we’ve begun to see in Europe, and hopefully we don’t see any here. But when you think about the 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 just curious how you’re reacting to potential impact.

Vicente Reynal — Chief Executive Officer

Yeah, 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 business, also holding that inventory, and so I think we’re prepared and working with the supply chains to be able to service us proactively.

David Raso — Evercore ISI — Analyst

And so far no implications on any facilities from some of the French or U.K. or…

Vicente Reynal — Chief Executive Officer

No.

David Raso — Evercore ISI — Analyst

…some of the lockdown like we’ve seen in Germany? No? Okay. Terrific. Thanks.

Vicente Reynal — Chief Executive Officer

No. No implications. No, no.

David Raso — Evercore ISI — Analyst

Terrific, thank you. Appreciate it.

Vicente Reynal — Chief Executive Officer

Thank you. Sure, David.

Operator

Your next question comes from Joe Ritchie from Goldman Sachs. Please go ahead, your line is open.

Joe Ritchie — Goldman Sachs — Analyst

Thanks, good morning, everybody.

Vicente Reynal — Chief Executive Officer

Good morning.

Joe Ritchie — Goldman Sachs — Analyst

Vicente, can you maybe just touch on that opportunity that you’re seeing specifically on the oil-free side with selling through your European channel? I’d like to know any kind of thoughts on cadence of that opportunity over the next couple of years.

Vicente Reynal — Chief Executive Officer

Yeah, Joe, I think this is actually a — I mean, as you remember, we were pretty excited with the combination of the two 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 where 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 we — 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.

Joe Ritchie — Goldman Sachs — Analyst

Perfect, helpful color, Vicente, thanks. I think maybe my one follow-up, I know we touched on this a little bit earlier on — in ITS 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 cycle project-related?

Vikram Kini — Senior Vice President, Chief Financial Officer

Yeah, Joe, I’ll take that one. This is Vik. I would say that probably, I would ballpark at about 80% roughly speaking is probably shorter cycle kind of typical standard fare compressor, blower, vacuum, power tools type equipment. 15% to 20% or 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.

Joe Ritchie — Goldman Sachs — Analyst

Great, thanks, guys.

Vicente Reynal — Chief Executive Officer

Thank you, Joe.

Vikram Kini — Senior Vice President, Chief Financial Officer

Thank you.

Operator

Your next question comes from John Walsh from Credit Suisse. Please go ahead, your line is open.

John Walsh — Credit Suisse — Analyst

Hi, good morning.

Vikram Kini — Senior Vice President, Chief Financial Officer

Good morning.

Vicente Reynal — Chief Executive Officer

Good morning, John.

John Walsh — Credit Suisse — Analyst

Hi. 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.

Vicente Reynal — Chief Executive Officer

Yeah, John, the — 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 compressors are that basically kind of will be maybe the — even 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 those sell through.

John Walsh — Credit Suisse — Analyst

Great. And then I guess just thinking about some of the adjustments and as we go into next year, I guess, there was a non-cash impairment this quarter, the acquisition-related expenses are ramping down, I mean, there is 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?

Vikram Kini — Senior Vice President, Chief Financial Officer

Sure, John, I’ll take that one. So I think in terms of, as we’ve said, whether it’d 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 Q3. And I think with regards to some of the restructuring items, you’ll see — there’s a normal cadence to that as we move into 2021 as we still do have restructuring in the form of 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 one-time in nature. As we look forward, we would expect that the nature of 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 or things of that nature? No, we wouldn’t expect those as they’re very discrete and unique in terms of what you’ve seen for the first two or three quarters this year.

John Walsh — Credit Suisse — Analyst

Great, very helpful. Thank you.

Vicente Reynal — Chief Executive Officer

Thanks, John.

Operator

Your next question comes from Nathan Jones from Stifel. Please go ahead, your line is open.

Nathan Jones — Stifel — Analyst

Good morning, everyone.

Vicente Reynal — Chief Executive Officer

Good morning, Nathan.

Vikram Kini — Senior Vice President, Chief Financial Officer

Good morning, Nathan.

Nathan Jones — Stifel — Analyst

I 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 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?

Vicente Reynal — Chief Executive Officer

Now, that’s a really great question, Nathan. Clearly, we have always been kind of, say, speaking in — not openly, but how the addressable market froze and how we wanted to — if you remember the days of the medical team, how we doubled that addressable market over a course of like two years. So I think it depends on — it depends on the business, but clearly, we want to continue to expand the addressable market. We don’t have it pegged 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 with the new technologies that we’re — 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 — that’s holistically over the strategic period which is three years. We want to double the addressable market in some of the specific businesses that we’re focusing ourselves.

Nathan Jones — Stifel — Analyst

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?

Vicente Reynal — Chief Executive Officer

Yeah. So the impact — I mean, the team is just executing really well on a lot of initiatives and particularly one around the new — 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, Nathan, and go online and then kind of customize to your specific kind of the style and basically that’s kind of 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’d 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 out a number just because we view it as kind of being very strategic in terms of how very 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 carts, 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.

Nathan Jones — Stifel — Analyst

Great, thanks very much.

Vicente Reynal — Chief Executive Officer

Thanks, Nathan.

Operator

Your last question comes from Ivana Delevska from Gordon Haskett. Please go ahead, your line is open.

Ivana Delevska — Gordon Haskett — Analyst

Good morning, guys.

Vicente Reynal — Chief Executive Officer

Good morning, Ivana.

Vikram Kini — Senior Vice President, Chief Financial Officer

Good morning, Ivana.

Ivana Delevska — Gordon Haskett — Analyst

So just a follow-up on Specialty Vehicles. What’s driving the — 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?

Vikram Kini — Senior Vice President, Chief Financial Officer

Sure, Ivana. Yeah, Q3 was obviously an exceptionally strong margin performance, really driven by kind of two 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 consumer — when that comprises of 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 we’re seeing kind of play themselves out.

I think as we think about Q4, and as we mentioned, again, consumer 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, at the top-line side of the equation.

Ivana Delevska — Gordon Haskett — Analyst

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?

Vikram Kini — Senior Vice President, Chief Financial Officer

Sure. So we don’t break down necessarily the sub-components 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 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 moved 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, very frankly, a lot of opportunity with regards to synergy execution and things like that are going to kind of start delivering in 2021 onwards. So again, we haven’t put a formal, I’d say, target on it, nor have we put a cap on it. But I think we’re encouraged by what we’re seeing, and, yeah, so we would, frankly, still expect that the core component of the portfolio compressors, blowers and vacuums to have a higher margin profile in the balance.

Ivana Delevska — Gordon Haskett — Analyst

Thank you.

Vicente Reynal — Chief Executive Officer

Thank you.

Operator

We have no further questions. I would like to turn the call over to Vicente Reynal for closing remarks.

Vicente Reynal — Chief Executive Officer

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 these kind of difficult environment and delivering tremendous results. So thank you and thanks to our employees. Thank you. Have a good day.

Operator

[Operator Closing Remarks]