Ingersoll-Rand PLC (IR) Q1 2020 earnings call dated May 12, 2020
Corporate Participants:
Vikram Kini — Head of Investor Relations
Vicente Reynal — Chief Executive Officer
Emily Weaver — Senior Vice President and Chief Financial Officer Leading Finance and IT
Analysts:
Andrew Kaplowitz — Citigroup — Analyst
Julian Mitchell — Barclays — Analyst
Michael Halloran — Baird — Analyst
Nigel Coe — Wolfe Research — Analyst
Jeff Sprague — Vertical Research Partners — Analyst
David Raso — Evercore ISI — Analyst
Joshua Pokrzywinski — Morgan Stanley — Analyst
Nathan Jones — Stifel — Analyst
Nicole DeBlase — Deutsche Bank — Analyst
Markus Mittermaier — UBS — Analyst
John Walsh — Credit Suisse — Analyst
Presentation:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Ingersoll-Rand First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Vik Kini, Head of Investor Relations. Thank you. Please go ahead.
Vikram Kini — Head of Investor Relations
Thank you and welcome to the Ingersoll-Rand 2020 first quarter earnings call. I am Vik Kini, Ingersoll-Rand’s Investor Relations Leader and with me today are Vicente Reynal, Chief Executive Officer and Emily Weaver, Chief Financial Officer. Our earnings release, which was issued this morning and a supplemental presentation, which will be referenced during the call, are both available on the Investor Relations section of our website www.IRCO.com. In addition, a replay of this morning’s conference call will be available later today.
Before we get started, I would like to remind everyone that certain of the 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. For more details on these risks, please refer to our Annual Report on Form 10-K filed with the Securities and Exchange Commission and our current report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2020, which are available on our website at www.IRCO.com. Additional disclosure regarding forward-looking statements is included on Slide 2 of the presentation.
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 release, which are both available on the Investor Relations section of our website. I also remind everyone that in both our earnings release and today’s presentation, we have included both as-reported financials and supplemental financial information to assist with analysis and comparatives. The as-reported financials only include the Ingersoll-Rand Industrial segment results from the closing date of the transaction on February 29, 2020 and the supplemental financial information provides results as if the transaction had occurred as of January 1, 2018, to provide a full quarter of comparable results.
Turning to Slide 3, on today’s call, we will provide an update on the top priorities of the company in the current operating environment, as well as review our first quarter total company and segment highlights. We will conclude today’s call with a Q&A session. As a reminder, we would ask that each caller keep to one question and one follow-up to allow for enough time for other participants. At this time, I will now turn it over to Vicente Reynal, Chief Executive Officer.
Vicente Reynal — Chief Executive Officer
Thanks, Vik, and good morning to everyone on the call. I would like to kick off today’s presentation by sending our thoughts to all who have been affected by COVID-19 and all the dedicated healthcare workers, first responders and volunteers who are on the frontlines, all over the world, battling this pandemic. I would also like to take a moment to say a sincere thank you to all of the Ingersoll-Rand employees around the world. The pictures on Slide 4 are just a few examples of our dedicated global workforce, who have adapted to the new realities of the work environment to continue to serve our customers. Everyday, I hear of new examples of our businesses providing mission-critical products to our customers and I am proud of what our company represents and how our employees have responded to these unprecedented times. While there continues to be a lot of uncertainty about the future, one thing I’m sure about is that Ingersoll-Rand will continue to keep the safety of our communities and serving our customers at the center of everything we do. And that wouldn’t be possible without the dedication and hard work of all of our employees.
Moving to Slide 5, I would like to ground every one of the critical priorities we’re following during these challenging times. When we closed the transaction a little over two months ago, we could have never anticipated that within a matter of weeks, we will be dealing with a global pandemic causing disruptions to our customers supply chain and the day-to-day operations of the company. Our response speaks to how the IRX toolkit has effectively helped us to plan, accelerate and adapt our actions to act quickly and decisively around three core priorities. First, ensuring the safety of our employees, customers and the community. Second, around keeping a strong focus on the integration and execution to ensure the financial stability of the company through these uncertain time. And finally, continuing to execute on the strategy of the company as we have multiple catalysts to drive ongoing value creation. The strength of Ingersoll-Rand team aligned around these three priorities will position the company to emerge from this crisis as a stronger and more unified company.
The next slide is a reminder that our purpose and values as well as our execution engine that we call IRX are really at the heart of how we operate as a company, especially in these unprecedented times. During the integration process, we spent a lot of time thoughtfully creating the company’s purpose, one that is centered around our stakeholders where we know that they can lean on us to help make life better. This purpose, when combined with the four key values, that our teams live on a daily basis, creates a framework of what we want to achieve as a company and the basis of how we do it is a Ingersoll-Rand execution excellence process. The simplicity and effectiveness of this is allowing us to accelerate the creation of a single culture across Ingersoll-Rand.
Turning to Slide 7, I would like to briefly update you on the company’s response to the COVID-19 crisis, since it has been swift and focused around two major components. First is the health and safety and well-being of our employees, customers and communities. And second, business continuity not only within our operations but across the larger supply chain. Starting first with health and safety, we activated our COVID-19 task force in February and had a full coordinated company approach in early March, just weeks after the creation of the new company. Our execution approach has served us very well as we are able to quickly implement enhanced site-safety protocols and a mandatory work-from-home policy for those employees who can work remotely. And it is very encouraging that our quick actions have been successful as we currently have had fewer than 30 confirmed cases of COVID-19 amongst our more than 17,000 global employee base.
But it is more than just implementing safety protocols. It’s also about supporting and engaging the employee base. As a result, we have implemented a number of measures including our global outreach program to solicit employee feedback. Our employees reacted quickly and with a true ownership mindset, provided more than 200 suggestions when we asked for cost savings ideas. Not only did our team volunteer to take individual pay cuts, furloughs and forgo vacation time this year. They had thoughtful, in-depth suggestions, many of which we’re actively implementing today.
From our business continuity perspective, starting first with our operations, as we previously communicated, we have seen plants largely in China, Italy and India impacted due to COVID-19. China was largely impacted in the month of January and February and has seen steadily improved capacity and output through March and into April as things are now largely back to normal. Italy and India saw about a two-month lag to China with operations being impacted in late March and into April. And in this time, our sites around the globe are 98% operational with India still being the most impacted due to governmental restrictions on returning to work.
The supply chain has seen a similar trend as the impact in China is largely behind us and we currently have no meaningful delivery issues. The Americas and EMEIA regions are stabilizing as impact to suppliers in the U.S. and Italy have started to come back online. In the past few weeks, we have seen the number of impacted suppliers drop by more than half, which is a very good sign and we’re supplementing supply from dual sources from other regions where possible. Much like our operations, India continues to be the most impacted aspect of the supply chain and we expect the situation to improve in the latter half of May when governmental restrictions begin to ease.
We are addressing the current environment head on by actively managing those areas within our control. Let me tell you about what we’re doing here. Starting with Slide 8, through the use of IRX, we have been able to build the cost synergy funnel to over $350 million, with increases across all major saving categories and we continue to identify areas of incremental opportunity. As a reminder, we expect to be able to realize the anticipated transaction cost synergies of approximately $250 million by the end of year three after closing. We expect to incur approximately $450 million of expense in connection with both achieving these cost synergies and the associated stand-up of the new company.
As we have stated multiple times over the past few quarters, this phasing of synergy delivery was always an area, we believe, we could accelerate based on market conditions and that is exactly what we have done. We have dramatically increased the pace, having already executed on $90 million of annualized structural cost reductions with approximately $70 million savings expected to be delivered in 2020. The majority of these savings are coming from headcount actions already taken in the past two months, as we streamline the company and reduce layers within the organization. In addition, we have deployed the first wave of procurement initiatives with RFQs for nearly one-third of our historical direct materials spend base already launched, as well as some quick win initiatives being deployed. In total, we’re now expecting to deliver approximately 35% of our overall synergy target in 2020, which is approximately three times higher than the original year one expectation of 10% to 15% realization. We’re keeping the overall cost synergy target at $250 million over a three-year timeframe at this time to remain prudent on volume-dependent synergies like procurement and i2V, given the current environment.
It is not only the structural cost that we have taken out, but also how we are supplementing our synergy delivery activities with thoughtful short term cost reductions to protect margins. So let’s move to Slide 9 to talk about that. In Q1, despite the 15% revenue decline that we saw collectively across the business on a pro forma basis, we were able to limit adjusted EBITDA decrementals to less than 30% with the strongest performance coming from our two largest segments. We expect that these additional actions would yield $40 million to $50 million of incremental cost savings in the P&L this year with the majority coming in the second quarter and third quarter. We will continue to reevaluate on a monthly basis and if demand environment does not accelerate in the second half of the year, we will potentially extend some of these actions and increase our savings target accordingly. While we’re making some tough decisions to control cost, one area that we are not cutting back is strategic growth initiatives across the enterprise. Much like we did back in 2015 at Gardner Denver, when we invested through the downturn to capitalize on market share gains, and new product opportunities, we’re following the same playbook today. Investments in R&D are being maintained at similar levels as prior years and we continue to fund targeted commercial initiatives such as Demand Generation and our IoT platforms. This is all part of the strategy to play offense now, especially as we bring the two companies together through the integration.
Moving to Slide 10, let me talk about liquidity. The company continues to have a strong balance sheet with ample liquidity. At the time of the merger, we took the opportunity to reprice our legacy debt for placing the new $1.9 billion Term Loan to close the transaction. All of our debt is a Term Loan B structure with very attractive pricing as the U.S. components are LIBOR plus 175 and the euro component is a Euribor plus 200. The Term Loans have no financial covenants from a maintenance perspective and there are no maturities until 2027. Liquidity also remains strong at $1.6 billion as we finished the quarter with $556 million of cash on the balance sheet and over a $1 billion of capacity on our existing credit facilities. As we look ahead, we continue to see several opportunities to unlock cash as we remain very prudent on preserving liquidity. Opportunities exists across working capital and cash taxes and we will continue to see tailwinds from interest expense in the second half of the year as all $825 million of legacy fixed interest rate swaps will expire by September of 2020. Even though we feel our level of liquidity is proper, we’re evaluating incremental debt or other liquidity vehicles, given the attractive rate and covenant environment.
Turning to slide 11, our commitment to our long term strategy remains unwavering. You have heard me already reference several elements of our strategy as we’re building the culture of Ingersoll-Rand with our employees at the core. We will continue to act quickly and prudently to protect margins and preserve liquidity, and at the same time, we will position the company for future growth, both organically and through opportunistic targeted bolt-on M&A. Our business operates in a very fragmented market and we see opportunities to add niche technologies to the portfolio. And importantly, our newest strategic priority of operating sustainably is taking shape as we launched several of our ESG-oriented initiatives already. Overall, we have several value creation levers as we look ahead and we will continue to execute, despite the uncertain macro economic landscape. I will now turn it over to Emily to walk you through the financials. Emily?
Emily Weaver — Senior Vice President and Chief Financial Officer Leading Finance and IT
Thanks. Vicente. On Slide 12, you will see the as-reported financials for the company. As a reminder, the reported financials include three months of legacy Gardner Denver and one month of the legacy Ingersoll-Rand Industrial segment in Q1 2020 and only the legacy Gardner Denver businesses in Q1 of 2019. As a result, the comparisons are impacted materially by the transaction. I won’t spend a lot of time on this page as a result, other than to mention that the as-reported net income in the quarter includes $197 million of amortization, acquisition, restructuring and other adjustments, which you can see listed in the reconciliation tables in the appendix of the presentation.
Turning to Slide 13, to assist in clean comparatives to the quarter, we provided supplemental financial information which treats the transaction as if it had happened as of January 1, 2018. From a total company perspective, FX adjusted revenue and orders declined 14% and 7%. respectively and were impacted by COVID-19. Regionally, we saw notable declines in Asia Pacific, as well as sharp declines in the U.S. and Europe towards the end of the quarter, most notably in the IT&S segment. This led book-to-bill to finish at 1.11 for the quarter. The company delivered $208 million of adjusted EBITDA, a decline of 24%, driven mostly by the volume declines in IT&S and the expected downturn in the HPS segment. Adjusted EBITDA margins were 16.4%, down 200 basis points from last year. However, our proactive cost controls within the business limited decremental to 29%.
In terms of adjusted EBITDA composition for the company, the legacy Gardner Denver business delivered $97 million as compared to our original guidance expectation of approximately $100 million, which we view as relatively strong performance given the environment. The legacy IR businesses delivered $51 million of adjusted EBITDA in March as opposed to a combined $60 million for January and February.
Moving to Slide 14, free cash flow for the quarter was $60 million on an as-reported basis, including $8 million of capex. The Q1 free cash flow includes $63 million of outflows related to the transaction, comprised of $38 million of synergy delivery and stand-up related costs and another $25 million of transaction fees. We also paid $38 million of debt issuance costs in the quarter, which you can see in the financing section of the cash flow statement, bringing our total transaction related outflows in the quarter to $100 million. From a leverage perspective, we finished at 2.6 times and while we do expect to see some short term increase to leverage, we have shown the ability to delever historically. As you can see on the right side of the page, we remain extremely disciplined on cash and we expect our capital allocation priorities to be very aligned with what you have seen historically, specifically, internal reinvestments for growth, prudent debt pay down and opportunistic bolt-on M&A. We have no plans for any share repurchases or a dividend at this time. I’ll now turn it back to Vicente to walk through the segments. Vicente?
Vicente Reynal — Chief Executive Officer
Thanks, Emily. Starting first with Industrial Technologies and Services on Slide 15. The IT&S segment first quarter adjusted order intake was $889 million, down 9% versus prior year excluding FX. Adjusted revenues in the quarter were $796 million down 17% excluding FX and leading to a book-to-bill ratio of 1.12 times. From a regional perspective, Asia Pacific revenues were down in the mid-30s, with Europe down 15% and Americas down 7%, all excluding FX. We use these trending as an indication of how Q2 could potentially play out, meaning that the APAC decline in Q1 is what we expect to see in Americas and EMEIA in the near term. This is the baseline we’re using to plan the cost controls for our business. But we’re staying highly active with Demand Generation activities and pricing controls, while we continue to demonstrate discipline in price, generating over 1% in the quarter.
While these markets are more opaque than historically, we’re using our unique acquisition strategy to map order trends and remain agile in serving our customers in the current environment. We break this out into two areas – aftermarket and original equipment. For aftermarket, a leading indicator we have is actual compressor utilization data as we can see the hourly usage of thousands of compressors worldwide that are connected to a remote monitoring system. In America and Europe, we saw a sharp decline in compressor utilization in the last few weeks of March of nearly 30% with some recovery in the past few weeks of April. We’re now using this as a way to know where our service teams need to focus, while at the same time, using it as a leading indicator for aftermarket activity, which is approximately 50% of the compressor business today.
For original equipment, we’re using Demand Generation leads. We said in the past that Demand Gen was a leading indicator of orders that we will be getting in the next six to eight weeks. With more than 1,000 leads per week, we have a lot of commercial insight in our system. What we saw in the latter weeks of March was a drop of 30% versus what we saw earlier in the quarter with similar trends in America and Europe. We have seen also early signs of improvement over the past few weeks of April, but still approximately 20% to 25% off from the highs in the early part of the year.
Let me give you now some color from a product line perspective. We have seen very similar trends across compressors, blowers and vacuums where we saw orders down in the mid-to-high single-digits. We have spoken about third-party industry reports in the past and the Q1 data speaks well for the outcome of the combining of the two companies. According to a leading third-party report, the market in the U.S. was down mid-single-digits in dollars in the first quarter. Gardner Denver branded products were flat and Ingersoll-Rand branded products was down high-single-digits. But when you look into the details, you see the power of the two companies as Gardner Denver saw good share gains on low-to-medium horsepower machines while Ingersoll-Rand took share on high horsepower compressors. This was exactly our hypothesis coming into the deal and we see this as a way to leverage the technology portfolio as well as the direct and indirect channel that both companies have.
Our tools and lift, which is part of the segment had a very tough quarter with orders and revenue down both over 20%. The business was highly impacted by large inventory purchases that online retailers typically make in the first quarter to support first half of the year revenue. However, this quarter, in addition to the slowdown of the market, many online retailers switched their focus to household essentials.
Moving to non-GAAP adjusted EBITDA, IT&S delivered $135 million in the quarter, which was down 25%. Non-GAAP adjusted EBITDA margin was 17%, which was down 150 basis points from the prior year as our cost mitigation efforts helped limit decrementals to 25% in a segment that typically has base decrementals of 35% to 40% before cost actions.
Moving to Slide 16 to the Precision and Science Technologies segment. Overall, the segment had solid performance in this economic environment as adjusted orders were $218 million, up 2% ex-FX. Adjusted revenue was $192 million, down 9% ex-FX on strong prior year comps of 12% ex-FX growth and shipment delays due to COVID-19. This platform is a collection of technologies and premium brands that have leadership positions in very attractive niche markets. In the first quarter, we saw orders grow at high-single-digits in the legacy medical pump business as we are leading key player in several applications like oxygen concentrators, respirators and liquid handling. You can see many of the applications that our medical pumps go into, at the bottom of the page. Our teams have been working 24/7 providing modified solutions that can be used for new applications to fight COVID-19 now and in the future. The remainder of the portfolio saw slightly negative orders performance down 2% ex-FX with the majority due to COVID lockdowns in January and February in China and towards the end of the quarter in India. What is encouraging is that we continue to see good funnel and orders activity across many of the product lines and regions due to the niche applications in water and chemicals, which will help balance some of the expected weaknesses in more industrial end markets.
Moving to non-GAAP adjusted EBITDA, P&ST delivered $53 million in the quarter, which is down 6%. Non-GAAP adjusted EBITDA margin was 27.7%, up 120 basis points, driven by strong cost controls and productivity, leading to decremental margins of only 15%.
Moving to Slide 17 and the Specialty Vehicle Technologies segment. Our priorities for this segment are to continue to capture growth in a profitable manner. We see that this segment can expand margins with the use of the same IRX tools we have used across other segments and expect to see improvements of this business moving forward. Having said said that, this business performed very well in the first quarter. Adjusted orders were $230 million and adjusted revenue was $185 million, up 8% and 7% respectively with a book-to-bill of 1.15. Growth was driven by the strength in golf, connectivity and consumer product lines. The business saw strong double-digit order momentum in early January and February but as the pandemic hit the U.S., we saw a sharp decline in the second half of March. While there is a lot to be excited about, we’re expecting Q2 to be down compared to last year for a couple of reasons. First, last year was a tough comp as the business had some supplier issues in the first quarter where some product was shifted to the second quarter of 2019. And two, the business is not immune to this current environment. While April orders were down year-over-year, we’re starting to see some sequential improvement in orders. We feel this is driven by couple of factors. First, in the consumer product line, the team pivoted quickly to leveraging Demand Generation techniques widely used in the legacy industrial businesses and we have seen better momentum recently in the run rate. And second, with the work we have done on proactive COVID prevention across all of our locations, we were able to remain open, while some of our competitors were closed.
Moving to non-GAAP adjusted EBITDA, Specialty Vehicles delivered $18 million in the quarter, down 1%. Non-GAAP adjusted EBITDA was 9.9%, which was down 80 basis points due to strategic growth investments and product mix.
Moving to Slide 18 and the High Pressure Solution segment. The business performed above our expectations in a tough operating environment with adjusted orders of $84 million and adjusted revenues of $96 million, down 26% and 29%, respectively. As expected, the revenue base in the business was nearly 90% aftermarket and the team executed very well commercially with sequential adjusted orders of 6% and sequential adjusted revenues of 26% versus the fourth quarter of 2019. We continue to see share gain opportunities in aftermarket and specifically, consumables, where we saw orders and revenue up double-digit sequentially. This allowed us to deliver non-GAAP adjusted EBITDA of $24 million, at margins of 24.6%, which was down from last year level of 30.8% but sequentially better by over 400 basis points. As we pivot to the second quarter and rest of the year, a key leading indicator for this business has always been activity and intensity. We can measure that in multiple ways, but the simplest form is the number of fleets operational in the market. As a reminder, each frac fleet has about 16 to 18 trucks with each truck carrying one pump. Each pump has a fluid end and every fluid end utilizes consumables. While Q1 of 2020, on average, we saw 318 active fleets, the exit rate in March was 240. We expect to see a substantial drop in the second quarter, where we believe the month of April ended at roughly 50 active fleets due to the recent demand dynamics in the market with the oversupply and lower pricing for oil. And this will have a meaningful impact on revenues within this segment. And because of that, we’re taking very proactive stance to drive proper cost takeout to still show reasonable profitability in the quarters to come.
Moving to Slide 19, we wanted to provide a quick snapshot of how the business has performed thus far in April. Overall, the total company is down approximately 20% in orders as the month began very slow, particularly in U.S. and European markets. While we’re encouraged about the order momentum throughout April, we expect total revenue to be lower than orders in the second quarter. In terms of orders, both the Industrial Technologies and Services and Specialty Vehicle segments were right in line with the total company average, while Precision and Science Technologies is performing considerably better with positive year-over-year orders performance thus far as a result of continued strength in medical pumps. And not surprisingly, the High Pressure Solutions segment is down approximately 80% in orders as the market resets for what will likely be a prolonged downturn that we expect will last for a number of quarters.
As we look forward, due to the uncertain environment that we find ourselves in, we will not be providing Q2 or total year guidance at this time. However, to best manage our business and ensure we’re taking the right steps to manage during the downturn, we’re running multiple scenarios to stress test the balance sheet and the associated impacts on cash flows. Our current model shows that the business will need to be down 40% on an annual basis to be cash flow breakeven using fairly conservative assumptions around working capital and capex, coupled with the cost actions we have taken thus far. We feel that this puts us in a very solid position moving forward when compared to current order trends and coupled with our current liquidity position.
Turning to Slide 20 for some concluding remarks, I want to say that while we manage through what will no doubt be a tough second quarter and an uncertain recovery thereafter, we feel that the fundamental investment thesis in the company has not changed. Ingersoll-Rand is a premier industrial company and we are in the early stages of our transformation. We have multiple levers for accelerating value creation. We’re being very focused on the current priorities. We feel good about our liquidity with opportunities to increase this by unlocking cash, as well as taking advantage of the current rate environment. We will continue to drive a culture of execution, and will continue to pay attention to the opportunities in our large addressable market, particularly on the current conditions to be strategic on bolt-on acquisitions. With this, we will turn the call back to the operator and open the call for Q&A.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Andy Kaplowitz from Citigroup. Your line is open.
Andrew Kaplowitz — Citigroup — Analyst
Good morning, guys. How are you?
Vicente Reynal — Chief Executive Officer
Good morning, Andy. Good, and you?
Andrew Kaplowitz — Citigroup — Analyst
Vicente, can you give us more color into the April order decline you’re seeing in your largest segment in IT&S? First of all, how long do you think the change in customer behavior from that power tools business that you talked about can lessen? Obviously, you now have smaller upstream but especially downstream and midstream related exposure in IT&S. So are there discernible differences in the run rate of these businesses given it’s — they’re more project versus the industrial compressor business?
Vicente Reynal — Chief Executive Officer
Yeah, Andy, let me just give you a little bit of color. I mean, as you saw, we said roughly April total orders down 20% book-to-bill greater than 1, from a book-to-bill perspective, the Industrial Technology and the Precision and Science were greater than 1 and obviously leading the way. I would say, in terms of IT&S, in particular, I will categorize it as the short cycle was most impacted in the quarter and continue to see some relatively weakness here moving forward. I mean it’s mostly correlated to, I guess, maybe the PMI from the down in the Midstream, which is what we consider to be more on the long cycle. I will say comparatively a bit more stable in the first quarter and we kind of continue to see maybe some of that in the month of April. Again, typically we tend to get the orders for that long cycle now in the first half of the year in order to get shipments in the second half.
And from a PPL — from a power tool perspective, yeah, I mean, rough quarter in Q1, as I alluded. I mean, last year they were seeing some fairly good growth momentum from their expansion into online retailers and you saw that in the first quarter, many of these online retailers, they moved to have another kind of more household goods or critical needs to fight COVID-19 and clearly this business saw some of the impact. I’ll say, April sale is relatively slow. So we haven’t seen the pivot of the momentum of the power tool business.
Andrew Kaplowitz — Citigroup — Analyst
So, that’s helpful, Vicente, and I’m sure you expect us to ask about decremental margin in some way. So let me just ask it, like, there are some obviously good result in Q1 of close to 30%. How do I think about decrementals with High Pressure Solutions? The orders down 80%. Can you hold decrementals there in the mid-40%? At what point the fixed cost become a problem? I know you talked about accelerated cost out. As you think about the rest of the business, can the rest of the business hold 30% decrementals with the 20% decline that you’re seeing overall in the rest of the business?
Vicente Reynal — Chief Executive Officer
Yeah, so as I said, Andy, I mean, that’s kind of what we’re targeting for. And, I mean, as you have seen, we have performed well in the down cycles in the past. I think we have a good solid playbook that we executed in the ’15, ’16 that included both, not only in industrial downturn, but also in upstream downturn. Base decrementals, they tend to be around 40% across the business with slightly higher in businesses like the High Pressure, as you mentioned, as well as the Precision and Science because of a nice high gross margins that those businesses have and lower on the Specialty Vehicles and the Industrial Technologies, they tend to play in that kind of 40% range. You’ve seen that we have taken very decisive actions between synergies and the short term actions to protect the margin. We saw, as you mentioned, some very good first quarter results for the total business under 30% and Q2, we’ll clearly see a bit more pressure from a top-line perspective, but we will continue to manage the decrementals with the target being closer to that 30% of the EBITDA.
And when you think about the actions, we’re clearly taking much more aggressive actions on the High Pressure around cost actions based on what we see here with a lot of our data points and the long duration of the downturn that we expect that business to have.
Andrew Kaplowitz — Citigroup — Analyst
Very helpful, Vicente, stay well.
Vicente Reynal — Chief Executive Officer
Thank you, you too, Andy.
Operator
Your next question comes from Julian Mitchell from Barclays. Your line is open.
Julian Mitchell — Barclays — Analyst
Hi, good morning.
Vicente Reynal — Chief Executive Officer
Good morning, Julian.
Julian Mitchell — Barclays — Analyst
Good morning. Maybe just a first question on that point on decremental margins. So if you could help us understand perhaps the phasing of the cost synergies through the year and also of that $40 million to $50 million of other cost out actions. And should those mean that decremental margins narrow in the second half or not necessarily depending on mix and some other things?
Vicente Reynal — Chief Executive Officer
Yeah. So maybe break it down into the two buckets, as you suggest, I mean, on the $40 million to $50 million that we spoke about, that are kind of more related to discretionary or kind of volume related. Those are largely second quarter and the third quarter with a good majority, I would say, more so on the second quarter. From a cost synergy perspective, the $70 million — out of the $80 million to $90 million of in-year, roughly $70 million of that is headcount and I will say that is kind of consistent through the second quarter, third quarter and fourth quarter, while the other roughly $10 million to $20 million that comes from procurement, it is really more weighted towards that kind of Q3 and Q4.
Julian Mitchell — Barclays — Analyst
That’s very helpful. Thank you. And then maybe just my second question for you or for Emily around the free cash flow. So you had a good performance in Q1, just wondered — you had the slide on the very broad brush sort of assumptions around breakeven free cash, but assuming that down 40 doesn’t play out, what kind of sales are down, call it, 20%, 25% for the year? What type of free cash flow conversion should we expect? How do you see working capital moving? And maybe just remind us, you had, I think, in the free cash that $63 million of transaction and separation cash cost in Q1. What’s the rough assumption for the year?
Emily Weaver — Senior Vice President and Chief Financial Officer Leading Finance and IT
Yeah. There will — so we are very pleased with the Q1 cash performance as you saw there, Julian, and we’ve been managing cash from the day after the transaction very carefully and continuing to put in good processes and strong controls around it, given the current crisis. We expect half to still be good as we move forward, but certainly a longer cash cycle as we move through what’s going to happen here with COVID-19 and we’re really managing payments as in response to the collections we’re receiving to maintain our strong cash flow and liquidity positions. What the future holds, a lot of that’s going to depend on things that we can’t predict at this time, for sure, but we know we’ve got the right processes in place to maintain our cash position and our liquidity.
Julian Mitchell — Barclays — Analyst
And how about the transaction and separation costs? Any very rough guide post for the year in light of that $63 million in Q1?
Emily Weaver — Senior Vice President and Chief Financial Officer Leading Finance and IT
Yeah. There will be some incremental cash outflows in Q2. I don’t have the figure at my fingertips at the moment, Julian, but I can get back to you on that.
Julian Mitchell — Barclays — Analyst
Okay, thank you.
Operator
Your next question comes from Michael Halloran from Baird. Your line is open.
Michael Halloran — Baird — Analyst
Good morning, everyone. I Hope everyone is doing well.
Vicente Reynal — Chief Executive Officer
Hey, Mike.
Michael Halloran — Baird — Analyst
So could you just talk about the synergy funnel you referenced? What are some of the incremental sources in that relative to the originally identified $250 million in synergies? And maybe talk about the difference you’re seeing more on the cost side versus longer term, some of the revenue synergy opportunities you’re seeing.
Vicente Reynal — Chief Executive Officer
Yeah, Mike, as you’ll recall, we always said that we were going for a funnel higher than the $250 million as we were 60 days into the transaction. We have obviously a much more kind of line and clear visibility as to what that funnel could potentially be. Roughly that $100 million comes from a combination of structural savings, as well as some quick footprint rationalization, kind of, non-manufacturing. As I alluded to on the Investors Call that we had back in April that we have now a pretty good database of all the locations across the world and that is giving us a very good way for us to really understand and rationalize, not so much the manufacturing yet, because we still see manufacturing kind of come in year two, year three, but more of the other kind of quick hits that we can take from a footprint perspective.
Michael Halloran — Baird — Analyst
So, second part of the question. Liquidity is in a strong position, once you get through some of the one-off things associated with timing of restructuring, the separation and some of the extra things, Emily just referenced, what would it take for you guys to be a little bit more aggressive with the cash outflow? And then secondarily, related to that, do you think the fact that we’re going into some sort of recession here, who knows how long, visibility is low, but do you think the opportunity is going to accelerate for you to deploy capital more towards the M&A side of things over the next couple of years and are you positioned for that today? And any kind of thoughts on how you’re thinking cumulatively about that capital side over the next six, nine-plus months?
Vicente Reynal — Chief Executive Officer
Yeah. No, absolutely, Mike, I mean, I think, clearly over the next couple of years, we see M&A continue to be really part of our strategy. Still we see it’s a very unique environment right now. We still see, at this point in time, some very good funnel on bolt-on. We see also very good funnel around the Precision and Science as well as some of the Industrial Technologies, but they’re really more related towards bolt-ons.
Michael Halloran — Baird — Analyst
Thank you.
Vicente Reynal — Chief Executive Officer
Thanks, Mike.
Operator
Your next question comes from Nigel Coe from Wolfe Research. Your line is open.
Nigel Coe — Wolfe Research — Analyst
Good morning. How are you guys?
Vicente Reynal — Chief Executive Officer
Hey, Nigel. Good, and you?
Nigel Coe — Wolfe Research — Analyst
Yeah, good, thanks. So I wanted to just go back to the Industrial Tech performance. I was a little bit surprised to see the down 17% pro forma performance and it seems like most of that came from the legacy IR businesses. Can you just maybe just kind of spell out in a bit more detail how much of that can be explained by the geographic and end market mixes of the industrial — of the IR industrial business? And also what happened to service during the quarter?
Vicente Reynal — Chief Executive Officer
What was your last question, Nigel? What happened to what?
Nigel Coe — Wolfe Research — Analyst
Yeah, what happened to service within that down 17%, how much service?
Vicente Reynal — Chief Executive Officer
Yeah. So to the first question, yeah, I mean, I think, I mean, China was definitely impacted largely in January and February. The legacy IR business, they have a pretty sizable China exposure and we saw an impact to that. In terms of the service, we saw service better than original equipment. I mean, typically we saw roughly about 2 times, from a percentage perspective, better performance than the original equipment. And just to kind of give you maybe a little bit more color here, particularly, as you know there is some external ways of comparing some of the Industrial Technologies, the Industrial Technologies is composed of multiple technologies, compressors, vacuums and blowers. And our compressor business is clearly within the Industrial Technologies.
When we specifically compare to some of the competitors, couple of data points that we look at is what I referenced in terms of the third-party report. At the same time, just to give you further perspective, the legacy Gardner Denver business, in Q1, orders were down in the low-single-digit which is kind of comparable to what we saw in the market and since we didn’t own the legacy IR for the full quarter, we just tend to not comment on what we saw specifically January and February that they saw from an order perspective, but that hopefully gives you a good perspective as to how we were able to perform even on the legacy.
Nigel Coe — Wolfe Research — Analyst
Great, thanks, Vicente. And then switching to the High Pressure business. This business has become so small now it’s not so much development, but if it is down 8% in the quarter, it implies revenues of $25 million to $30 million. I mean, isn’t it possible to breakeven at those kinds of levels? And given, you’re clearly expecting this business to be kind of like, we keep it longer, would you expect revenues to kind of like just bounce some of the trough year, so for the next several quarters? I mean, any color there would be helpful.
Vicente Reynal — Chief Executive Officer
Yeah. Nigel, so for sure, that’s what we’re targeting to be, breakeven, even positive. I mean we’re taking some pretty aggressive actions. At the same time, I mean, this business is now 100% aftermarket and consumables. So that kind of carries a much better margin profile too as well. And those factories that are kind of not needed based on volume, I mean, we’re basically keeping them closed or in very, very low exposure. So yeah, I mean, I think, the team has a pretty good playbook on how to navigate this. It is something that we have done extensive work and I think we see that we can definitely overcome these kind of long term. And our plan is that it’s going to be down for a while.
And to the second question, I mean, clearly, it’s a market that, as you saw, we just invested in a new fluid end technology so that when the market comes back up again, we can be ready for capturing some accelerating market share.
Nigel Coe — Wolfe Research — Analyst
Great, thank you very much.
Operator
Your next question comes from Jeff Sprague from Vertical Research Partners. Your line is open.
Jeff Sprague — Vertical Research Partners — Analyst
Thank you. Good morning, everyone.
Vicente Reynal — Chief Executive Officer
Good morning, Jeff.
Jeff Sprague — Vertical Research Partners — Analyst
Why don’t we just come back to service for a moment, Vicente, interesting comment about utilization down 30%. But how do we actually interpret and apply that to a forward look guide though that doesn’t necessarily mean your sales are going to be down 30% in the service? I don’t believe — I don’t know if you have enough data historically to kind of piece that together. But what does that down 30% tell you?
Vicente Reynal — Chief Executive Officer
Yeah, Jeff, great question. I mean — so in terms of the historical data, we don’t have a lot of historical because, as you know, as you can imagine, a lot of these remote monitoring systems and connectivity with the IoT platforms that we both companies have now, it’s fairly new. But we have enough data to then break it down by the specific soft end markets and that — I mean, the indication here is that in failing those where are those market that we should continue to play or double down from a service perspective. So it is helping us to redirect the teams. It is also helping us to really better serve our customers and making sure that we’re still more resilient from that perspective. In terms of being down 30%, I mean, I think, we just see that as a bit of indication as to what could happen here. But as you just very well pointed out, it doesn’t give us a great correlation as we don’t have a lot of historical data to really extrapolate here. So what we’re doing is just taking that data point to really reassess our commercial teams and refocusing them on those areas, regions and markets that we’re still seeing some very good utilization of the compressors.
Jeff Sprague — Vertical Research Partners — Analyst
And the answer to your prior question where you noted IT&S obviously includes more than compressors, vacuums, blowers, etc, are you suggesting that those other products there, areas outside of vacuums and blowers, were substantially worse than the compressor business in the quarter?
Vicente Reynal — Chief Executive Officer
Yeah. So for sure, yes, I mean, for sure, the power tool and the lifting business was one that it was worse than that. I mean the power tools — they have two main product lines. I mean it’s that tool business but also they have a lifting business that is kind of more related to factory consumption or factory rationalization. So I think that was impacted more so and then China as a region was definitely heavily impacted and from the other product lines, in terms of the longer cycle, which these are kind of brands like Nash, Garo, Liquid Ring Pumps and Liquid Ring Vacuums. Those are more longer cycle and those were, I’ll say, more stable and resilient.
Jeff Sprague — Vertical Research Partners — Analyst
Great. Thank you.
Operator
Your next question comes from David Raso from Evercore ISI. Your line is open.
David Raso — Evercore ISI — Analyst
Good morning. My question is about in the IT&S business, when I think about the inventory in the channel and you think about some of the recent improvement you’ve seen, can you give us some sense on any sequential improvement, sort of, a lead lag and obviously inventory is part of it and also the mix of your businesses being short cycle versus long cycle? Can you just give us some sense of the inventory in those channels and someway we can read the lag you would need to see or that you would experience, say the PMI has got better, for example?
Vicente Reynal — Chief Executive Officer
Yeah, Dave. I mean, I think, when we look at the inventory in those channels, I mean, there is just not a lot of inventory — and I’m going to describe this from a compressor perspective, which is obviously the one that have the biggest sides of the distribution network, and it is also more particularly towards the Gardner Denver branded products. We don’t tend to have a lot of inventory because these are particularly smaller distributors, more sub-regional lines, more localized. They don’t tend to put a lot of cash upfront to have compressors on the shelf, so to speak. I mean, maybe on the smaller compressors they may, but not on the medium-to-high level compressors and the inventory will come in more on consumables aftermarket and parts. But those tend to really move fairly well. I mean, they turn fairly quickly.
David Raso — Evercore ISI — Analyst
And the recent improvement you’ve seen, just so I’m clear, is it a stabilization at a low level after the initial shock in IT&S or have you seen some little improvement in order sequentially? I’d be curious, is that more short cycle or long cycle?
Vicente Reynal — Chief Executive Officer
Yeah, no. Yeah, great question. Yeah, it is — I’ll categorize it as a stabilization and — initially, and then obviously when you look at it within the month, I mean, at the month of April, there is some slight improvement on the second half of April compared to the first half.
David Raso — Evercore ISI — Analyst
But again, was that more short cycle improvement?
Vicente Reynal — Chief Executive Officer
Short cycle, yeah, short cycle, yeah.
David Raso — Evercore ISI — Analyst
Short cycle. All right. Thank you very much. Appreciate it.
Vicente Reynal — Chief Executive Officer
Sure.
Operator
Your next question comes from Josh Pokrzywinski from Morgan Stanley. Your line is open.
Joshua Pokrzywinski — Morgan Stanley — Analyst
Hi, good morning, all.
Vicente Reynal — Chief Executive Officer
Good morning, Josh.
Joshua Pokrzywinski — Morgan Stanley — Analyst
So, Vicente, I guess everyone here on the call kind of have the same list of question that we’re going through for most companies. So we covered a lot of ground already. But I guess just with some of the commentary around utilization and with the comments you made around supply chain interruption, how much of the decline that you’re seeing, and I guess this comment is mostly an IT&S comment, is related to customer shutdowns or supply chain interruption in some form like the lights come back on and a certain amount of demand comes back, I think, to some of these points on service or utilization that — maybe that’s not the steady state of the world there?
Vicente Reynal — Chief Executive Officer
Yeah, Josh, I’ll say, more so definitely in Q1 in China, if you want to think about it kind of that disruption completely. Also in the first quarter, maybe some disruption from the perspective of in Europe, particularly in Italy. I mean we do have some very good manufacturing base in Italy and we — although we stayed operationally, I mean, most of our suppliers had to shut down. I would say that now, as to kind of the comment that I made before, we see kind of these lower demand level kind of getting more stabilized, but still not seeing that kind of recovery and we are just kind of waiting to see how the recovery will play out.
Joshua Pokrzywinski — Morgan Stanley — Analyst
Okay. And then switching over to the synergy funnel. I mean it sounds like the year three pipeline of activity kind of have to stay there as you have to act on other things for since more manufacturing-centric, fair to say that the incremental step up in synergies then in the year two is smaller, I guess, since — is this more of a pull-forward from year two or are you kind of implicitly saying, hey, we think there’s more than $250 million here, we’re just — we’re working on this as fast as we can and we’ll update you as we know more?
Vicente Reynal — Chief Executive Officer
Yeah, I mean, I think, that’s exactly the case. I mean, at this point in time, I mean, we think we want to keep it at $250 million just because we think it’s prudent. And we think it’s prudent because we’re, I mean, clearly focused on a lot of the internal funnel and execution. You see how we accelerate it and we execute it. I mean this is not just talking about creating savings, these are savings that we’ve just done, already executed. But there is a component around procurement and i2V savings, Innovate to Value, that is volume-dependent. And when we need $250 million cost synergy funnel, it was done based on 2019 kind of run rate level, so to speak, of spend levels. So we just want to be prudent from kind of going out there and saying that the $250 million will increase. Once we’re ready, we’ll definitely — and when we see a kind of more stability or normalization in the markets, maybe we’ll come back with that.
But at this point in time, we’re accelerating what we can control, and we know that we can control that structural headcount out, and that’s exactly what we executed. We know we can then control a lot of the quick-ins in procurement because commodities are lower and we are executing that, and we know we can control a lot of discretionary spend and that’s exactly what we also executed. So we’re very focused on kind of going through the list of things that we can really execute.
Joshua Pokrzywinski — Morgan Stanley — Analyst
Great. I appreciate the color. Good luck to you all.
Operator
Your next question comes from Nathan Jones from Stifel. Your line is open.
Nathan Jones — Stifel — Analyst
Good morning, everyone.
Vicente Reynal — Chief Executive Officer
Good morning, Nathan.
Nathan Jones — Stifel — Analyst
I think I’ll start on PST, revenue down 8.6% to ex-FX, margins up 120 basis points, so clearly, some very good control there. Can you maybe give us a little more color on what drove the very good decrementals there? How you see the decrementals going forward? And maybe any color you can give us on what you think the long term margin opportunity is in that business.
Vicente Reynal — Chief Executive Officer
Yeah, Nathan, this is, I’ll say, some very good cost control, but also some very good momentum that we had also from the medical business. If you remember last year, when we talked about the medical business, we were seeing upwards of 200 basis points margin improvement and the medical business finishing last year at roughly 30%, 31% EBITDA margin. So again very good momentum from that business. And clearly, as we saw some softness in the market, the team continued to execute those targets that they needed to get done. I think, when you look at this business that, I mean, had some very nice gross margins and the decremental — the base decrementals are typically 45% or so. I mean, pretty good job that the team did here in order to get that decremental down to the 15%. And I’ll say, from a long term perspective, we’ll definitely come back with giving some kind of medium-to-long term perspective. I’ll just do a quick comparison and you can see that medical, we were able to not only — just a few years ago, the medical business was in the 25%, 26% EBITDA margin and we finished last year in the 31% EBITDA margin. And there is a just a lot of good commonalities between the medical and the legacy PFS and ARO business that are within this segment.
Nathan Jones — Stifel — Analyst
Okay. Maybe just one on receivables. When you look through that, do you see any customer credit risk, any collection risk there? I guess it’s particularly an upstream comment, given the way that market’s going, but anywhere else you see any potential issues in receivables, how you’re going about managing customer credit, those kinds of things?
Vicente Reynal — Chief Executive Officer
I mean, I’ll say, not necessarily, Nathan. I mean, I think, it’s one that we live by day by day. I mean, clearly the — on the High Pressure Solution, which is as you’ve mentioned, the most exposed, I mean, customers are still paying. They’ll take longer to pay, but they still pay. They also realize that from an upstream perspective that our business is critical and essential for when the market comes back up again. So we have been pretty strict in many cases that we need to see the payments or we will stop shipments and then we cease to provide any type of output of products either now or later in the future. So I think we’re really executing a good playbook here on collections with the teams.
Nathan Jones — Stifel — Analyst
Excellent. Thank you.
Vicente Reynal — Chief Executive Officer
Thank you.
Operator
Your next question comes from Nicole DeBlase from Deutsche Bank. Your line is open.
Nicole DeBlase — Deutsche Bank — Analyst
Yeah, thanks, good morning, guys.
Vicente Reynal — Chief Executive Officer
Good morning, Nicole.
Nicole DeBlase — Deutsche Bank — Analyst
So a lot of this has been answered, you’ve covered a lot of ground so far. But I just wanted to ask one. Into next year, as we think about approaching a recovery, there is clearly a lot of moving pieces here, we’ve got more structural cost savings coming through, presumably, you have temporary costs probably coming back to the business. And then just kind of dovetailing all of that with typical incremental margins, I’m not sure how best you can do this, Vicente, but it will be really helpful to kind of characterize the way you see incrementals coming out on the other side of this downturn.
Vicente Reynal — Chief Executive Officer
Yeah, I know, Nicole, that’s right, I mean, I think, we typically see kind of the base, what I call, the base level of incremental to be, for the total business, between 35% to 40%. Again when you look at Precision and Science, maybe higher than that, Specialty Vehicles lower than that with maybe Industrial Technologies about that level. Definitely we’ll see a little bit of a headwind as we see a lot of these structural activities that we’re doing come to fruition. We also see a lot of tailwinds — I’m sorry, we see tailwinds as a lot of these kind of structural costs come out. We see some of the headwinds, but as we cannot get closer to commit out here to our budgets and how we cannot work with the teams, we’ll definitely find ways on how we can continue to get that incremental margin obviously to be at a minimum of that base or more.
Operator
Your next question comes from John Walsh from Credit Suisse. Your line is open. Sorry, your next question is from Markus Mittermaier from UBS. Your line is open.
Markus Mittermaier — UBS — Analyst
Yeah, hi, good morning, everybody.
Vicente Reynal — Chief Executive Officer
Good morning, Markus.
Markus Mittermaier — UBS — Analyst
I just had one more on the — Hi, good morning, on synergies. I do appreciate, but obviously procurement is volume-dependent, but you flagged here $10 million to $20 million savings realized in 2020. What do you currently assume as sort of full run rate savings out of that wave one of the spend, which I think is one-third of your overall spend? And how should we think about more medium term for the other two-thirds, if you assume that at some point, in a normalized sort of get back to that 2019 levels? Let’s start here.
Vicente Reynal — Chief Executive Officer
Yeah, I think if you think about it, $10 million to $20 million coming in this year as you go into 2021, assuming maybe kind of current volume levels, it will be $20 million to $40 million. So that’s maybe, at least that’s what you can see here coming from wave one on an annualized level at current volumes. And that obviously is only covering a portion of the total spend with wave two and wave three coming up here in the second half of the year.
Markus Mittermaier — UBS — Analyst
Right. Is there sort of an estimate you can give us what that would have been at ’19 volume levels that’s sort of not $20 million to $40 million?
Vicente Reynal — Chief Executive Officer
I mean, it will definitely be a much — a little bit higher than that. I mean, I wouldn’t — I think, at this point in time, you could say $40 million to $50 million could be upwards of $60 million.
Markus Mittermaier — UBS — Analyst
Okay. Okay. And then second question on capital allocation. You flagged in the slides, what’s interesting sort of bolt-ons in PST, it’s obviously pretty fragmented market, you probably have a share of, call it, 15% in that space. How do you think about this? How does that segment look like in a few years? I mean it’s — from an aftermarket perspective, I know it’s a design win and replacement business, so the aftermarket dollars per se, or share, is relatively small compared to company average. But how do you think about this? Sort of, it just struck me that it was flagged specifically in the slides.
Vicente Reynal — Chief Executive Officer
Yeah, I mean, I think this is a segment we like a lot by the way that these businesses are kind of so — kind of niche and very solid market position and they have just a lot of great descriptors which have kind of high gross margins and very specialized palms that are kind of really solidly mission-critical in the processes where they apply. We continue to see that there is a lot of potential not only inorganic but also organically and we’re doing a lot of work on that whether you take technologies like the ARO and combine that with the like a — either a Haskel branded product or a Milton Roy product and then you can actually create some uniqueness in terms of applications and then enter some new markets. And that’s what a lot of the team are doing. It’s how do we — are being thoughtful and mindful on some of those vertical markets and kind of new niche adjacent areas that we want to play in and not only do that organically, but then see what other technologies, from a bolt-on perspective, we can acquire. So a lot of really great work strategically going on in this segment to really picture this on how we kind of bolt it.
Markus Mittermaier — UBS — Analyst
Thanks a lot. Good luck.
Vicente Reynal — Chief Executive Officer
Thank you.
Operator
Your next question comes from John Walsh from Credit Suisse. Your line is open.
John Walsh — Credit Suisse — Analyst
Hi, good morning.
Vicente Reynal — Chief Executive Officer
Good morning, John.
John Walsh — Credit Suisse — Analyst
Sorry about that. I had some technical difficulties earlier. I’m glad to hear everyone is doing well. Maybe just one question here, you alluded on the call to share gains on kind of both the legacy GDI and IR businesses. Wanted to know if you could put a little more color around what’s driving them. Is it something on the product side? Is it some of the end-market strategies you were doing previously around more niche markets like paper and pulp, maybe some competitive pressures from smaller guys? Just any kind of color you could provide there would be helpful.
Vicente Reynal — Chief Executive Officer
Sure, John. Yeah. So and I categorize — I mean, what I said on the call is that it is some specific horsepowers and what we saw that we like is that — this is in the U.S. based on the third-party report, and we like because it was very complementary. So if you look at the legacy Gardner Denver, we saw some share takes in the low-to-medium horsepower while we saw in the Ingersoll-Rand some share take on the high, kind of, larger horsepower compressors. I would categorize that as — Ingersoll-Rand has done a pretty good job of launching some new technology on the larger horsepower. Well, as you know from a Gardner Denver perspective, we have been more focused on the medium-to-small compressor.
And I think this is what I mentioned on the call that this is a great hypothesis that we had on this great merge and combining the two companies, because now we have great new complementary products and spectrum of technologies that a lot of these, that I mentioned, is on the oil lubricated which is very good solid kind of core product line, but as we spoke about during the April call, now also the oil-free product line spectrum. So again, it’s new technology, new products and be able to show that uniqueness of differentiation on the products that the teams are launching.
John Walsh — Credit Suisse — Analyst
Great. I appreciate taking the question.
Vicente Reynal — Chief Executive Officer
Thank you, John.
Operator
There are no further questions at this time. I turn the call back over to the company.
Vicente Reynal — Chief Executive Officer
Thank you. I just want to close by saying thanks to everyone for your interest in Ingersoll-Rand. I want to do another shout out and thank you to our employees that are obviously doing a lot of work here to stay healthy, stay safe and at the same time provide to our customers the mission-critical products that are needed in these kind of current market conditions. So hopefully everyone stays safe and healthy and we’ll look forward to talking to you over the next few weeks. Thank you.
Operator
[Operator Closing Remarks]